Islamic Finance in Indonesia: High Tide or New Mecca?

Abstract

The oil-rich GCC countries have driven the demand for Islamic finance since its founding in the mid-1970s. Wealthy Gulf investors diversified their portfolios and seemed ready, on occasion, to invest not only in Islamic banks but also in shariacompliant securities that were less profitable than comparable conventional securities. The question arises whether the novel enterprises of Islamic banking and capital markets will gain traction among the masses of Muslims who also believe, like the wealthy Gulf investors, that conventional bank interest is haram (against the teachings of Islam) but still either use the convenient services of conventional banks or avoid all banks. Indonesia is an important testing ground.