Indonesia Urged to Integrate Halal Industry and Islamic Finance for Growth

Indonesia's halal industry and Islamic finance sectors are not yet working together effectively, hindering the nation's economic potential, according to Nur Hidayah, head of the Center for Sharia Economic Development (CSED) at Indef. She emphasized the need for integration, noting that while the halal industry generates economic activity and Islamic finance provides funding, their connection remains suboptimal.

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The halal industry and Islamic finance are still running separately. The halal industry produces economic activities, while Islamic finance provides financing and investment. However, the linkage between these two sectors is not yet optimal.

Hidayah pointed out that Indonesian Islamic finance has not become the primary funding engine for the national halal industry, especially for small and medium-sized enterprises (SMEs). Many halal-certified SMEs struggle to access competitive financing from Islamic institutions and often resort to conventional loans. This disconnect suggests a gap in the Halal Product Assurance Law, which primarily focuses on raw materials and production processes.

She argued that the entire halal supply chain, from upstream to downstream, including financing from Islamic institutions, must be viewed as an integrated whole. Hidayah also called for government intervention through affirmative policies and incentives to bolster Islamic finance's support for halal SMEs, as the sector is still in its nascent stages and struggles to compete with established conventional industries.

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Islamic finance in Indonesia has not yet been able to become the main financing engine for the development of the national halal industry, especially for Micro, Small and Medium Enterprises (MSMEs).

Despite these integration challenges, Indonesia holds a significant position in the global Islamic economy. It ranks highly in halal food, Islamic finance, Muslim fashion, and other halal products. Indonesian halal exports reached approximately $41.42 billion from January to October 2024, generating a trade surplus of about $29.09 billion, with processed food being the largest contributor. The halal ecosystem contributes roughly 27% to the national GDP, valued at around Rp4,900 trillion.

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The halal chain must be seen as an integrated whole from upstream to downstream, including financing from the Islamic finance sector.