Source: Global Ethical Banking

JAKARTA – Indonesia’s economy faces unprecedented challenges in 2025, with warning signs flashing across multiple indicators. According to Statistics Indonesia (BPS), economic growth decelerated to 4.87% year-on-year in Q1 2025, down from 5.11% in the same period the previous year. This decline represents more than statistical variance—it reflects deep-seated structural weaknesses plaguing the national economy.

The erosion of household consumption presents the most alarming trend. Consumer purchasing power continues to deteriorate, partly due to misaligned government policies that fail to address real societal needs. When economic programs disconnect from grassroots realities, the immediate consequence manifests in rising poverty rates and diminished living standards.

Indonesia also grapples with a demographic paradox. While birth rates surge toward an anticipated demographic dividend in 2030, the economy remains unprepared to generate adequate employment opportunities. Gross fixed capital formation (GFCF) grew merely 2.12% in Q1 2025, underscoring the weakness of productive investment in the archipelago.

The Global Dependency Trap

External pressures compound Indonesia’s domestic challenges. Global trade tensions, including U.S. tariff policies, directly impact Indonesian exports. Over-reliance on raw commodities—palm oil, coal, and rubber—renders the national economy vulnerable to volatile global price fluctuations.

Globalization, once heralded as a pathway to prosperity, has instead widened socioeconomic disparities. Its benefits remain unevenly distributed, often failing to reach low-income populations and remote regions. This creates a troubling paradox: greater integration with the global economy correlates with more unequal domestic wealth distribution.

Islamic Economics: Light at the End of the Tunnel

Source: Ministry of Trade Republic of Indonesia Official Website

Amid conventional economic stagnation, Islamic economics demonstrates remarkable resilience. Islamic banking financing maintained robust growth of 11.92% through July 2024, significantly outperforming conventional sector benchmarks. This performance reflects more than coincidence—it provides tangible evidence that Islamic economic systems possess stronger fundamentals for weathering economic turbulence.

The Domestic Market Advantage

Indonesia possesses an invaluable asset for Islamic economic development: the world’s largest Muslim population. A domestic market exceeding 230 million Muslims creates a natural foundation unmatched by other nations. When global economic uncertainty intensifies, focusing on domestic markets through Islamic products can reduce dependence on external variables.

Demand for halal products transcends mere preference—it represents a religious obligation that cannot be postponed or reduced despite difficult economic conditions. Contributing 46.71% to GDP, the Islamic economy has proven itself a significant source of development financing.

Redistribution Instruments: Zakat as Fiscal Stimulus

Zakat functions as a unique financial instrument capable of reducing economic burdens on society. Unlike taxes, which constitute state levies, zakat represents a religious obligation that directly redistributes wealth from the affluent to those in need.

Zakat collections reached IDR 26.1 trillion by June 2024, with extraordinary growth of 68.3%, demonstrating this instrument’s tremendous potential. Zakat funds flow directly to communities in need, creating multiplier effects throughout the economy. This amplification proves crucial for supporting basic consumption that underpins societal purchasing power.

Beyond zakat, Islamic economics incorporates additional redistribution mechanisms:

• Waqf: Assets dedicated to public benefit that cannot be sold, providing sustainable advantages
• Hibah: Gratuitous transfers without expectation of return
• Infaq/Shadaqah: Voluntary contributions to assist others, fostering social solidarity

Focus on the Real Sector

Asset-backed financing principles in Islamic economics ensure every financial transaction connects directly to real assets. When conventional investment languishes, Islamic financing can provide alternatives for driving productive investment. Third-party fund management within Islamic systems not only enhances the investment sector but also channels financing to communities as the primary driver of productive economic sectors.

Solutions for MSMEs

Islamic financing systems like mudharabah (profit-sharing) and musyarakah (partnership financing) offer revolutionary solutions for micro, small, and medium enterprises (MSMEs). Unlike conventional systems that burden borrowers with fixed interest rates, profit-sharing arrangements prove more equitable and aligned with small business capabilities.

