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Indonesia Islamic Economic Masterplan 2019-2024

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1 month ago
Indonesia Islamic Economic Masterplan 2019-2024

Fatwa, Fiqh, Hadith, Halal, Haram, Ijtihad, Infaq, Islam, Islamic banking, Mal, Maqasid, Mufti, Musharakah, Sadaqah, Shariah, Shariah compliant, Sukuk, Takaful, Ulema, Waqf, Zakat, Participation, Provision, Sales, Musharakah Mutanaqisah, Green Sukuk


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  1. MASTERPLAN Indonesia EKONOMI SYARIAH Islamic Economic Masterplan INDONESIA 2019-2024 2019-2024
  2. Indonesian Ministry of National Development Planning The Indonesia Masterplan of Sharia Economy 2019-2024 Copyright © 2019 and produced by Indonesian Ministry of National Development Planning Editor : Deputy of Economy Indonesian Ministry of National Development Planning Design by : PT Zahir Syariah Indonesia First publishing 2018 All rights reserved. This book, or parts thereof, may not be reproduced in any form without permission.
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  4. Table of Content 1 2 iv Table of Content vii List of Figure ix List of Graph xi Table of Content xiv Executive Summary xvi Message from the Minister and the Deputy 2 Indonesia Islamic Economic Landscape 4 Context 4 Meaning of Islamic Economics 5 Islamic Economic Scope 6 Background and Conditions of Islamic Economy 8 Conditions of the Global Islamic Economy 12 National Islamic Economic Conditions 17 National Islamic Economy 18 Regional Economic Conditions and Potential for Islamic Economic Development 26 Islamic Economy Stakeholder Mapping 28 Method of Planning the Indonesia Islamic Economic Masterplan 30 General Description of the Indonesia Islamic Economic Masterplan 32 Design Framework for the Islamic Economic Masterplan 32 Islamic Finance Masterplan Action (MAKSI) 32 MAKSI Framework 33 Development of the Framework for the Indonesia Islamic Economic Masterplan 36 Vision of Islamic Economy 36 Vision of Islamic Economy 38 Key Target and Indicators 42 Main Strategies 42 Strengthening the Halal Value Chain 42 Strengthening the Islamic Financial Sector 43 Strengthening Micro, Small and Medium Enterprises 43 Utilizing and Strengthening the Digital Economy 44 Ecosystem Strategy Policy iv
  5. 3 46 Strengthening Halal Value Chain 48 Context 51 Halal Food and Beverage Cluster 52 Global and National Conditions of the Halal Food and Beverages Cluster 56 Challenges and Opportunities for the Development of Halal Food and Beverage Clusters 62 Special Strategies for Halal Food and Beverage Clusters 66 Quick Wins for Halal Food and Beverage Cluster 69 Halal Tourism Cluster 69 Global and National Conditions of Halal Tourism Clusters 76 Challenges and Opportunities for the Development of Halal Tourism Clusters 82 Specific Strategies for Halal Tourism Clusters 86 Halal tourism Cluster Quick Wins 89 Muslim Fashion Cluster 89 Global and National Conditions 92 Challenges and Opportunities for Development 98 Special Strategies for the Muslim Fashion Cluster 102 Muslim Fashion Industry Quick Wins 105 Halal Media and Recreation Cluster 105 Global and National Conditions of Halal Media and Recreation Cluster 110 Challenges and Opportunities for the Development of Halal Media and Recreation Cluster 114 Specific Strategies for Media Clusters and Halal Industries 124 Halal Media and Recreation Quick Wins 127 Halal Pharmaceuticals and Cosmetics Cluster 128 Global and National Conditions of Halal Pharmacy and Cosmetic Clusters 132 Development Challenges and Opportunities for the Halal Pharmaceutical and Cosmetic Cluster 136 Specific Strategies for Halal Pharmaceuticals and Cosmetic Cluster 139 Quick Wins for the Halal Pharmaceuticals and Cosmetic Cluster 141 Renewable energy 141 Global and National conditions 154 Development Challenges and Opportunities 160 Support for the Halal Industry v
  6. 4 5 164 Special Strategy for Renewable Energy Cluster 172 Renewable Energy Quick Wins 174 Strengthening Islamic Finance 176 Context 179 Islamic Banking 180 Global and National Conditions of Islamic Banking 184 Opportunities and Challenges for the Development of Islamic Banking 189 Islamic Banking Support for the Halal Industry 192 Specific Islamic Banking Strategy 196 Quick Wins for Islamic Banking 199 Islamic Capital Market 200 Global and National Conditions of the Islamic Capital Markets 207 Challenges and Opportunities for Islamic Capital Market Development 212 Islamic Capital Market Support towards the Halal Industry 213 Specific Strategies of the Islamic Capital Market 219 Quick Wins for Islamic Capital Markets 221 Social Security 222 Global and National Condition 227 Development Challenges and Opportunities 232 Social Security Support for the Halal Industry 233 Speficic Strategies for Social Security 238 Quick Wins for Social Security 241 Zakat and Waqf 242 Global and National Conditions of Zakat and Waqf 246 Challenges and Opportunities for the Development of Zakat and Waqf 254 Zakat and Waqf Support towards the Halal Industry 256 Zakat and Waqf Specific Cluster Strategies 268 Quick Wins Zakat and Waqf 272 Strengthening Micro , Small and Medium Enterprises 276 Micro, Small and Medium Enterprises Global and National Conditions 280 Opportunities and Challenges in Developing Micro, Small and Medium Enterprises 284 Support for the Halal Industry 286 Cluster Specific Strategy for MSMEs 291 Quick Wins to Develop Micro, Small and Medium Enterprises vi
  7. 6 7 8 292 Strengthening the Digital Economy 295 Global Conditions and National Digital Economy 304 Challenges and Opportunities 306 Support for the Halal Industry 308 Special Strategy for Digital Economy Development 317 Quick Wins Digital Economy Development 318 Supporting Ecosystems 323 Literacy , Human Resources, and Research and Development 324 Global and National Conditions 330 Challenges and Opportunities in Indonesia 336 Strategy and Program 344 Quick Wins 347 Fatwa, Regulation and Governance 348 Global and National Conditions 388 Opportunities and Challenges of Fatwa Clusters, Regulations and Governance 392 Strategies and Programs 406 Quick Wins 407 Conclusion and Recommendation 410 Indonesia Islamic Economic Masterplan Main Programs 411 Strengthening Halal Value Chain Main Programs 414 Islamic Finance Main Programs 418 Micro, Small and Medium Enterprises (MSMEs) Main Programs 420 Digital Economy Main Program 422 Indonesia Islamic Economic Masterplan Quick Wins vii
  8. List of Figure 10 Global Islamic Economy Rating Indicator 2018 /2019 20 Indonesia Population Density Map 28 FGD Sampling Cities 33 Islamic Finance and Economy Development Framework 35 Indonesia Islamic Economic Masterplan Framework 56 Halal Value Chain for Food and Beverage Industry 69 Impact of Tourism on the Global Economy 70 Development of Muslim Tourists and its Development Forecast Until 2026 76 Halal Tourism Industry Value Chain 92 Halal Muslim Fashion Value Chain 107 Halal Media and Recreation Influence Channel towards the Economy 108 Best Selling Movies in Indonesia 2007-2018 110 Value Chain of Halal Media and Recreation 133 Value Chain of Halal Pharmaceutical and Cosmetic 147 Indonesia Electrification Ratio 2017 149 National Energy Policy (KEN) to Support Renewable Energy 155 Value Chain Renewable Energy 160 EBT Synergy with Halal Industry 162 Indonesia’s Leading Halal Travel Destinations 180 Top Islamic Finance Markets in Assets 185 Islamic Banking Value Chain 208 Islamic Capital Market Value Chain 229 Social Security Value Chain 248 Zakat and Wakaf Value Chain (Islamic Social Fund) 274 MSMEs Development in Indonesia 274 MSMEs Contribution towards Indonesia’s GDP 275 MSMEs Employee absorption 275 Total Non-Oil and Gas Exports by MSMEs 275 Potential for More Labor and Contribution to the GDP by converting Micro Business Class to Small Business 306 Digital Economic Support for the Halal Industry 410 Indonesia Islamic Economic Masterplan Framework viii
  9. List of Graph 7 Comparison of Halal Sector Scores in Indonesia 2014-2018 12 Indonesia ’s economic growth (% yoy) 18 Indonesian Regional GDP for Prices in 2017 19 Average GDP Growth Rate for Constant Price 2010 19 Indonesia’s Regional GDP per Capita at Current Prices 52 The Future of Global Muslim Population 53 Contribution of the Food and Beverage Processing Industry 89 Fashion Industry Contribution toward the Economy (%) 90 Indonesia’s GIE Score in Modest Fashion Industry 106 Creative Economy GDP’s Sub-Sector Growth (in %) 127 PDB ADHK According to Business Field 128 Muslim Global Consumption towards Pharmaceutical Cosmetics 129 Domestic Pharmaceutical Market Share 130 Cosmetic Share Market 141 World Energy Consumption 142 Primary Energy Consumption Based on Activities 142 Regional Energy Suppliers in 1971 and 2016 143 2017-2023 Renewable Energy Consumption Prediction Based on Technology 144 ASEAN TFEC Projection with 2015 Base 146 Costs and Saving of Remap Options in 2025 146 Energy Needs by Sector 148 Trend of the Electrification Ratio for 2007-2017 151 Target of Primary Energy in Indonesia 181 Conditions of Islamic Bank Performance (2014-2018) 190 Comparison of Financing to Business Field Sectors (2014 - 2018) 190 Financing to the Social Services, Socio-Cultural, Entertainment and Other Individual Services Sectors 202 Development Amount of Islamic Securities 203 Total Issuance of Sovereign Sukuk as per 25 October 2018 205 Development of Corporate Sukuk and Sovereign Sukuk 206 Development of Islamic Mutual Funds 222 JKN Total Participants as at 1 November 2018 ix
  10. 223 JKN ’s Total Health Facilities 224 Islamic Insurance Asset Data 225 DLPK Shariah Asset Data 226 Insurance Asset Data in Indonesia 226 Total Pension Fund Asset Comparison in Indonesia 244 Realisation of Collection and Growth of ZIS 2008 - 2017 Funds Collection 244 Zakat Distribution Based on Sectors 2016-2017 245 Use of Indonesian Waqf Land 295 Potential of the Digital Economy Sector 298 Internet users in Indonesia 298 Information and Communication Sector GDP Growth 298 Digital Transaction Growth 299 Growth in Value of Retail E-Commerce Transactions in Indonesia 300 Distribution of Fintech Services in Indonesia 300 Shariah Fintech Distribution in Indonesia 301 Growth of P2P Lending Assets in Indonesia in 2018 327 Number of Indonesian Publications in 2017 by Field 327 Number of Patents Registered in the United States 328 Patent Ranking 328 Number of Researchers in Indonesia 328 Number of Researchers in the Asian Region 354 Corporate Governance Index Percentage Scores by the Six Corporate Governance Themes x
  11. List of Table 8 World Economic Growth Projection (%) 9 World Trade Projection Volume (%) 9 World Inflation Projection Rate (%) 13 Indonesia’s Inflation Rate 2013 – 2017 (%yoy) 25 Economic Sector and Potential Development for Islamic Economic in 8 Provinces in Indonesia 26 Mapping of Islamic Economy Stakeholders 41 KPI Strategy/Key Targets 54 Total of LPPOM Halal Certificate Product 57 Value Chain for Halal Food and Beverage Industry 58 Opportunities and Challenges of Halal Food and Beverage Clusters Based on Ecosystems 60 Halal Food and Beverages Industry SWOT Analysis 70 Top 10 Inbond Destinations 71 List of Travel & Tourism Countries Power Ranking per 2017 73 Top OIC Countries Destinations 74 The largest number of foreign tourists (OIC countries) 2014-2018 77 Halal Tourism Value Chain 78 Opportunities and Threats of Halal Tourism based on Ecosystem 79 Halal Tourism Industry SWOT Analysis 93 Muslim Fashion Value Chain 96 Opportunities and Challenges of Muslim Fashion Clusters Based on Ecosystems 97 Muslim Fashion Industry SWOT Analysis 111 Value Chain of Halal Media and Recreation 112 Halal Media and Recreation SWOT Analysis 113 Opportunities and Challenges of Halal Media and Recreation Clusters Based on Ecosystems 132 Opportunities and Challenges of Halal Pharmaceuticals and Cosmetics Cluster Based on Ecosystem 134 Halal Pharmaceutical and Cosmetic Value Chain 135 Halal Pharmaceutical and Cosmetic SWOT Analysis 144 Renewable Energy Targets for ASEAN Countries 147 Indonesia Electrification Ratio 2017 152 Renewable Energy Potential in Indonesia xi
