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Indonesia on financial inclusion and Islamic finance


The Islamic Financial Services Board (IFSB) and Bank Indonesia successfully conducted a joint public seminar and workshop on financial inclusion and Islamic finance on 11 December 2018, in Surabaya, Indonesia. The seminar was themed as “Broadening Economic Frontiers and Reducing Income-Gaps through Inclusive Finance.”

The seminar stressed on the importance of improving the economic conditions of the Muslim-majority countries where in many instances, high levels of poverty persist. A particular observation in these countries is also often high levels of financial exclusion, and with voluntary exclusion due to religious beliefs often being cited as a factor.

Mr. Agusman, the Executive Director of Communications at Bank Indonesia, agreed upon the importance and relevance of the topic at hand, and appreciated IFSB’s efforts in attempting to provide meaningful regulatory and supervisory guidelines to support financial inclusion efforts through Islamic finance. He further highlighted Indonesia’s various initiatives aimed at addressing the financial inclusion challenge, including its collaborations with international partners to support development of Islamic social finance policies such as zakah and waqf core principles.

Dr. Prayudhi Azwar, Economist at Bank Indonesia Institute invited the panelists to identify the root cause of financial exclusion and provide solutions to address economic inequalities. The key takeaways from the panel discussion included highlighting appropriateness of financial inclusion to enhance living standards and alleviating poverty, addressing suspicion and reluctance of the low-income segments from availing formal financial services, developing practical roadmaps for enhancing capacity and competitiveness of Islamic financial inclusion products, and also reinforcing social objectives of the Islamic economy and finance with a view to addressing challenges of the poor.

It was agreed that practical measures to enhance Sharjah-compliant financial inclusion activities are provided in line with guidance from the IFSB’s Exposure Draft of Technical Note 3 (TN3) on Financial Inclusion and Islamic Finance. Discussion points included permissible and impermissible activities, cost effectiveness of products and operations, critical success factors for enhancing financial inclusion, utilization of Islamic social finance for supporting financial inclusion, and also on the importance of regulatory coverage for financial inclusion activities by non-banks and other types of institutions.

However it was agreed that the aim of TN3 is to provide guidance on good practices in regulating the financial sector to enhance financial inclusion through Islamic finance, while also considering proportionality in balancing the benefits of regulation and supervision against the risks and costs. The TN3 underscores the importance of financial inclusion, due to its intricate connection with economic growth, shared prosperity and poverty reduction, while furthering an understanding of how financial inclusion policies and regulatory initiatives can support Islamic microfinance/savings/investment activities. The TN3 also covers recent developments in enhancing financial inclusion through digital finance and financial technology (FinTech) platforms, while further identifying the current main challenges and emerging issues, as experienced by the market players and regulators, in microfinance and financial inclusion related to Islamic financial services. Finally, the TN3 explores practical modalities for the integration of social finance modes in Islamic finance (e.g. zakah, sadaqah, waqf) with the commercial IFSI to promote financial inclusion.

Based on the above, the key proposed objectives of this TN 3are:
1. To provide international benchmark guidelines on regulatory and supervisory policies to support financial inclusion initiatives in the IFSI.
2. To provide guidance to RSAs on the application of the proportionality principle so that the benefits of regulation and supervision can be balanced against the risks and costs.
3. To factor in recent developments in enhancing financial inclusion through Shari’ah-compliant mechanisms by digital finance and FinTech platforms.
4. To consider a modality for the integration of modes of Islamic social finance (e.g. zakah, sadaqah, waqf) with the commercial IFSI.
5. To highlight challenges in, and propose solutions to, emerging regulatory issues in microfinance and financial inclusion activities in the IFSI.

The TF further notes the currently limited involvement of commercial banks in financial inclusion activities and the active involvement of different types of non-bank financial institutions (NBFIs) in the propagation of financial inclusion that includes microfinance. Overlaps of regulatory functions on financial inclusion activities, often between banking sector and capital market regulators, have also been discussed by the TF Note of IFSB.
Based on these deliberations, the TF resolved that the TN is to extend its scope beyond the banking sector and cover the role of NBFIs and the Islamic capital market in promoting financial inclusion, where needed. In addition, the TN will cover microfinance activities, which current evidence suggests represent a majority of the Shari’ah-compliant financial inclusion efforts.


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