Indonesia's Islamic Finance Industry Shows Second Best Global Growth in 2021

The 2021 edition of the Islamic Finance Development Indicator (IFDI), its 9th edition, ranked Indonesia second globally in Islamic finance industry development, achieving a score of 76.

Malaysia secured first place, while Saudi Arabia ranked third.

Similar to the previous year, Indonesia's ranking was supported by two indicators: Knowledge and Awareness. The Knowledge indicator reflects the highest number of Islamic finance educational institutions and Indonesia's position as the second-largest producer of Islamic finance research papers. The Awareness indicator, marked by numerous seminars and conferences on Islamic finance topics, placed Indonesia third after Malaysia and Bahrain.

The ranking is based on six Islamic finance development indicators (IFDI): quantitative development, knowledge, governance, awareness, and corporate social responsibility (CSR).

Global Islamic finance assets reached US$3.37 trillion in 2020. This figure represents a 13.8% increase from US$2.96 trillion in the previous year, indicating continued growth in the global Islamic finance industry despite the economic slowdown caused by the COVID-19 pandemic.

The global Islamic finance industry is projected to grow to US$4.94 trillion by 2025, with an average annual growth rate of 8% over the next five years. Almost all sectors of Islamic finance (Islamic banking, Takaful, Sukuk, and Islamic mutual funds) recorded double-digit growth in 2020. Only one sector, Other Islamic Financial Institutions, showed less optimal growth, recording only a 1% increase during 2020.

This suboptimal growth was influenced by falling oil prices and pressure on the real estate sector. The COVID-19 pandemic prompted Islamic financial institutions to innovate in mitigating the pandemic's negative impacts, such as accelerating the digital transformation of Islamic financial products and services.

The pandemic also highlighted technology-based sectors like Islamic fintech, marked by numerous partnerships between Islamic banks and Islamic fintech companies. Another emerging trend during the pandemic was sustainable Islamic finance, evidenced by the increased issuance of green Sukuk, sustainable project-based Islamic mutual funds, and other green financial instruments.