  12. 153 Alternative Renewable Energy Statistics in Indonesia 156 Renewable Energy Value Chain 159 Renewable Energy SWOT Analysis 163 Sea Energy Potential Per Province 163 Solar Power Potential Per Province 184 Opportunities and Threats of Islamic Banking based on Ecosystem 186 Value Chain of Islamic Banking in Indonesia 187 Islamic Banking SWOT Analysis 191 Islamic Banking Support to Main Halal Industries 191 Islamic Banking Support to the Supporters of the Halal Industry Sector 207 Islamic Capital Market ’s Opportunities and Threats based on Ecosystem 209 Islamic Capital Market Value Chain 210 SWOT Analysis of Indonesian Islamic Capital Market 227 Social Security Value Chain 228 Social Security Value Chain 230 Social Security SWOT Analysis 232 Social Security Supporting Institutions towards Halal Industry 243 Collection of Islamic Social Funds by Type of OPZ in 2017 (in IDR) 246 Opportunities and Threats for Waqf and Zakat based on Ecosystem 248 Value Chain of Zakat and Waqf 249 SWOT Analysis of Zakat and Waqf 276 Employment Absorption of MSMEs by Industrial Origin 282 Opportunities and Threats for the Development of MSMEs 284 MSMEs Support towards Halal Industry 296 Fintech Policy Framework in Various Countries 297 Comparison of Indonesia’s Digital Infrastructure and ASEAN countries 299 Countries with the Most Startups 299 Digital Startup with the Highest Funding 301 Shariah fintech applications with the most downloads 302 Regulators in Digital Financial Services xii
  13. 303 List of Regulations related to Digital Transactions 305 Digital Economic Challenges and Opportunities 329 Indonesia ’s Ranking and Values for GCI’s 2018 Innovation Capabilities Pillar 331 Opportunities and Challenges of Literacy Development, HR, and Research and Development 332 Number of Study Programs by Level of Education 333 Accreditation of Islamic Economics Study Programs in Indonesia 333 Islamic Economic Professional Certification Agency in Indonesia 336 Action Plans for Literacy Development, HR, and Research and Development 361 Regulation of Islamic Banking 362 Islamic Capital Market Regulations 364 Shariah Insurance Regulation 365 ZISWAF Regulation 366 Hajj Fund Regulation 369 Regulation of Micro, Small and Medium Enterprises 372 Implementing Regulations for Halal Product Assurance Law 373 Regulation of Halal Tourism 376 Regulation on Islamic Economic Dispute Resolution 388 Opportunities and Challenges of Fatwa Clusters, Regulations and Governance 391 Support for Fatwa, Regulation and Governance of the Halal Industry 392 Action Plan for Literacy Development, HR, and Research and Development xiii
  14. Executive Summary Islamic economics and finance has experienced a rapid development in the last two decades , both globally and nationally. The State of the Global Islamic Economy Report 2018/2019 reported that the total amount of Islamic food and halal lifestyle expenditures in the world has reached USD 2.1 trillion in 2017 and is expected to continue to grow to USD 3 trillion by 2023. The main factor expected to affect this development is the increasing number of Muslim population in the world. In 2017, the world’s Muslim population reached 1.84 billion people. This number is expected to continue to increase and reach 27.5% of the total world population by 2030. The increase in population will certainly increase the demand for halal products and services significantly. As a country with the largest Muslim population in the world, Indonesia has not been able to play an optimal role in fulfilling this demand. In the Global Islamic Economy Index 2018/2019, Indonesia is ranked 10th in the world as a producer of halal products. Although Indonesia’s export performance in Muslim fashion products, halal food, and halal tourism continues to increase from year to year, but in aggregate, Indonesia has a large net import for halal products and services which results in a deficit in the current account. In general, there are several challenges in the development of Islamic economics, especially the halal industry in the country, namely regulations relating to the halal industry that are inadequate, lack of literacy and public awareness of halal products, low interlinkage between halal and Islamic finance industries, the demand and consumption for halal products are high in the country which does not match the amount of production, inadequate management and risk management of the halal sector, the use of technology that is not optimal in the halal industry, and Indonesian halal standards that have yet to be accepted at the global level. VISI TARGET CAPAIAN INDIKATOR UTAMA Indonesia yang Mandiri, Makmur, dan Madani dengan Menjadi Pusat Ekonomi Syariah Terkemuka Dunia Peningkatan Peringkat dalam Islamic Economic Index Global dan Nasional Peningkatan Kemandirian Ekonomi Peningkatan Indeks Kesejahteraan Peningkatan Skor/Peringkat dalam Laporan Ekonomi Syariah Global Peningkatan Swasembada Pangan & Energi Peningkatan Indeks Maqasid Syariah Nasional dan Internasional Penguatan Keuangan Syariah Penguatan Usaha Mikro, Kecil & Menengah • Halal Hub Daerah • Sertifikasi Halal • Kampanye Halal Lifestyle • Insentif investasi • Kerjasama Internasional • National Halal Fund • Islamic Inclusive Financial Services Board (IIFSB) • Integrasi ZISWAF-fiskal-komersial • Framework dan Indikator kebijakan moneter, makroprudential dan makroekonomi • Bank BUMN Syrariah • Edukasi untuk Usaha Mikro • Fasilitas Pembiayaan Terintegrasi untuk UMKM • Database UMKM • Literasi UMKM Peningkatan kesadaran publik Peningkatan kuantitas dan kualitas Sumber Daya Manusia Peningkatan Skala Usaha Ekonomi Syariah Peningkatan Produksi dan Aset Usaha Syariah STRATEGI UTAMA Penguatan Halal Value Chain PROGRAM UTAMA STRATEGI DASAR xiv Penguatan kapasitas riset dan pengembangan (R&D) Penguatan Ekonomi Digital • Halal Marketplace dan Sistem Pembiayaan Syariah • Inkubator start-up HVC • Sistem informasi terintegrasi untuk tracebility produk halal Penguatan Fatwa, Regulasi dan Tata Kelola
  15. To respond to this challenge , the Indonesia Islamic Economic Masterplan was formulated as a joint guidance in developing the Islamic economy in Indonesia in order to contribute more to the welfare of the Indonesian people. The philosophical view and action plan of the masterplan is outlined in the framework in the vision, mission, strategies and programs that will be carried out in the next 5 years. The vision of this masterplan is to create “an independent, prosperous and civilized Indonesia by becoming the center of the world’s leading Islamic economy”. Based on this vision, four main missions or targets were developed, namely (1) Increasing the Islamic economic of scale and financial business, (2) Increasing the ranking of the Global Islamic Economy Index, (3) Increasing economic independence and (4) Improving the Indonesian welfare index. To achieve this vision and mission, there are four main strategies, which are considered important for the related stakeholders to perform in the coming period. The strategies are: (1) Strengthening Halal Value Chain, which consists of halal food and beverage industry, halal tourism industry, Muslim fashion industry, halal media and recreation industry, halal pharmaceutical and cosmetics industry and renewable energy industry, (2) Strengthening Islamic Finance, (3) Strengthening Micro, Small and Medium Enterprises (MSMEs) and (4) Strengthening the Digital Economy. In addition, six basic strategies are needed as supporting ecosystems to carry out the main strategies above, namely: (1) Strengthening regulation and governance, (2) Increasing Public Awareness and Literacy, (3) Research and development capacity building, (4) Quality improvement and quantity of human resources, and (5) Strengthening data, information and technology. The following is the Indonesia Islamic Economic Masterplan framework: In responding to the challenges of the Islamic economic development, the implementation of the above strategies can be contained in the quick wins, which are divided into three main stages. In the first stage, initiatives are prioritized to lay the foundation for strengthening legal aspects and coordination. In addition, to improve literacy and halal lifestyles in the community, a national campaign on Halal Lifestyle is needed. In the second stage, several initiatives are to be carried out as the main programs, among others: the establishment of the National Halal Fund as a forum for halal industrial financing, establishment of a regional Halal Hub to strengthen domestic halal industry and activation of the Islamic Inclusive Financial Service Board that can position Indonesia as an international reference center for the development and governance of Islamic social funds. Furthermore, in the third stage, foreign cooperation is required in the form of the establishment of the International Halal Center as a foreign investment accelerator for the halal industry and the harmonization of Indonesian halal certification standards abroad. By carrying out the overall strategy and program, it is hoped that the vision to realize “an independent, prosperous and civilized Indonesia by becoming the world’s leading economic and financial center” can exist in the future. xv
  16. The economic challenges after a decade of the global financial crisis are increasingly complexed and diverse . The risks of trade finance and geopolitics has placed various countries in an unstable and vulnerable positions. In responding to various external uncertainties, the ability to capture opportunities and transform is the key to resilience for the national economy. Indonesia, is part of a global citizen. As a member of the G20, Indonesia contributes greatly to the formation of the world GDP. In addition, it is undeniable that with the majority of the population being Muslims, Indonesia is part of the international Muslim community that has helped shaped the global Islamic economic trend. Message from the Minister The State of Global Economic Report 2018/2019 estimates that the total Muslim expenditure in 2017 is approximately USD 2.1 trillion, which is around 0.27% of the total gross product in the world. This figure derives from the consumption of halal food, followed by modest fashion, halal media and recreation, halal travel as well as halal pharmacy and cosmetics. This potential is expected to continue to increase along with the growth of the world’s Muslim population. With the most Muslim population in the world, Indonesia is the biggest consumer of halal products in the international market. However, our contribution to producing halal products to the world is still not optimal. This is reflected in Indonesia’s 2018 ranking as the first in consumer of halal food, the third in modest fashion, the fifth in halal travel-halal media and recreation, and the sixth in halal pharmaceutical-cosmetics. This is unfortunate, given the enormous potential of Indonesia’s Islamic economy. However, these conditions also reflect opportunities for Islamic economic development which can have a positive impact on the national economy balance sheet. Among other things, the development of Muslim fashion products support the textile and apparel industries, which is Indonesia’s leading export commodities. Whereas the promotion of halal travel is in line with the expansion of the tourism sector which is the pillar of the trade balance of services. Therefore, Islamic economics is a comparative advantage for the national economy. The target of Islamic economic achievement at the domestic level is increasing the scale of business, independence and prosperity. While at the international level, to increase in the ranking in the Global Islamic Economy Indicator (GIEI). Islamic economic development is expected to be able to maximize local expertise in capturing global opportunities in the form of halal lifestyle trends that prioritizes ethical products in goods and services. This view is in line with the national ideals to be an independent, sovereign, just and prosperous country. Therefore, the government invites the participation of all layers of the Indonesian society in the development of the Islamic economic to establish “An Independent, Prosperous, and Civilized Indonesia by Becoming the World’s Leading Center for Islamic Economics”. Jakarta, December 2018 Minister of National Development Planning / Head of Bappenas Prof Bambang Permadi Soemantri Brodjonegoro, S.E, M.U.P, Ph.D. xvi
