Islamic Finance Deemed Less Aggressive in Capturing Market
The decline in Islamic financial inclusion from 13.41 percent in 2025 to 13.24 percent in 2026 has drawn attention amidst the rising use of conventional financial services. This condition indicates that the Islamic finance industry still faces a major challenge in expanding its penetration and capturing the potential market.
‘The penetration of Islamic finance is not as aggressive as conventional finance, which is very massive, dominating, and seizing potential market share,’ said Hakam Naja, an economist at the Center for Sharia Economic Development at the Institute for Development of Economics and Finance (INDEF), to Republika on Thursday (13/8/2026).
Based on the 2026 National Survey of Financial Literacy and Inclusion (SNLIK), conventional financial inclusion actually increased from 92.61 percent to 93.53 percent. Its literacy rate also rose from 66.64 percent to 69.57 percent. In contrast, Islamic financial literacy fell slightly from 43.42 percent to 43.07 percent. With an inclusion rate of only 13.24 percent, there is a gap of nearly 30 percentage points between people who are aware of Islamic finance and those who use its services.
Hakam believes this issue cannot be solved by education alone. The Islamic finance industry needs to be more aggressive in building access and services so that the public has a strong reason to choose Islamic products. One of the challenges is the still-limited penetration of Islamic banking. Hakam noted that the market share of Islamic banking had only reached 7.32 percent as of June 2026, despite the industry having developed for nearly four decades.
According to him, the development of digital services also poses a challenge. Investment to build integrated digital services requires large capital, while the Islamic banking industry is still largely populated by medium and small-scale banks. This condition is reflected in the industry’s concentrated structure. Hakam noted that around 41.3 percent of the Islamic banking market share is controlled by Bank Syariah Indonesia (BSI). BSI is also the only full-fledged Islamic commercial bank included in the KBMI 3 category. ‘Investment for digitalisation requires relatively large funds, while Islamic banking is still dominated by medium and small-level banks,’ he said.
On the other hand, conventional services have a more massive network and product range. The ease of digital applications, promotions, and the presence of services such as paylater, digital wallets, and fintech make it easier for the public to enter and use conventional financial services. According to Hakam, the use of conventional services is also aided by various government programmes. One of them is the distribution of non-cash social assistance, the majority of which still uses conventional bank accounts. ‘The distribution of non-cash social assistance through bank accounts, the majority of which are conventional, could be a contributing factor,’ he said.
Therefore, Hakam encouraged the government to open up greater space for Islamic banking in non-cash social assistance programmes and other government initiatives. This step is considered capable of expanding the reach of Islamic services while building the public’s habit of using Islamic financial products. In addition to expanding access, he pushed for strengthening the industry structure through mergers and acquisitions, accelerating the spin-off of Islamic business units, and converting conventional banks into Islamic banks. Hakam also encouraged the entry of foreign investors, particularly from the Middle East, to strengthen the capital and competitiveness of Indonesia’s Islamic finance industry. According to him, this industrial strengthening is necessary so that Islamic finance is not only superior in terms of principles but is also able to offer competitive services and reach the public more widely.