Indonesia’s Sharia Finance Ambition Meets a Regulatory Test

Indonesia’s standing in the global sharia economy has slipped, and Bank Indonesia says finance is where the problem lies. At a festival in Surabaya, BI Governor Destry Damayanti urged stakeholders to broaden the sector’s appeal through more inclusive, sustainable and fair development.

Her message was both a warning about rising regional competition and a call to look beyond products already performing well internationally. The challenge, as she described it, is to make sharia finance more accessible and varied without losing the principles on which it rests.

A lower ranking, with strengths still visible

Indonesia now ranks fourth in global sharia economic and financial development, down from third, according to figures cited by Destry at the opening of the Java Sharia Economic Festival 2026. Indonesia scored 96 in the global index, behind Malaysia at 186.1, the United Arab Emirates at 137.5 and Saudi Arabia at 107.9.

Destry credited modest fashion and halal food with helping Indonesia’s standing. She noted that modest fashion had achieved a global reach, while halal food remained another area of strength. But those sectors, she argued, were not responsible for the country’s fall in the ranking.

Indonesia’s score was 96, compared with 186.1 for Malaysia, 137.5 for the United Arab Emirates and 107.9 for Saudi Arabia, according to the figures Destry cited.

The distinction matters for policymakers. If the sectors most visible to consumers are not driving the decline, then further progress depends on addressing less prominent parts of the ecosystem. Destry identified finance as the primary source of the setback.

Finance is the weak point

The governor pointed to strict regulations and a limited range of sharia financial products as central challenges. Her comments suggest that Indonesia’s task is not simply to promote the sector more vigorously. It must also examine whether the rules and products on offer allow it to develop and compete effectively.

The source report does not detail which regulations should change or which products should be added. Destry’s remarks were instead a broad appeal to stakeholders to confront constraints in financial development. That leaves the practical reform agenda open, but places financial policy at its centre.

For investors, the argument is relevant beyond Indonesia’s position in a ranking. A financial sector’s capacity to serve a wider market depends in part on whether customers have suitable products and whether institutions can operate within workable rules. The call for reform signals that these conditions remain under discussion, rather than presenting a settled investment case.

Regional competition raises the stakes

Destry also warned that competition is not confined to the countries that already lead the index. She said non-Muslim-majority ASEAN neighbours, including the Philippines and Thailand, are working to establish themselves as regional sharia financial hubs and attract global investment.

That creates a broader contest for capital and influence. Indonesia has established strengths in areas such as modest fashion and halal food, but its place in the global sharia economy also depends on financial development. If competitors make their financial offerings more attractive, Indonesia may find that cultural and consumer-sector strengths alone are not enough to maintain its position.

Destry’s warning did not include a timetable or forecast for how the rankings might change. Its force was more immediate: she urged stakeholders not to become complacent while other countries seek a larger role in the market.

A universal approach to sharia finance

In response, Destry called for a more universal perspective, centred on inclusivity, sustainability and fairness. The framing presents sharia finance as a field whose reach can extend beyond a narrow customer base, while retaining principles that distinguish it.

That approach also has a practical implication. A wider international market requires financial products and institutions that can speak to varied needs. But the source report does not specify how Indonesia should translate those principles into regulation or product design. The next test will be whether the call for a broader perspective is followed by changes that address the financial-sector constraints she identified.

What this means for investors

Indonesia’s lower ranking is a signal to watch, but the figures alone do not establish the prospects of any individual institution or product. The most concrete message from BI is that regulation and product variety are viewed as obstacles to the country’s sharia finance development.

Investors assessing the sector should therefore follow policy discussions and the range of products that financial institutions make available. Indonesia retains strengths in modest fashion and halal food, while regional competitors are pursuing the same ambition to attract sharia finance investment. Whether reform can help Indonesia convert its existing reach into stronger financial development remains an open question.

The debate now turns on whether Indonesia can make its financial framework more competitive while advancing the inclusive, sustainable and fair model BI has called for.

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