  17. The Islamic economy is an alternative in responding to the dynamics of the global and national economy . Various countries are competing to make a ‘pie’ of the Islamic economy, which continues to grow along with the growth of the world’s Muslim population accompanied by increased halal awareness. Competition between Southeast Asian countries as one of the regions with a concentration of Muslim population is getting rougher. Of course, Indonesia does not want to be left behind in the competition in the international arena. Message from the Deputy Like two sides of a coin, there are opportunities followed by various challenges. Therefore, to realize “An Independent, Prosperous, and Civilized Indonesia by Becoming the World’s Leading Center for Islamic Economics “ requires the right strategy. The main strategy chosen was the input of the stakeholders, including entrepreneurs, associations, regulators and experts and academicians. Reinforcement of Halal Value Chain is the main strategy that accelerates the Islamic economic growth. With the real sector as a driving force, the resulting multiplier effect is more optimal. The main sectors that are the focus of strengthening the Halal Value Chain includes halal food and beverage clusters, Muslim fashion, halal tourism, halal media and recreation as well as halal pharmaceuticals and cosmetics. To obtain maximum results, the development of various clusters are also accompanied by the strengthening of Islamic finance, MSMEs, and the digital economy. Not only that, the main strategy requires the support of various factor to continue to develop continuously. The basic strategy is needed to ensure a solid Indonesia Islamic economic foundation. Strengthening regulation and governance is one of the fundamental factors. In addition, capacity building for research & development; improving the quality and quantity of human resources; renewable energy development; increasing public awareness and literacy; and data, information and technology are aspects that are not to be excluded. The Indonesia Islamic Economic Masterplan is structured to capture the image of the latest national Islamic economic landscape. Through a complete understanding, identification of challenges and opportunities faced becomes increasingly measurable. This is the basis of Islamic economic development planning that is integrated in the national economy. The Indonesian government oversees the preparation of the Indonesia Islamic Economic Masterplan as a reference for the direction of the national Islamic economic development for economic players both from within and outside the country. Going forward, the government will continue to oversee the implementation of the Indonesia Islamic Economic Masterplan dynamically to ensure the creation of a real positive impact for Indonesia as a nation. Jakarta, December 2018 Deputy for Economics Dr. Ir. Leonard VH Tampubolon, MA xvii
  18. 1 Indonesia Islamic Economic Landscape
  19. Real sector is the main implementation focus in Islamic economy , particularly those with the potential to increase economic growth nationally. More specifically, products and services. Principally for those that are using halal labels to distinguish it from other products.
  20. Context Islamic economy in Indonesia is in its critical stage preparation are efforts to increase the role of various as it is in the midst of global economy uncertainty and Islamic economic sectors in developing the nation . it is competing against its rival regional economies. Roles and contribution of the Islamic economy towards the national economy is not yet significant for it to be labelled as an important pillar in helping Indonesia with the world’s economy that has become more vulnerable, uncertain, complex and ambiguous (VUCA). However, even the minimum contribution of Islamic economy does not illustrate the potentials of Islamic economy, which is strategically beneficial for Indonesia’s current and future economy. The minimal role of Islamic economy is due to the development of various sectors in the Islamic economy ecosystem, which are not optimal. The coverage and development of the Islamic economy, which is still leaning towards the financial sector is also an obstacle. The development of Islamic finance is triggered by several factors: among them 1.Meaning of Islamic Economics Islamic economics in this masterplan means an economic system based on the Islamic principles (Shariah). It covers all existing economic sectors, both financial and real sectors. Islamic economic system must also provide benefits (maslahah) that is equitable and sustainable for each element in the economy. Islamic economic in this document refers to the 2013 Global Islamic Economy Report, which is a global report series on the economic performance of the world’s Muslim countries. Based on the report, Islamic economy means all the core sectors of the economy together with the ecosystem, which is structurally influenced by consumers’ lifestyles and are the urgent need of the society for an interest-free business’ practices that are driven by Islamic values. financial system, to have responsive regulators as This definition is consistent with what was required for Islamic finance and to have an Islamic finance development system model that is globally available to replicate. Other factor that has caused Islamic non-financial sector’s lack of development is the perception and reality that largely the industrial sector in Indonesia has fulfilled the halal requirements. However, this perception is misleading because the market demand for halal products, Shariah certification and confirmation is a main prerequisite. Therefore, the Islamic economic connotation, which is similar to proposed by economist Frederic Pryor (1985). According to him, the Islamic economic system is a theoretical construction of the industrial economic systems; the followers adhere to the teachings of Islam. However, Pryor still considers Islamic economics limited to the construction of theory, but the emphasis that the system is operated by Muslims, is consistent with the understanding offered by researchers and other Islamic economic thinkers. Timur Kuran (1986) for example, explains that that of Islamic finance or banking must be reviewed. practitioners of Islamic economics makes informed The Islamic Economy Masterplan is an effort by decisions based on the norms contained in the the Indonesian Republic Government together with the stakeholders of the National Shariah Finance Committee (KNKS), to improve the economic condition. The document and all stages in its 4 Indonesia Islamic Economic Masterplan 2019-2024 Quran and Sunnah. What’s interesting is that the Islamic economy is not only run by Muslims, as Pryor understood, but also to those whose decisions
  21. are guided by the economic principles derived from other words , Islamic economics is halal economy the Quran and the Sunnah. according to the syara’. With this comprehensive This understanding is in line with what was concluded by Umer Chapra (1997), that the Islamic economic system prioritizes social and economic justice, and the balance between material and definition, coverage of the Islamic economic development roadmap covers all sectors of the economy categorized as Shariah compliant or halal and it is in accordance with maqashid Shariah. spiritual needs. This is the definition of a universal Furthermore, in this report the main focus of the Islamic economic system and is consistent with the implementation of the Islamic economic development direction of national development, the foundation of is in the real sector, especially the Islamic economic Pancasila, and strategy sustainable development sectors that have the potential to increase economic that has been adopted, such as sustainable growth nationally. More specifically, the selected development goals (SDGS). sectors are the production and services sectors that have applied for halal branding or labels to separate 2.Islamic Economic Scope Based on the various definitions above, it can be concluded that the coverage of Islamic economics is extremely wide. Economic activities which are based on the Quran and the Sunnah, and the activities carried out by Muslims correctly and comprehensively are itself from other products, or halal Value Chain. Halal itself has a broad scope because it is an integral part of the Islamic economy and this can be seen in the definition of halal products in Law No.33/2014, which states “halal products are products that have been declared halal in accordance with Islamic law”. known as Islamic economic activities. Thus, Islamic economic covers financial sector, philanthropy and the real sector broadly. The main characteristics of Islamic economics, other than being derived from the Quran and Sunnah, is free from the elements of usury, gharar, maysir, and components that are forbidden in Islam. In Indonesia Islamic Economic Masterplan 2019-2024 5 Indonesia Islamic Economic Landscape 1
  22. Background and Conditions of Islamic Economy Indonesia is a country where Muslim followers are over 87 .18 percent from 232.5 is also reaching more than 20% of Indonesia’s total million GDP. More than USD 200 billion was contributed by populations (Global Islamic Economy Report 2018- the consumption of the halal industry in Indonesia, as 2019). This is the size of a large halal market. much as USD 169.7 billion or 84.85% was contributed According to the same report, Indonesia ranked in by the consumption of halal food. Nevertheless, the top 10 consumers’ ranking in each sub-sector Indonesia is still not in the top 10 position in the GIEI in the halal industry. Indonesia ranked first for ranking since 2014 for halal food production. top Muslim food expenditure, ranked fifth for top Muslim travel expenditure, third place for Muslim top apparel expenditure, ranked fifth for Muslim top media expenditure, and ranked sixth for top Muslim pharmaceuticals expenditure. However, Indonesia is placed in the top 10 only for these five industries because according to the Global Islamic Economy (GIE) Index, Indonesia can only be found in the category of halal tourism and Muslim fashion. The current condition of Indonesia’s halal industry shows that a large consumption of Shariah compliant or halal1 products in Indonesia are imported. Halal products are imported to meet domestic demands, which also indirectly affect Indonesia’s trade balance that currently continues to be in the deficit. This means Indonesian halal industry also plays an important role in suppressing the trade Based on GIEI ranking, Indonesia has a stagnant inclination at 10th place since 2014 to 2018. Even in 2017, Indonesia’s GIEI ranking has dropped by one rank in the 11th place. This stagnation is caused by six halal industry sectors that are part of the composite measurements, including halal food, Islamic finance, halal travel, modest fashion, halal media & recreation, and halal pharmaceuticals & cosmetics. Indonesia’s halal food and halal media & recreation sectors has never been consistently placed in the top 10 of the GIEI since 2014-2018, in fact the score decreased in 2018. Even though the Islamic finance sector is often in the top 10, but the progress made in the span of the last five years is relatively stagnant at ninth and tenth position. balance deficit by raising the production side of the Significant increase in rank can be seen in the halal industry in Indonesia. The issuance of UU no. halal travel sector where Indonesia ranked fourth in 33 of 2014 in relation to the law of Halal Product 2017 and 2018 as in the 3 previous years it did not Guarantee is one of the efforts of the government even penetrate the top 10. This is followed by the to raise the size of the halal industrial production in modest fashion sector that has increased sharply Indonesia by requiring selected products to obtain and ranked second in 2018 where Indonesia had halal certification. never made to the top 10 since 2014. However, the Overall, the consumption of the halal industry in Indonesia in 2017 reached more than USD 200 billion or more than 36% of the total Household Consumption and Non-Institution Profit. This figure 1 In this document, the halal industry or economic is an economic activity that is in accordance with the principles of Shariah. To such extent, the terms of halal economy and Islamic economy have the same meaning. 6 Indonesia Islamic Economic Masterplan 2019-2024 increase in ranking of the two sectors above is not proportionate with the development of the halal pharmaceuticals & cosmetics sector, which just came out of the top 10 in 2018 after four previous years it was ranked seventh and eighth place. Indonesia’s stagnation in the halal weighted index composite report rankings was influenced by the low production capacity of national halal commodities,