Simplified processes that don’t require burdensome collateral make Islamic financing more accessible to small and medium entrepreneurs. This accessibility proves vital given that MSMEs form the backbone of Indonesia’s economy, absorbing the majority of the workforce.

Challenges That Remain

Despite its promise, Indonesia’s Islamic economy remains underoptimized. Indonesia ranks sixth in the Global Islamic Economy Indicator (GIEI) with a score of 135.9 in Islamic finance, trailing far behind Malaysia’s first-place ranking with a score of 282.6.

Institutional Problems

Overlapping responsibilities among Bank Indonesia (BI), the Financial Services Authority (OJK), and the National Sharia Board-Indonesian Ulema Council (DSN-MUI) create bureaucratic complexity. Weak inter-institutional coordination causes delays and inconsistencies in policy implementation, hampering Islamic financial product innovation.

Shortage of Qualified Human Resources

Despite Indonesia’s large population and extensive market potential, the country struggles to meet expert workforce demands in the Islamic economics sector. This gap proves particularly acute in rural areas where access to education and training remains limited.

Low Public Awareness

Business community awareness of Islamic economics remains insufficient. Socialization campaigns often concentrate on urban centers, neglecting rural areas with significant untapped potential. Innovative approaches such as mobile education units and digital platforms are needed to reach broader populations.

Slow Technology Adoption

Compared to other nations, Indonesia lags in adopting Islamic fintech innovations. Existing initiatives remain fragmented and lack adequate support. Indonesia needs a more dynamic approach, prioritizing financial technology research and development while creating ecosystems that support Islamic startups.

Failure to Lead the Halal Industry

Indonesia has not successfully positioned itself as a global halal industry leader despite having the world’s largest Muslim population. With conventional banks controlling the majority of banking assets, Islamic finance struggles to achieve optimal competitiveness.

The Path Forward: Optimizing Potential

To optimize Islamic economics’ role as a national economic stabilizer, strategic steps are essential:

1. Institutional Reform: Simplifying inter-agency coordination and establishing clear task divisions
2. Human Resource Development: Massive investment in Islamic economics expert education and training
3. Public Awareness Expansion: National campaigns reaching all societal levels
4. Innovation Acceleration: Full support for Islamic fintech development
5. Global Positioning: Comprehensive strategies to become the world’s halal industry leader

Conclusion

Source: Voice of Indonesia

Islamic economics represents more than an alternative—it offers a fundamental solution for creating a more equitable, stable, and sustainable economic system. Amid unpredictable global economic turbulence, Indonesia possesses a golden opportunity to establish Islamic economics as the backbone of its national economy.

The convergence of the world’s largest Muslim population, growing domestic awareness, and increasing global demand for halal products creates unprecedented conditions for Indonesia’s Islamic economic breakthrough. However, realizing this potential requires coordinated efforts across government, private sector, and civil society.

The time has come to transform potential into reality and establish Indonesia as the global center of Islamic economics. With proper strategy and commitment, Islamic economics can serve not merely as an economic buffer but as the foundation for Indonesia’s sustainable and inclusive prosperity.

References:

Khotimah, U. K. (2024). Sharia Economic Law Regulation In Indonesia And Malaysia: Implementation And Challenges. SASI, 30(4), 402-415.

Maskhuri, M. (2024). Peran Ekonomi Syariah dalam Pembangunan Ekonomi Berkelanjutan di Indonesia. Indonesian Research Journal on Education, 4(4), 2056-2060.

Rohmah, M., Basyir, T., Abror, D., Masitoh, F. N., & Azmiyati, A. (2025). Dampak Globalisasi, Kemiskinan, Dan Kebijakan Makroekonomi Terhadap Stabilitas Ekonomi Indonesia. UTILITY: Jurnal Ilmiah Pendidikan dan Ekonomi, 9(01), 1-25.

dompet.dhuafa.org. (n.d.). Ekonomi Indonesia Melemah, Bagaimana Dampaknya terhadap Kewajiban Zakat Kita?. Retrieved August 1, 2025, from https://www.dompetdhuafa.org/ekonomi-melemah-peran-zakat/