Islamic Banking in Indonesia

Abstract

The Indonesian banking sector has been stable and generally sound over the past decade, partly through efforts by the Bank of Indonesia as Indonesia's central bank and Otoritas Jasa Keuangan as its financial services regulator. This chapter identifies important issues that remain for both conventional and Islamic banking in Indonesia. Authors suggest the government continue its efforts to reform what remains a geographically concentrated industry, to increase the role of bank credit in the economy, and to widen the provision of banking services through technology. Authors highlight the vulnerability of smaller banks in Indonesia to ongoing competitive market pressures and the necessity of creating larger banks through merger or capital raising and improving credit allocation to small and medium-sized businesses. Islamic banking has an important role to play in these developments, and those relating to Islamic social banking.