Islamic Economics in Indonesia: Big in Narrative, Small in Impact?

Mohammad Nur Rianto Al Arif
(Professor at UIN Syarif Hidayatullah Jakarta,
Secretary General of the Central Board of the Indonesian Lecturers Association,
Board Member of ISEI Jakarta Chapter,
Board Member of the Central Board of IAEI)

On the stage of public discourse, Islamic economics in Indonesia appears like a giant. It is frequently present in officials’ speeches, policy roadmaps, halal industry expos, Islamic economic festivals, and ambitious slogans about “Indonesia as the global center of Islamic economics.”

Every year, we are presented with optimism that the world’s largest Muslim population is a demographic asset, that the global halal industry is growing rapidly, and that Islamic finance is projected to become a new engine of national economic growth. Yet behind the loud narrative, the impact of Islamic economics on the real economic structure feels far smaller than its echo.

The market share of Islamic banking remains stuck in single digits. Islamic financial literacy and inclusion lag behind. The contribution of Islamic economics to poverty reduction and MSME strengthening has not shown significant leaps.

This gap between discourse and impact needs to be discussed honestly. Not to underestimate the efforts made, but to correct direction so that Islamic economics does not stop as a symbolic project—large in slogans and small in socio-economic transformation.

Over the past decade, the state has given Islamic economics a major platform. The Islamic Economics Masterplan, the National Committee for Islamic Economy and Finance (KNEKS), consolidation of Islamic banks, strengthening of the halal industry, and various promotional events all reflect serious policy commitment.

Narratively, Islamic economics is positioned as a pillar of the future—ethical, inclusive, and sustainable. It is portrayed not merely as an alternative but as a solution to inequality, the moral crisis of capitalism, and the excesses of financialization.

However, reality on the ground moves more slowly. The stagnant market share of Islamic banking indicates that penetration into the mainstream remains limited.

Many Muslims still rely on conventional banks—not necessarily because they ignore Sharia values, but due to access, convenience, pricing, and service quality. Meanwhile, the much-promoted halal industry ecosystem often gets trapped in certification and labeling, without strong integration with Islamic financing, research, and MSME supply chain strengthening.

There is a gap between “Islamic economics as policy discourse” and “Islamic economics as a daily experience felt by society.” When Islamic economics does not address concrete issues such as affordable capital access for MSMEs, protection from consumer debt traps, affordable housing finance, and strengthening village economies, its impact will be difficult to feel.

One fundamental problem of Islamic economics in Indonesia is its tendency to stop at formal compliance rather than substantive impact. Many Islamic financial products are considered “halal” contractually, but their socio-economic impact is not much different from conventional products. Murabahah schemes dominate financing, replicating consumer credit patterns, while profit-sharing financing—supposed to encourage productivity—remains minimal.

Yet the spirit of Islamic economics is not only about avoiding riba but also about justice, equity, siding with vulnerable groups, and strengthening the productive sector. If Islamic finance is largely absorbed into middle-class urban consumption—vehicles, gadgets, lifestyle—its impact on the real economic structure will remain limited.

Islamic economics risks becoming “conventional with a sharia label”—juridically valid, but socially non-transformative. At this point, criticism should not only target the industry but also policy design.

Fiscal incentives, capital regulations, and financing direction have not fully encouraged Islamic finance to take productive risks with broad impact. MSMEs, farmers, fishermen, and village economies remain “priority narratives” that are difficult to access through large-scale Islamic financing.

The ambition to make Indonesia a global Islamic economic center often overlooks a basic prerequisite: public literacy. Islamic financial literacy and inclusion indices still lag behind overall financial literacy and inclusion.

Many people do not understand the substantive differences between Islamic and conventional products beyond simplified halal-haram distinctions. In a low-literacy environment, preferences are driven by practical factors: lower interest, faster processes, easier applications.

In the digital era, literacy challenges grow more complex. Fintech, pay-later schemes, and online investments are expanding rapidly, often wrapped in “sharia” narratives without adequate risk understanding. Young people become easy targets for instant financial products, while Islamic financial literacy preaching lags behind aggressive digital marketing. Islamic economics loses in speed, popularity, and narrative appeal in the digital public space.

If literacy is not seriously pursued through educational curricula, mosques as financial literacy centers, and creative public campaigns, Islamic economics will remain elite policy discourse rather than a rooted socio-economic movement.