  23. Graph 1 .2.1 Comparison of Halal Sector Scores in Indonesia 2014-2018 Source: Global Islamic Economy Gateway (2018) 65 36 35 38 42 46 36 40 40 42 46 38 41 40 41 42 35 34 36 34 21 20 19 20 16 9 Islamic Economy Halal Food Halal Travel 2014 2015 44 8 Muslim Fashion 2016 2017 9 10 Halal Media & Recreation Halal Pharmaceuticals and Cosmetics 2018 when consumption figures were relatively high. This has caused Indonesia to only be the target market for halal products in the world and not become the center of halal production of goods and services. Having two sectors that have never entered the top 10, with one sector that is stagnant, and the other with a declining rating are the reasons why Indonesia have not been able to penetrate a better ranking in the top 10 even if there is an increased in the other two sectors. Indonesia Islamic Economic Masterplan 2019-2024 7 Indonesia Islamic Economic Landscape 1
  24. 1 .Conditions of the Global Islamic Economy Islamic global macroeconomic and economic analysis uses the approach adopted by the World Economic Outlook (IMF), Global Economic Prospect (World Bank), and Global Islamic Economy Report (Thomson Reuters). There are three available main indicators used in the global macroeconomic analysis, including global activity indicators, which include an increase in gross domestic product (GDP prices in 2015, an economy crisis of Mediterranean European countries and Latin America, the Fed’s interest rate increased, as well as depreciation of various currencies against the US dollar, are also issues that affects the economic growth in the last few years. However, in general, the global economy is experiencing a cyclical recovery seen from the global financial condition, accommodative monetary policy, increase in the consumer confidence index, as well / GDP growth), world trade and as global inflation. as strengthening prices for various commodities. In general, the global macroeconomic condition growth projections tend to be further down. This is relatively stable in the recent years. However, with the increasingly intense trade competition initiated by countries’ protection policies like the US, the global economic outlook is estimated to experience an adjustment, even though it is still Nevertheless, despite the cyclical recovery, economic is reflected in the weak capital deepening, slow productivity growth in various countries, as well as unfavorable changes in the global economy demographics. relatively in a stable range. While global Islamic Table 1.1 economic projections tend to be better, especially World Economic Growth Projection (%) with economic conditions remaining stable for high- Source: IMF and World Bank (2018) income Muslim countries in the Gulf region (Gulf Cooperation Council - GCC), and countries with middle income with large population of Muslims: like Indonesia, Turkey, Malaysia, Bangladesh and Pakistan. a. Global Macro Economy Over the past five years, the global economics’ growth is in the range of 2% - 3% (yoy) based on the data of International Monetary Fund (IMF) and the World Bank. Meanwhile, projections in 2019 and 2020 remain constant at around 3%. The highest economy growth rate is in the South Asia region and Asia Pacific (6% - 7%). Whereas the lowest economic growth occurs in the Latin America region and the Caribbean (0% - 1%), it was even negative. For economics’ growth in advanced countries and Europe, it remains stable at 1% - 2%. This relatively stable global economic growth occurred amidst the various gloomy global trade issues, like Brexit, and trade wars between the United States and. Besides that, the drop in the world oil 8 Indonesia Islamic Economic Masterplan 2019-2024 2015 2016 2017 2018 2019* 2020* IMF 2.80 2.47 3.16 3.37 3.29 3.00 World Bank 2.80 2.44 3.05 3.10 3.03 2.90 The second global macroeconomic indicator is world trade. Growth in global trading volume (% change) in the last five years experienced a positive trend of 3% -5%, though there was a decline in 2015 and 2016. Meanwhile, the projections of the global trade growth volume 2019 and 2020 stands at 4%, or lower compared to the two previous years. This is due to the intense trade tension related to uncertainty in policies in the future, which gives negative sentiments to businesses, triggering financial market volatility, and slowing down tradeinvestment. Increasing protectionist practices, which increased with the apparent America First’s policy from President Donald Trump, created various trade barriers that disrupts global supply chains and has become part of the inner production process in the
  25. the decline of global productivity , which had made traded consumer goods become less affordable and ultimately resulted in harm to the world community, especially to the lower income household. b. Global Islamic Economy The Islamic economic sector began to be a concern when several global institutions such as Thomson Reuters published the potential expenditure of Muslim consumers for various Table 1.2 World Trade Projection Volume (%) Source: IMF and World Bank (2018) 2015 2016 2017 2018 2019* 2020* IMF 2.74 2.27 4.88 5.08 4.66 4.29 World Bank 2.70 2.30 4.30 4.00 3.90 3.80 The last macroeconomic analysis is on global inflation. Over the past five years, inflation is at 1% - 2% (World Bank Data) and 2% - 3% (IMF Data). The inflation rate tends to be lower if compared to the projections in 2019-2020 according to the World Economic Outlook, which are 3.36% and 3.30%. This is because commodity prices have increased in the recent times in both groups, namely in the advanced economies and emerging markets / developing economies. In advanced economies, the inflation rate is estimated at around 2%. Meanwhile, countries with developing economies with the exception of Venezuela, it is estimated to be at 5%. In developing countries, the core inflation rates are projected to be more dispersed, not limited to economic cycle conditions as occurred in advanced economies. Other influencing factors include inflation expectations and the government’s inflation target. consumer products, along with the increasing purchasing power of Muslims throughout the world. In various reports published since the end of the decade of the 2000s, the global Islamic economic industry focused on consumption or highly competitive sectors. Therefore, the sectors reported were food, lifestyle, tourism, and the financial sector, which had already developed. In 2021, Muslim consumers’ expenditure for food & lifestyle sector is projected to reach USD 3 billion, while Islamic banking assets are projected to reach USD 3.5 billion. This amount is large considering the increase had reached 57% for the food & lifestyle sector and 75% for Islamic finance if calculated from the year 2015. If further elaborated, there are at least six halal industries that already exists within the global scope, this includes halal food, halal travel, modest fashion, halal media & recreation, halal pharmaceuticals & cosmetics, and Islamic finance. Of the six sectors, the halal food sector is the biggest pillar of the halal industry in terms of revenue. Until 2014, the global halal food sector’s market share reached 17%. It can continue to grow if there are global regulations and standards that can attract more halal food producers to enter this segment. On the demand side, Muslims’ halal food is estimated to reach USD 1.9 billion in 2021. Table 1.3 World Inflation Projection Rate (%) Source: IMF and World Bank (2018) 2015 2016 2017 2018 2019* 2020* IMF 2.80 2.47 3.16 3.37 3.29 3.00 World Bank 2.80 2.44 3.05 3.10 3.03 2.90 1 Other sector that has received a large amount of attention and a very significant development is Islamic finance. Even though it is still dominated by banks, the development of Islamic finance today has led to the maximization of the potential of zakat and waqf, as well as crowdfunding. In addition, Islamic capital market instruments such as Islamic stock indices and sukuk have also been widely used by government institutions. In terms of global asset-based market share, Islamic banking is still Indonesia Islamic Economic Masterplan 2019-2024 9 Indonesia Islamic Economic Landscape recent years. Besides that, trade war also results in
  26. 0 .9% compared to global banking. However, the With a relatively large demand, the continuity of CAGR of growth in assets is projected to increase existing supplies is needed by means of developing by 11% every year. real industry and maximizing integrated halal finance. Meanwhile, the other four halal lifestyle sectors In the State of the Global Islamic Economy also have considerable potentials, as the following Report 2018-2019, among the 15 major countries data. surveyed to measure total achievement of global Travel USD 243 trillion (2021) USD 368 trillion (2021) Fashion Media Recreation development of Islamic economic, Malaysia was 8.2% USD 262 trillion (2021) Pharmacy - USD 213 trillion (2021) Cosmetic ranked first for almost all indicators or sectors 6%-9% (overall score 127). While Indonesia is placed in 6%-9% tenth position. Overall, Indonesia’s rank rose a step from last year, previously at eleventh position. 6%-9% However, by sector, the United Arab Emirates occupies the top position for almost all clusters, except for Islamic finance, while Indonesia is ranked differently for each clusters. The highest rating Figure 1.1 Global Islamic Economy Rating Indicator 2018/2019 Source: State of the Global Islamic Economy 2018 Top 15 Countries Top 10 Malaysia 127 UAE 89 Bahrain 65 Saudi Arabia 54 Oman 49 Jordan 49 Qatar 49 Pakistan 46 Kuwait 45 Indonesia 45 Brunei 37 Sudan 34 Bangladesh 32 Turkey 31 10 Indonesia Islamic Economic Masterplan 2019-2024 Top 10 Halal Food GIE Indicator Score 1 2 3 4 5 UAE Malaysia Brazil Oman Jordan 1 2 3 4 5 6 7 8 9 10 Australia Brunei Pakistan Sudan Qatar 6 7 8 9 10 Top 10 6 7 8 9 10 UAE Indonesia Singapore Malaysia Turkey China Italy France Bangladesh Sri Lanka Malaysia Bahrain UEA Saudi Arabia Kuwait Qatar Pakistan Oman Jordan Indonesia Halal Travel 1 2 3 4 5 UAE Malaysia Turkey Indonesia Maldives 6 7 8 9 10 Thailand Tunisia Azerbaijan Jordan Albania Top 10 Halal Top 10 Halal Modest Fashion 1 2 3 4 5 Top 10 Halal Finance Halal Media and Recreation 1 2 3 4 5 6 7 8 9 10 UAE Singapore Qatar Malaysia Lebanon Bahrain United Kingdom Germany France Brunei Pharmaceuticals and Cosmetics 1 2 3 4 5 6 7 8 9 10 UAE Malaysia Singapore Jordan Pakistan Brunei Egypt Saudi Arabia Bahrain Azerbaijan
  27. Globally , Muslim consumers continue to be the ranked second, or rose sharply from tenth position fastest growing group in the world, with a ratio of in last year’s report, followed by halal travel which one Muslim in four people around the world. By ranked 4th - the same position was obtained in the 2050, the total Muslim population in the earth will previous year, and the Islamic finance was in 10th increase to 2.8 billion people or around one third position. While other sectors are not included in the of the world’s population. The majority of them top 10 issued by GIEI. are from the Asia Pacific region (Mastercard, This report mentions the following facts of numbers 2,2 Muslims globally spend for Halal products in 2016 Islamic financial sector assets 1,24 254 Halal Food Halal Fahion 198 169 Halal Media & entertainment Halal Travel 83 57,4 Halal Medicines Halal Cosmetics Trillion USD Billion USD Billion USD have not fully consumed halal products, religious awareness is increasingly high and easy access to 2 Trillion USD 2018). Although the majority of Muslim consumers Trillion USD information on halal trends from other countries such as UAE, Malaysia and Indonesia results in a requirement for halal certifications. Billion USD Billion USD Billion USD Indonesia Islamic Economic Masterplan 2019-2024 11 1 Indonesia Islamic Economic Landscape occupied by Indonesia is in modest fashion, which
