Growth of Islamic Banking in Indonesia: Theory and Practice

Indonesia is the world's most populous Muslim country, with Islamic banking expected to play an important role in facilitating financial resources and contributing to the internationalization of the Islamic mode of financing. However, the reality is far from the expectation. This book aims to clarify the causes and fundamental constraints leading to the extraordinarily low level of Indonesias Islamic financial deepening by hypothesizing that Islamic banks must earn additional profit to maintain their franchise value as prudent Shariah-compliant lenders. It offers evidence in support of implementing economic and affirmative policy necessary for incubating and developing the Islamic banking industry in Indonesia and making Indonesia an international Islamic financial hub in the Asia-Pacific region.

Format: Hardback
Length: 128 pages
Publication date: 22 December 2020
Publisher: Taylor & Francis Ltd

Indonesia, the world's most populous Muslim country, holds immense potential in the Islamic banking industry due to its endowment and economic resources. However, the reality falls far short of expectations. This book aims to shed light on the underlying causes and fundamental constraints that hinder the Islamic financial deepening in Indonesia.

Drawing from the traditions of Institutional Economics, the authors emphasize the importance of rules and mechanisms that create incentives and threats for economic players. They argue that institutions play a crucial role in determining economic development and efficiency. In this context, the book proposes a novel hypothesis: Islamic banks must earn additional profit, known as 'Islamic bank rent,' to maintain their franchise value as prudent Shariah-compliant lenders compared to conventional banks.

The authors suggest that insufficient provision of the Islamic bank rent opportunity may have hindered the Indonesian Islamic banks' ability to learn and improve their skill and capacity for credit risk management. Furthermore, the book provides evidence in support of implementing economic and affirmative policies that are necessary for nurturing and developing the Islamic banking industry in Indonesia and establishing it as an international Islamic financial hub in the Asia-Pacific region.

This book serves as a valuable resource for policy makers and researchers interested in Islamic banking in Indonesia. It offers insights into the challenges and opportunities that the country faces in its journey toward becoming a leading Islamic financial center region. By examining the underlying factors contributing to the low level of Islamic financial deepening, the book provides valuable recommendations for policymakers and stakeholders to foster the growth and development of the Islamic banking industry in Indonesia.

Weight: 430g
Dimension: 159 x 241 x 17 (mm)
ISBN-13: 9780367219475