Indonesia is often praised as the largest halal market in the world. Halal food, Muslim fashion, halal cosmetics, and halal tourism have massive domestic markets. But a large market does not automatically mean a strong industry. Many halal industry players remain part of global supply chains as raw material producers or low-value-added manufacturers. Integration with Islamic financing, technological research, and global brand strengthening remains weak.

The halal industry is often treated as a certification matter, not an industrialization project. Halal certificates become the final goal, not the entry point for improving quality, productivity, and competitiveness. Here Islamic economics loses structural impact—large in ecosystem discourse and small in national industrial transformation.

Without a clear industrial strategy—such as halal industry clustering, research and innovation incentives, and integration of Islamic financing with industrial value chains—Islamic economics will stop as a consumption market, not a high-value production engine.

One advantage of Islamic economics is its social finance instruments: zakat, infaq, and waqf. Their potential is enormous, often said to reach hundreds of trillions of rupiah. Yet their impact on poverty alleviation and economic empowerment remains fragmented. Many programs are charitable, short-term, and not integrated into local and national economic development strategies.

Productive zakat and waqf are frequently mentioned but face governance, institutional capacity, and policy synergy obstacles. If properly managed and orchestrated—linked with Islamic financing, MSME training, and social protection programs—Islamic social finance could become a real catalyst for reducing inequality. Without good orchestration, these instruments will remain large in potential but small in impact.

Islamic economics is not only about products but also institutions. The consolidation of Islamic banks was expected to create economies of scale and global competitiveness. But scale without strategic differentiation will only produce “big banks with old problems.” Governance challenges—from product innovation and risk management to human resource strengthening—remain.

On the regulatory side, harmonization between financial authorities, fatwa institutions, and industry players is not always smooth. Innovation often moves faster than regulatory adaptation. As a result, Islamic economics faces a dilemma between sharia prudence and market innovation demands. Without an adaptive yet principled governance framework, Islamic economics will fall behind in the digital economy competition.

The most fundamental question is, for whom is Islamic economics built? If it only becomes a niche market for the Muslim middle class, its impact on social justice will be limited.

Islamic economics should function as a corrective instrument against inequality—expanding financial access for the unbanked, lowering financing costs for small productive sectors, and protecting society from exploitative financial practices.

In practice, however, Islamic financial access remains easier for relatively established groups. Collateral-oriented schemes, complex processes, and not always competitive pricing leave the poor and ultra-micro MSMEs marginalized. Here lies the paradox: Islamic economics speaks of justice, but its service structure does not fully side with those most in need.

The criticism that Islamic economics is “big in discourse, small in impact” should serve as a reflective alarm. It demands a paradigm shift—from symbolic project to transformative movement.

First, Islamic economic policy must be more impact-based, not merely focused on quantitative market share targets. Success indicators should not only measure Islamic bank assets but also contributions to MSME financing, job creation, and inequality reduction.

Second, Islamic finance business models must be reoriented toward the productive sector. Profit-sharing financing, business partnerships, and ecosystem support must be strengthened, even with higher risks. The state can play a role through guarantees, incentives, and risk-sharing mechanisms to encourage the industry to enter high-impact sectors.

Third, public literacy must become mainstream. Islamic economic preaching cannot stop at seminars; it must be present in community spaces—mosques, schools, pesantren, and digital platforms. The narrative must be grounded in daily language: managing debt, choosing housing finance, avoiding consumer traps, and building small businesses.

Fourth, integration between the halal industry, financing, research, and industrial policy must be strengthened. Islamic economics must move beyond halal consumption toward globally competitive halal industrialization. Here the state, universities, and industry must collaborate.

Fifth, Islamic social finance must be orchestrated within development strategies. Zakat, waqf, and philanthropy must connect with measurable economic empowerment programs. The shift from charity to empowerment requires governance reform, transparency, and accountability.

Islamic economics in Indonesia does not lack narrative—it lacks impact. It does not lack potential—it lacks orchestration. The greatest challenge is not theological legitimacy, but socio-economic relevance.

As long as Islamic economics is not felt as a real solution to concrete problems—capital access, MSME resilience, protection from consumer debt, and inequality reduction—it will remain a “discourse project.”

This criticism is not a call for pessimism but a call for course correction. Islamic economics has strong normative capital—ethics, justice, and siding with the weak.

That capital will lose meaning if not translated into impactful policies, products, and institutions. This is our shared task: to ensure Islamic economics is not only large on the stage of discourse but also large in its footprint on the people’s economic life.

This article was published in CNBC Indonesia on Monday, February 2, 2026.