  28. 2 .National Islamic Economic Conditions sector, Indonesia’s economic growth mainly comes from the information and communication sector, which in 2017 grew by around 9.8% (yoy). This a. Indonesia Macro Economy Indonesian macroeconomic analysis and the Islamic economic sector uses analysis approach for key macroeconomic indicators, especially economic growth (gross domestic product / GDP), GDP distribution, inflation rate, and unemployment rate. In addition to the key indicators, macroeconomic analysis also takes into consideration politics, economy, social, technology, environment, and legal rapid growth is an opportunity in the development of the digital economy, which is driving the growth of the information and communication sector more rapidly. In addition, the high growth rate was also seen in the services sector. This reflects the process of transforming economic development from the primary and secondary sectors to the tertiary. Until 2017, Indonesia’s GDP was still dominated by the processing industry with a share of 20.2%, (PESTEL). During the last five years, Indonesia’s economic growth was in the range of 5% (yoy). In the first semester of 2018, the national economy grew by 5.17% (yoy), namely from 5.06% (yoy) in the first quarter and 5.27% (yoy) in the second quarter. The growth rate occurred in the midst of various challenges in the global economy, including the risk of trade wars, the trend of rising world oil prices, and the monetary policies of various trading partner countries. followed by the agriculture, forestry and fisheries sectors of 13.1%. The other three sectors that dominate Indonesia’s GDP are large trade and retail, motorcycle repair, construction, mining, and excavation sectors. Of the five sectors with the largest contribution to the GDP, construction is the only sector with a growth rate above the GDP growth rate. This is in line with the government’s efforts to promote infrastructure development. This condition also reflects the lack of optimal development in other leading sectors. The development of halal industry, which is largely a sub-sector of various sectors, can Graph 1.2.4 Indonesia’s economic growth (%yoy) Source: BPS (2018) be an accelerator for Indonesia’s economic growth. Economic growth experienced constant inflation rate over the past few years. Fluctuating inflation prices continues to suppress and has produced a 60 5.56 general inflation rate in the range of the government’s 5.5 target. Meanwhile, according to expenditure groups, 5.01 50 4.88 5.03 5.07 inflation of food and processed food, beverages, cigarettes, and tobacco, are experiencing a downward 4.5 trend. While the group clothing expenditure tends to increase. 2013 2014 2015 2016 2017 Based on expenditure, public consumption supports national income, which in 2017 contributed 56.13% to the GDP. However, the consumption growth rate is at the level of economic growth of around 4.95% (yoy). While investment growth is reflected in the surrounding PMTB 6.15% (yoy) as one of the drivers of national economic growth. By 12 Indonesia Islamic Economic Masterplan 2019-2024
  29. Political Factors . Indonesia’s Inflation Rate 2013 – 2017 (%yoy) An important development in the last five years Source: BPS, Information: 2013 (2007=100), 2014-2017 (2012=100) is the government’s seriousness to advance in INFLATION 2013 2014 2015 2016 2017 General 8,38 8,36 3,35 3,02 3,61 Core 4,98 4,93 3,95 3,07 2,95 Prices Regulated by the Government 16,65 17,57 0,39 0,21 8,70 Volatile Goods 11,83 10,88 4,84 5,92 0,71 Islamic economy. This was realized by compiling the Indonesian Islamic Financial Architecture Masterplan (MAKSI). This also include the Establishment of the National Islamic Finance Committee (KNKS) by the Head of State, through Presidential Regulation (Perpres) number 91 of 2016. The economic stability illustrates improvements in various socio-economic indicators per capita GDP, human development index (HDI), poverty rate, gini ratio, and unemployment rate. Per capita GDP and HDI since 2013 showed an increasing trend, which indicated an increase in the quality of life of the community. Whereas, until the beginning of 2018, the poverty level and the gini ratio experienced a downward trend which reflects poverty alleviation and income equity. In addition to the two matters above, the government also prioritizes 4 main areas of Islamic economic development: 1. Strengthening the real sector of Islamic economy, through the halal industry. 2. Increasing the efficiency of Islamic finance. 3. Strengthening Islamic economic research, by increasing the quality of Islamic resources. 4. Establishing Halal Product Guarantee Agency (BPJPH). Economy The development of Islamic economics in Indonesia is influenced by the demand for Islamic The unemployment rate also experienced a financial products. Global market in the field of halal downward trend from 11.37% in March 2013 to industry is very large. The opportunity to develop the 9.82% in March 2018. Even so, as of February halal industry in Indonesia is very high. For example 2018, employment was still concentrated in the in West Sumatra, the majority of the population primary sector, namely agriculture around 30.46% are Muslims (98% based on BPS data from West of the total population with workers aged at 15 Sumatra). Therefore, the public awareness to years and above. However, labor absorption in the consume halal products is also high. Recently, West manufacturing industry sector, as the sector with Sumatra was awarded with the “World’s Best Halal the largest contribution to GDP, is only ay 14.11% of Culinary Destination” award, in the best halal culinary the total population. At the same time, employment destination in the 2016 World Halal Tourism Award in the tertiary sector such as information and (WHTA) competition that took place in Abu Dhabi, communication and the services sector can still be United Arab Emirates (UAE). improved along with the high rate of growth in these sectors. 1 According to the report of the Global Islamic Economy Report (GIEI, 2018/19), with the Muslim Furthermore, national economic conditions are population in Indonesia amounting to 215 million, in ascertained by analyzing aspects of the business aggregate Indonesia spends about USD 218.8 billion environment broadly through political, economy, in all Islamic economic sectors in 2017. Indonesia social, technology, environment, and legal (PESTEL) is a country with the highest level of halal food approaches. consumption at USD17 trillion of the total global halal food and beverage expenditure of USD 1.303 Indonesia Islamic Economic Masterplan 2019-2024 13 Indonesia Islamic Economic Landscape Table 1.4
  30. trillion in 2017 . Indonesia’s ranking for the global Islamic economy increased from 11 to 10. This was driven mainly by an increase in the ranking of halal food. The large number of Muslim population with the largest value of consumption of halal food in the world has not become a driving force for Indonesia to increase halal food production certification. Despite experiencing an increase in scores in the GIEI index, Indonesia in the halal food sector remained at 11th position similar to the previous year. Socio-cultural As a developing country, the agriculture, forestry and fisheries sectors become part of the main livelihood of the large population of the people in Indonesia. This is reflected in the high rate of work contribution in the sector in the regions. In terms of inequality and poverty, the Special Region of Yogyakarta Province has the highest gini ratio in March 2018, which is 0.441. While the lowest percentage is held by Bangka Belitung at 0.281. Indonesia has the advantage of having a district that applies Shariah law, namely Aceh. The Aceh Government has a mission to strengthen the implementation of Shariah law in a manner prescribed in the Aceh Medium Term Development Plan. Public awareness of religion has encouraged them to attempt to convert the current consumption of goods and services into halal. For example in relation to implementation microfinance institutions, based on the information revolution, the practice of good religious teachings, from the Aceh Cooperative and SME Office, almost and the application of intensive Minangkabau all microfinance institutions in Aceh have requested culture in the core of people’s lives, are expected for the application of Shariah principles in its to reach a number of targets: 1) People who are businesses. They are waiting for assistance from noble, moral, ethical, cultured and have a high and the regional and central governments to educate productive work ethic, 2) Harmonious, tolerant and and socialize the implementation of cooperatives peaceful community life, 3) Practicing customary that are purely operated in accordance with Shariah and religious values ​​in socio-economic life. principles. West Sumatra also included a mental development program for religion practitioners based on the slogan of their tradition: adat basandi syarak, syarak basandi kitabullah. The of the principles of mental Technology Digital economic growth in Indonesia shows a satisfactory increase, with higher percentage in the information and communication sector compared to the national economic growth which is at 5%. From 2013 to 2017, digital transactions in Indonesia have 14 Indonesia Islamic Economic Masterplan 2019-2024
  31. Indonesia Islamic Economic Landscape 1 grown by 169 % from IDR 49 trillion to IDR 132 trillion. 2018. In September 2018, there were 67 technical The highest growth is dominated by transactions companies registered with the OJK. Two of these through mobile applications which grew by 383% companies are in the Islamic fintech category, since 2013 and retail transactions through mobile namely PT Ammana Fintek Syariah and PT Dana applications grew the highest with a growth of Syariah Indonesia. 2,437% from IDR 1 trillion in 2013 to IDR 38 trillion in 2017. Based on BPS calculations, the contribution of the digital economy to the Indonesian economy continues to increase. The percentage reached 3.61% in 2016. Then it increased to 4% in 2017. This growth is expected to continue to reach 10% of the total Indonesia GDP in 2018. The Otoriti Jasa Keuangan (OJK) provided data for fintech in the form of P2P lending. The growth of assets from peer-to-peer lending companies in Indonesia also experienced a significant increase in Law Law number 33 of 2014 in relation to Guaranteed Halal Products contains the obligations of all products distributed in the territory of the Republic of Indonesia to obtain halal certification starting from October 17, 2019, except for products that are described as non halal in its packaging,. This law also mandates the establishment of the Halal Product Guarantee Agency (BPJPH), which is authorized to formulate and set policies for halal products, norms, Indonesia Islamic Economic Masterplan 2019-2024 15
  32. standards , procedures and criteria for guaranteeing Local government support is also manifested in halal products. Other powers of the BPJPH includes various regional legal products. West Nusa Tenggara issuing and revoking halal certificates, halal labels Province regulation number 2 year 2016 concerning on products, registering halal certificates for foreign Halal Tourism, aims to regulate halal tourism in the products, accrediting halal inspection institutions, province as a guideline for tourism management registering halal auditors, supervising halal product to provide halal tourism services to tourists, guarantees, fostering halal auditors, and cooperating ascertain destination scope, for marketing and with internal and foreign institutions in the field of promotion, for the industry and institutions and implementing halal product guarantees. coaching and supervision. The NTB Regional On the other hand, issuance of regulations relating to Islamic banking have started since a decade ago. Law number 21 of 2008 concerning Islamic Banking mentions the principles of Islamic banking business activities are based on Shariah principles, democracy, economy and prudence. Islamic banks function as collectors and distributors of public funds as well as social functions in the form of baitul mal institutions and collect social funds in the form of cash waqf. Islamic banks that have obtained business licenses must clearly state the word ‘syariah’ in its name. Various institutional regulations have also been issued. For example, Regulation of the Republic of Indonesia National Zakat Agency number 3 of 2018 concerning Distribution and Utilization of Zakat regulates the group of mustahik in accordance with the Quran, namely indigent, poor, amil, converts, riqab, gharimin, sabilillah and ibn sabil. Zakat is distributed in the fields of education, health, humanity, da’wah and advocacy. Distribution is carried out according to stages such as planning, implementation, and control. Meanwhile, zakat may be utilized in the fields of economics, education and health. 16 Indonesia Islamic Economic Masterplan 2019-2024 to Government conducts guidance and supervision on the implementation of halal tourism by involving various agencies such as DSN-MUI, BPPD, PHRI, ASITA, FKD and HPI.
