Eight Strategies to Strengthen Indonesian Islamic Banking Competitiveness

Indonesian Islamic banking is experiencing robust asset growth, with total assets reaching Rp1,047 trillion as of May 2026, an 11.07% year-on-year increase. This growth rate surpasses that of the conventional banking sector. Financing also saw a healthy rise of 10.32% to Rp729 trillion, and third-party funds grew by 11.66% to Rp810 trillion. Furthermore, the non-performing financing ratio for Islamic banks stands at a healthy 2.31%, indicating better asset quality than the industry average.

However, beneath these positive figures lies a persistent challenge: market share stagnation. Despite double-digit growth, Islamic banking's share of the national banking industry hovers around 7.2-7.5%. This is largely attributed to the sheer size of conventional banks' asset base, which is in the tens of trillions of rupiah. Even small percentage increases in conventional banking translate to larger nominal gains compared to the higher percentage growth in Islamic banking.

The social aspect of financial inclusion also reveals a gap. While the literacy rate for Islamic finance is relatively high at 43.42%, the actual usage of Islamic financial products by the public stands at only 13.41%. This indicates that many Indonesians are aware of Islamic banks but have not yet fully embraced their products.

Globally, Indonesia's position in the Global Islamic Economy Indicator has slipped to fourth place, behind Malaysia, the UAE, and Saudi Arabia. This decline is particularly notable given Indonesia's status as the world's most populous Muslim country, suggesting that its Islamic finance ecosystem lags behind nations with smaller Muslim populations. Experts suggest that traditional strategies like promoting product innovation, expanding branch networks, and increasing literacy have proven insufficient to structurally lift market share, as they operate within the same framework as conventional banks.