  33. as a member of the SMIIC (The Standards and For Indonesia, halal is an economic potential that Metrology Institute for the Islamic Countries), the is not yet maximized. Even so, various steps have institution of standardization of halal processes that been taken by the Government and all stakeholders. is participated by other Muslim countries. This can As stated by the Governor of Bank of Indonesia at the be an obstacle in marketing Indonesian halal labeled opening of the halal lifestyle conference, organized by products to other Muslim countries. Bank of Indonesia and the Indonesia Halal Lifestyle Center (Inhalec). This conference is part of a series of activities leading to the annual IMF-World Bank 2018 meeting and the Indonesia Shariah Economic Festival 2018. The development of Islamic economy in Indonesia should observe the profile of future consumers. Millennial generations play an important role in the nature and development of economies throughout the world. They are considered to be the “In developing Islamic economy and finance, most powerful economic forces in the 21st century. especially the halal industry sector, Bank Indonesia The global Muslim population is growing because of together with the government and related institutions their increasing knowledge in modern technology. adhere to the 4 C principle, namely; a strong The number has increased by almost 73% from commitment from the relevant parties (commitment), 1.6 billion in 2010 and will be 2.8 billion in 2050. A concrete implementation third of these Muslims are under 15 years of age (concrete), synergy between institutions and parties and almost two thirds are under 30 years old. They involved (collaborative) as well as intense education are often referred to as Generation Y. Millennials are on halal lifestyle (campaign)” born between 1980 and 2000. Recent studies show programs for easy As part of the strategy to develop the halal value chain ecosystem, BI has implemented various Islamic economic development programs they have a combined purchasing power estimated at USD 2.45 trillion. in agriculture, food, fashion, tourism and renewable energy sectors. In its implementation, BI helped economic empowerment of 134 Islamic boarding (Pesantren) schools in 31 regions of Indonesia. Meanwhile, the Indonesian Ulema Council (MUI) with the Institute for the Assessment of Food, Pharmaceuticals and Cosmetics (LPPOM) acts as a halal certification authority. Products that have been certified by LPPOM MUI in 2015 reached 35.62 from 33,905 companies. In the Constitution No.33 of 2014 in relation to Guaranteed Halal Products, it is confirmed that products that entered, circulated and traded in the territory of Indonesia must be certified halal starting from 2019. Indonesia Islamic Economic Masterplan 2019-2024 17 1 Indonesia Islamic Economic Landscape However, Indonesia has yet to be registered 3.National Islamic Economy
  34. Regional Economic Conditions and Potential for Islamic Economic Development Economic growth is now a yardstick in measuring national and regional economic development GRDP growth rate 2014 .d. 2017, Sumatra region has a variety of growth rates. Of the ten provinces in in Sumatra, the province of West Sumatra has Indonesia to date can be reflected in the Gross the highest average growth rate of 5.49%. Other Regional Domestic Product (GRDP) and GRDP provinces approaching the figure are Bengkulu growth rates. The data provided by the Central (5.22%), North Sumatra (5.16%), and Jambi (5.15%). Statistics Agency on a regular basis is a reference to West Sumatra’s rapid economic growth is an see the performance of each region at the provincial opportunity for the development of halal industry in level. Another indicator is the GRDP per capita. the region. achievements. Regional economic growth The above graph shows the GRDP of all provinces On the other hand, on the island of Java, the in Indonesia in 2017. Regions with high GRDP values​​ average GRDP growth rate of 2014 to 2017 does not are still dominated by provinces on the island of have many variations. The highest average growth Java. The highest GRDP is contributed by DKI rate is by DKI Jakarta Province with a value of 5.98%. Jakarta Province with a value of IDR2.410 trillion. The The second position is East Java Province with an second and third positions were each contributed by average growth rate of 5.58%. East Java and West Java provinces with a value of IDR2.019 trillion and IDR1.786 trillion. Third province has the potential to be developed further especially in the context of economic development through the halal industry. In addition to the GRDP value itself, the GRDP growth rate also reflects the economic performance of a region. Based on graphs on the average Based on GRDP per capita data in 2017, DKI Jakarta Province still dominates with the value of per capita GRDP of IDR232 million. Meanwhile, in the Sulawesi region, the highest per capita GRDP is in South Sulawesi Province with a value of Rp. 48 million per capita. The development of regional Islamic economic, other than emphasizing halal industry, is to also Graph 1.3.1 Indonesian Regional GDP for Prices in 2017 3000000 2500000 1500000 2000000 1000000 500000 0 18 ACEH SUMATERA UTARA SUMATERA BARAT RIAU JAMBI SUMATERA SELATAN BENGKULU LAMPUNG KEP. BANGKA BELITUNG KEP. RIAU DKI JAKARTA JAWA BARAT JAWA TENGAH DI YOGYAKARTA JAWA TIMUR BANTEN BALI NUSA TENGGARA BARAT NUSA TENGGARA TIMUR KALIMANTAN BARAT KALIMANTAN TENGAH KALIMANTAN SELATAN KALIMANTAN TIMUR KALIMANTAN UTARA SULAWESI UTARA SULAWESI TENGAH SULAWESI SELATAN SULAWESI TENGGARA GORONTALO SULAWESI BARAT MALUKU MALUKU UTARA PAUPA BARAT PAPUA Nilai (Rp Miliar) Rp. Billion Source: BPS (2018) Indonesia Islamic Economic Masterplan 2019-2024
  35. ACEH SUMATERA UTARA SUMATERA BARAT RIAU JAMBI SUMATERA SELATAN BENGKULU LAMPUNG KEP . BANGKA BELITUNG KEP. RIAU DKI JAKARTA JAWA BARAT JAWA TENGAH DI YOGYAKARTA JAWA TIMUR BANTEN BALI NUSA TENGGARA BARAT NUSA TENGGARA TIMUR KALIMANTAN BARAT KALIMANTAN TENGAH KALIMANTAN SELATAN KALIMANTAN TIMUR KALIMANTAN UTARA SULAWESI UTARA SULAWESI TENGAH SULAWESI SELATAN SULAWESI TENGGARA GORONTALO SULAWESI BARAT MALUKU MALUKU UTARA PAUPA BARAT PAPUA Nilai (Rp Ribu) Rp. Thousand 0.00 ACEH SUMATERA UTARA SUMATERA BARAT RIAU JAMBI SUMATERA SELATAN BENGKULU LAMPUNG KEP. BANGKA BELITUNG KEP. RIAU DKI JAKARTA JAWA BARAT JAWA TENGAH DI YOGYAKARTA JAWA TIMUR BANTEN BALI NUSA TENGGARA BARAT NUSA TENGGARA TIMUR KALIMANTAN BARAT KALIMANTAN TENGAH KALIMANTAN SELATAN KALIMANTAN TIMUR KALIMANTAN UTARA SULAWESI UTARA SULAWESI TENGAH SULAWESI SELATAN SULAWESI TENGGARA GORONTALO SULAWESI BARAT MALUKU MALUKU UTARA PAUPA BARAT PAPUA Laju Pertumbuhan (%) Growth Rate (%) Graph 1.3.2 Average GDP Growth Rate for Constant Price 2010 Source: BPS (2018) 10.00 8.00 6.00 4.00 2.00 Graph 1.3.3 Indonesia’s Regional GDP per Capita at Current Prices Source: BPS (2018) 250000 200000 150000 150000 50000 consider the potential of halal tourist attraction. in the development of the halal industry, the Islamic Based on Ripparnas (National Tourism Development Economic Masterplan includes a sample of selected Master Plan) 2015-2025, there are several halal regions, namely the province s of Nangroe Aceh destinations in the provinces of Aceh, West Sumatra, Darussalam, West Sumatra, We s t Java, East Java, Yogyakarta and South Sulawesi. This includes taking Special Region of Yogyakarta , South Kalimantan, into account social aspects including the role of South Sulawesi, and West Nus a Tenggara. culture and Islamic values ​​in these areas. Therefore, Indonesia Islamic Economic Masterplan 2019-2024 19 Indonesia Islamic Economic Landscape 1
  36. Figure 1 .2 Indonesia Population Density Map (in souls / km2) Source: BPS (2018) > 100 100 - 199 200 799 800 - 1199 <_ 1200 a potential in the real halal industry. The two halal Aceh Aceh is one of the provinces in Indonesia that implements Shariah law. In addition to regional regulations, Aceh has a qanun or similar to Shariah regulations which are used as a reference for the administration of the government and the community there. In the economic field, people in Aceh have huge motivation to run the economy in accordance with Shariah law. The Aceh Government has issued a number of regulations to support the implementation of Islamic economy. Firstly, Aceh Qanun Number 10 of 2007 regulates the Baitul Mal and optimizes the utilization of zakat and waqf. In addition, there is Aceh Qanun Number 8 of 2016 that regulates the guarantee system for halal products to protect Acehnese from the consumption of nonhalal goods. At present, the Aceh Government is also drafting a qanun, which will regulate Islamic financial institutions. The Islamic finance industry in Aceh has enormous potential. In 2016, Aceh was the first province to have its regional banks converted to Islamic banks. Likewise, with Islamic cooperatives, which are targeted by the Office of Cooperatives and SMEs, all are operating in accordance with the Shariah. Apart from Islamic finance, Aceh also has 20 Indonesia Islamic Economic Masterplan 2019-2024 industry clusters that have become productive in Aceh are food and tourism. Halal food and beverage industry can be supported by the large potential of both raw materials, such as agricultural products, forestry, and fisheries, which contributed 29.6% to the GRDP. Finally, Aceh also has a distinctive cultural heritage and beautiful natural areas. The city of Sabang is the flagship destination of Aceh at the international level that offers the scenic beauty of the beach and blue reefs, which is one of the deepest in the world. In addition, Sabang also has a strategic port and has the potential to be an international halal port. West Sumatra New year celebration of 1440 hijriah (which falls in 2018) became a special moment for West Sumatra, as the Padang City Government officially launched its Islamic economic system. The development of Islamic economics is intended to strengthen the ummah. Previously, the empowerment of Islamic economics were carried out through the establishment of scattered Islamic Financial Services Business Groups (KJKS) in 104 villages. In 2018, the Governor of West Sumatra also ordered the directors of PT Bank Pembangunan Daerah West
  37. Sumatra (Bank Nagari) to convert to Islamic bank. segments, West Java has several opportunities to West Sumatra also has the potential for halal tourism dominate the market. in the 2015/2025 National Tourism Development Master Plan (Ripparnas). Some of the efforts that have been made by the West Java government to meet halal standards are reflected in the regional strategic policies in If observed from the condition of the community encouraging the competitiveness of the Small and and its regional potential, West Sumatra has the Medium Industries (IKM) through halal certification. opportunity to develop halal industries in food and One of them is a collaborative program carried out agriculture, tourism, MSMEs, and fashion. The with the West Java MUI to facilitate halal certification sectors are indeed in line with priority numbers 5 for food, health and cosmetics products, where and 6. The local government wishes to increase the numbers from 2010-2016 has reached 11,572 production to support national food sovereignty certificates (BPS, 2017). and develop agribusiness, tourism, industry, trade, cooperatives, MSMEs, and investments. The East Java opportunity to develop a halal industry in West There are 6,044 Islamic boarding schools in East Sumatra is very large considering that 98 percent of Java Province. That number represents 20.87% the population are Muslims (based on West Sumatra of all pesantren in Indonesia (Ministry of Religion, BPS data). Awareness of halal products is also high. 2018). Most of them have Baitul Maal wa Tamwil West Sumatra’s achievements in the halal industry (BMT) and are utilized by the local community. have been recognized with the award of “World’s This indicate that this province has great potential Best Halal Culinary Destination”, the best halal for the development of Islamic boarding schools. culinary destination in the 2016 World Halal Tourism The potential for Islamic economic development is Award (WHTA) competition in Abu Dhabi, United also strengthened by the contribution of MSMEs. Arab Emirates (UAE) in December 2016. Based on the national economic census in 2017, the West Java number of MSMEs in East Java is estimated to reach 9.59 million business units with more than 95% of West Java has a crucial role in the development which are micro-enterprises. All contributions to of Islamic economics considering that 46.5 million the economy are around 54.98%. In terms of halal Indonesians are there. Where as many as 98% of tourism, East Java is also a halal tourist destination them are Muslims. In addition, out of the total 28,961 set by the Ministry of Tourism. Islamic boarding schools in Indonesia, 32% of them are located in West Java. This potential made Bank of Indonesia assess the prospective of West Java province as an Islamic economic axis. In the context of Islamic finance and banking, the East Java provincial government has also begun preparing for the acceleration of the spin-off of Bank Jatim Syariah Business Unit to become an West Java has the potential to become the Islamic Commercial Bank in 2017. The process is flagship of halal tourism in Indonesia. This province still ongoing. The local government’s commitment to has wealth in the form of attractive art treats, rich Islamic economic development and Islamic finance culture, as well as potential natural resources is contained in the East Java Provincial RKPD in (geographic factors) that are considered ‘selling’ as 2019. There are efforts in developing the Islamic tourist destinations. Declaring as one of the halal economic financing, which is one of the directions of tourist provinces, West Java is considered highly. the regional financial policy. The source is from non- There are three popular segments that ought to be government financing. internationally standardized in the tourism sector: culinary, fashion and cosmetics. From the three Indonesia Islamic Economic Masterplan 2019-2024 21 Indonesia Islamic Economic Landscape as it is included as one of the halal destinations listed 1
  38. Yogyakarta In terms of finance , Islamic finance in Yogyakarta has contributed 1.18% from the total distribution of Islamic financing as of September 2018. Although this contribution is relatively small, in Yogyakarta, the growth rate of financing is relatively high. In 2015, Islamic finance grew by almost 8% because of the large number of MSMEs in Yogyakarta that took the dominant portion in the composition of Islamic banking financing distribution. As for the real sector or halal industry in particular, Yogyakarta has the greatest potential to contribute to Indonesian halal tourism. According to data from the Ministry of Tourism in 2018, Yogyakarta is one of the 10 countries that is listed as 10 halal tourism destinations in Indonesia. At present, halal tourist destinations in Yogyakarta is not the objectives of the local government. This can be seen from the lack of regional regulations regarding halal industry. In the future, Yogyakarta will develop a halal tourist destination that will continue to accommodate local demands with the establishment of the Indonesian Halal Tourism Association. In terms of halal certification, there were only 299 out of 40,000 entrepreneurs who applied for such certification. Furthermore, Media and Halal Recreation also has the potential to be developed with the support of vocational education institutions in traditional arts such as SMK 1 Kasihan government has made halal tourism regulations Bantul known as the Yogyakarta ISMS. specifically through the Regional Regulation No. 2 of West Nusa Tenggara was built in the city of Mataram and is a government The West Nusa Tenggara province was awarded with the 2015 World Halal Travel Award in the category of World Best Halal Tourism Destination and World Best Halal Honeymoon Destination. This has become a comparative advantage for WNT Province in developing the tourism sector, especially halal tourism. With the appointment of WNT Province as the World Best Halal Tourism, there was a significant increase in the number of foreign and local tourist visits in 2016. In terms of regulation, WNT province became a pioneer in the making of regulations relating to halal tourism, the WNT provincial 22 Indonesia Islamic Economic Masterplan 2019-2024 2016. In addition, the Hubbul Wathan Islamic Center effort to increase the infrastructure of halal tourism destinations in WNT province. The potential for developing the halal industry in WNT province is also supported by the MSME sector. The WNT provincial government is developing the Mandalika Special Economic Zone and there are around 300 SMEs provided with facilities in the form of business locations to support the tourism development. In addition, the agricultural sector contributed 21.97% to the WNT provincial GRDP. To such extent, agriculture has the potential to support the development of the halal industry.
  39. Indonesia Islamic Economic Landscape 1 South Sulawesi South Sulawesi is one of the provinces that have the potential to encourage Indonesia ’s Islamic economy in the Islamic finance sector and the halal industry sector. According to the Bank of Indonesia’s South Sulawesi Representative Office, the South Sulawesi Islamic banking financing assets are the largest in Eastern Indonesia (KTI). In addition to the commercial finance side, South Sulawesi is also considering social finance, where endowments can reach up to 23% of national collection. In terms of halal industry, the province of South Sulawesi is also included as one of the top 10 halal tourist destinations in the Indonesian Ministry of Tourism The development of halal industry in South Sulawesi can be initiated by developing halal tourism that uses a Muslim friendly approach. Tourism offered by South Sulawesi varies namely natural tourism, historical tourism and convention tourism (MICE). The regional government seeks to support regional tourism by building infrastructure, especially the construction of roads and hospitals. Meanwhile, based on the sectors that contribute the most in South Sulawesi, the industries that can be developed are the agricultural and halal food industries. At present, the main commodities that are widely exported by South Sulawesi are still based on upstream industries, namely cocoa, seaweed, version 2018. Indonesia Islamic Economic Masterplan 2019-2024 23
  40. and marine products . Going forward, enlarging The hope is that the province will become a the processing of this commodity is a strategy to national halal tourist destination. Infrastructure increase benefits while developing the halal industry development also supports halal tourism program in South Sulawesi. as a focus. For example, the development of South Kalimantan The Government of South Kalimantan plans the direction of development from the mining sector to the main non-mining sector in 2019, which includes tourism, food sovereignty, industrial down streaming, and trade and services. This shift was carried out in the tourism sector to welcome the “Visit South Kalimantan 2020” program. The concept of base tourism programs with the approach of religious nuances in the city of Banjarmasin and South Kalimantan. Halal tourist destinations such as Riam Kanan, Mandiangain, Kahung Valley and its surroundings are generally most visited and these destinations can become economic halal tourism regions. 24 Indonesia Islamic Economic Masterplan 2019-2024 Syamsudinoor Airport, which further adds to the comfort of tourists visiting. The food sovereignty sector is also expected to contribute to support halal food and will increase agricultural productivity. The downstream sector of the Batulicin and Jorong industrial area will be optimized to function as a provider of halal food and beverage where it will encourage exports and imports.
  41. Economic Sector and Potential Development for Islamic Economic in 8 Provinces in Indonesia MAIN ECONOMIC SECTOR •• Agriculture, forestry and fisheries (29.60%) Aceh •• Wholesale, retail, motor vehicle reparation (16.07%) •• Government administration, defense and compulsory social guarantees (9.56%) •• Agriculture, forestry and fisheries (23.55%) East Sumatra •• Wholesale, retail, motor vehicle reparation (15.05%) •• Transportation and warehousing (12.64%) •• Processing industry (42.29%) West Java East Java Yogyakarta West Nusa Tenggara South Sulawesi •• Wholesale, retail, motor vehicle reparation (15.10%) •• Construction (8.26%) •• Islamic finance •• Halal food and beverages •• Halal tourism •• Halal tourism •• Halal food and beverages •• Modest fashion •• Halal food and beverages •• Halal tourism •• Processing industry (13.12%) •• Halal food and beverages •• Wholesale, retail, motor vehicle reparation (18.18%) •• Halal tourism •• Agriculture, forestry and fisheries (12.80%) •• UMKM •• Processing industry (13.12%) •• Halal food and beverages •• Provision of accommodation, food and beverages (10.32%) •• Halal tourism •• Agriculture (10.01%) •• Modest fashion •• Agriculture, forestry and fisheries (22.9%) •• Halal tourism •• Mining and excavation (19.45%) •• Agriculture •• Wholesale, retail, motor vehicle reparation (13.22%) •• UMKM •• Agriculture, forestry and fisheries (22.9%) •• Halal food and beverages •• Wholesale, retail and motor vehicle reparation (13.9%) •• Halal tourism •• Processing industry (13.7) •• Halal cosmetics •• Mining and excavation (20.75%) South Kalimantan ISLAMIC ECONOMIC POTENTIAL DEVELOPMENT SECTOR •• Agriculture, forestry and fisheries (14.59%) •• Processing industry (14.39%) •• Halal media and recreation •• Halal food and beverages •• Halal tourism Indonesia Islamic Economic Masterplan 2019-2024 25 1 Indonesia Islamic Economic Landscape Table 1.5
  42. Islamic Economy Stakeholder Mapping The identification of the Indonesian Islamic organizations . Various existing agencies will economic policy stakeholders is based on the have roles that can specifically contribute to the categories of ministries and institutions that development of the halal industry. are stakeholders of KNKS, ministries and other institutions, as well as associations / community Table 1.6 Mapping of Islamic Economy Stakeholders CATEGORY AGENCY Ministry of Religion Affairs Ziswaf, SDM, legal Co-coordinator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, Ziswaf Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, Ziswaf, human resource, legal Bappenas Coordinator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, Ziswaf OJK Regulator Digital economy, Islamic finance, SDM, legal LPS Regulator Islamic finance, legal Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, Ziswaf, legal Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, legal Ministry of Cooperative and Regulator UMKM Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, legal Indonesia Ulama Council Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, Ziswaf, legal, research and development Halal Product Guarantee Agency Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, research and development, legal Bank of Indonesia Ministry of Finance Ministry of BUMN Other K/L 26 SUPPORTED INDUSTRY Regulator Ministry of Economic Affairs KNKS’ Stakeholders ROLE Indonesia Islamic Economic Masterplan 2019-2024
  43. Other K /L Community Association/ Organization Hajj Financial Management Regulator Body Islamic finance, Ziswaf Ministry of Technical Education Regulator SDM, research and development Ministry of Education and Culture Regulator SDM, research and development Ministry of Trade Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, legal Ministry of Industry Regulator Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, legal National Defense Agency Regulator Ziswaf Ministry of Tourism Regulator Halal tourism, legal Ministry of Agriculture Regulator Halal food, legal Ministry of ESDM Regulator Renewable energy Indonesia Islamic Economic Landscape 1 Ministry of Village, Development of Rural Areas Regulator and Transmigration Halal tourism, UMKM National Amil Zakat Body Regulator ZIswaf, legal Indonesia Zakat Body Regulator Ziswaf, legal Drugs and Food Control Agency Regulator Halal food, halal pharmaceuticals and cosmetics, legal Ministry of Communication Regulator and Information Halal media and recreation, digital economy, legal Creative Economy Body Regulator Modest fashion, halal media and recreation, legal Nadhlatul Ulama Community Organization SDM Muhammadiyah Community Organization SDM Association Industry Community Organization Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, ziswaf Community Community Organization Halal food, halal tourism, modest fashion, halal pharmaceuticals and cosmetics, halal media and recreation, UMKM, digital economy, renewable energy, Islamic finance, ziswaf, SDM, research and development Indonesia Islamic Economic Masterplan 2019-2024 27
  44. Method of Planning the Indonesia Islamic Economic Masterplan In addition to literature studies and secondary Chain clusters , Islamic Finance, MSMEs, Digital data analysis, the preparation of the Indonesia Economy and the Islamic economic masterplan Islamic Economic Masterplan also relies on data ecosystem. Various Ministries / Institutions related collection and information through various focus to the cluster key stakeholders participated in the group discussions (FGD), independent interviews, FGD I. Among them are the Coordinating Ministry of courtesy visits, stakeholder discussion forums Economic Affairs, Coordinating Ministry for Human and public consultations. These various activities and Cultural Development, Bappenas, Ministry of involved the Finance, Ministry of Religion, Ministry of Health, regulators, associations and entrepreneurs as well Ministry of Agriculture, Ministry of Industry, Ministry as academicians. of Cooperatives and MSMEs, ESDM Ministry, Ministry all stakeholders ranging from of Health, Supreme Court, Bank Indonesia, OJK, BPJPH, BAZNAS, BWI, LPPOM MUI, BPJS Kesehatan 1.FGD Data and information collection through FGDs were held in Jakarta, Aceh, Padang, Yogyakarta, Surabaya, Mataram, Makassar, and Banjarmasin. The implementation of FGDs both in Jakarta and in the regions were carried out in two stages. and BPJS Employment. b. Stage 1 Provincial FGD The FGDs were conducted in the selected provinces simultaneously at the end of October to early November 2018. The FGDs aimed to discuss the potential of Islamic economic development a. Stage I Jakarta FGD The FGDs aimed to collect preliminary data and information to prepare the main strategies of the Islamic Economic Masterplan. This was held in October 2018 in parallel with each of the Halal Value in the provinces. The results obtained include an overview of the current Islamic economics state, regional Islamic economic development plans, opportunities and challenges, and identification of potential sectors for each province. Picture 1.3 FGD Sampling Cities Aceh Padang Jakarta Banjarmasin Surabaya Bandung 28 Indonesia Islamic Economic Masterplan 2019-2024 Yogyakarta Makassar Mataram
  45. c . Stage II Jakarta FGD a. Discussion meetings and forums This was held in mid-December and aimed to Various meetings and discussion forums were confirm the initial draft of the Indonesia Islamic held to discuss the material and contents of the Economic Masterplan. Consultations specifically masterplan from the initial stage to its finalization. on various strategies were prepared based on data The activities were held at a technical level as well as and information obtained from the FGDs and in high level involving decision makers in government depth interviews in Jakarta and various provinces institutions and other stakeholders. in stage I. b. Public consultations d. Stage II Provincial FGD The FGDs were aimed at gathering feedbacks over the initial draft of the Islamic economic masterplan. Public consultations on the Islamic economic masterplan report were carried out in the form of seminars in several campuses at the end of 2018. It aimed to gain wider input and responses from both 2.In-depth interview and Courtesy Visit Various issues related to the Islamic economic development cluster that appeared in the FGDs were deepened through in-depth interviews. The the academicians and the public. The public seminars were held at the Faculty of Economics, Indonesian Islamic University, Yogyakarta, Universitas Darussalam Gontor and STEI SEBI Depok. interviewees were cluster experts but there were also entrepreneurs and regulators. In addition, the masterplan drafting team also conducted courtesy visits to deliver the draft Islamic masterplan to various key institutions such as Bank Indonesia, OJK, Ministry of Finance and MUI DSN. Inputs and responses were also obtained to improve the Indonesia Islamic Economic Masterplan. Indonesia Islamic Economic Masterplan 2019-2024 29 Indonesia Islamic Economic Landscape 1
  46. 2 General Description of the Indonesia Islamic Economic Masterplan
  47. Principles of Islamic economic system are upholding the value of justice and sustainability . The objective is to bring the national economy to an inclusive, sustainable and robust growth against crises.
  48. Design Framework for the Islamic Economic Masterplan The design framework for the Indonesia Islamic Islamic finance industry , and social funds. Whereas, Economic Masterplan was compiled with a clear the second recommendation is the establishment vision to develop a masterplan, roadmap and other of a National Islamic Finance Committee or Komite pre-existing guidelines to adjust according to the Nasional Keuangan Syariah (KNKS) as a coordinating latest conditions and challenges both globally and institution whose role is to ensure that all relevant locally. The references for the design framework stakeholders carry out the Masterplan action plans includes the Medium and Long Term Development effectively. In its implementation, until the end Plan Finance of 2018, only the second new recommendation Masterplan (MAKSI), the economic and Islamic can be implemented properly. Thus, a more up- finance blueprint, the roadmaps from various to-date guidance is needed to implement the Islamic financial regulators (such as the Islamic, recommendations that were not implemented. (RPJM), the Indonesia Islamic Islamic non-bank financial industry and Islamic capital market roadmaps) and other related sector roadmaps (such as the creative economy and digital economy roadmaps). It is therefore expected that this Masterplan can become a more relevant and comprehensive guide in developing the Indonesia Islamic economy in the future. 2.MAKSI Framework The initiation of the Islamic finance and economic development in Indonesia was pioneered by Bank Indonesia and was standardized in June 6, 2017 in the Indonesia economic and Islamic financial blueprint. This framework is proposed to form the basis of the national strategy for the Islamic economic and 1.Islamic Finance Masterplan Action (MAKSI) financial development by all the stakeholders of the National Islamic Finance Committee (KNKS). The Islamic Finance Action Masterplan (MAKSI) is This blueprint has a broader scope than MAKSI, as one of the important documents in the development MAKSI only focuses on the Islamic financial sector. of Islamic finance in Indonesia. MAKSI can be said to be very strategic as it is the government’s initial effort to unite various roadmaps of the existing Islamic financial institutions into one complete roadmap. MAKSI was launched by the Ministry of PPN / Bappenas at the 12th World Islamic Economic Forum (WIEF) held in Jakarta on 2-4 August 2016. MAKSI several Islamic economy and financial development, ii) basic policy development frame w ork, iii) strategies and action plans, and iv) cooperation and coordination; working with both intern a l and external parties for the development of Islam i c economy and finance. Within this design frame w ork, it can be seen that including the history and landscape of the Indonesia Islamic economy and fina n ce may not develop Islamic finance industry, strategic review of the partially. The economic sector may not develop Islamic finance industry in Indonesia and the main optimally without the s u pport from the financial obstacle in the growth of the Islamic finance industry sector; likewise, the fi nancial sector will not grow in the country. In addition, MAKSI also provided two without the demand from the real sector. In addition, main recommendations to develop Islamic finance research, assessment an d education are also in the country. The first is the increase and expansion important factors that supports effectiveness, of the banking industry, capital market, non-bank innovation, and economic and financial development Indonesia Islamic Economic Masterplan 2019-2024 important namely: i) basic values ​​and basic principles of ideas, 32 explained This framework outlines four main aspects,
  49. Figure 2 .1 Islamic Finance and Economy Development Framework Source: Blueprint of Bank Indonesia Islamic Economic and Financial Development (2018) The world’s Islamic Economic and Finance Centre Achievement Targets Main Indicators Main Strategies Increasing Islamic Business’ Assets Islamic Financing Facility Increasing Islamic Business’ Assets Increasing Islamic Business’ Assets Increasing Islamic Business’ Assets Islamic Business’ Assets’ Growth (% per annum) Islamic Financing Share (% Total Islamic Money Market Outstanding Share (% per GDP) Literacy Index International Initiation Strengthening Islamic Economy Strengthening Islamic Money Market Strengthening Islamic Economy Halal Value Chain Regulation Research and development Infrastructure Main Work Program Institution Instrument Education Investors’ Basis Supporting Infrastructure Base Strategies Regional Policy Human Resources in Shariah. Therefore, these three sectors form the three main pillars that are to be carried out within the design framework of the Islamic economic and financial development. This framework is one of the references for the national Islamic economic and financial development. In fact, at the end of 2017, in a limited meeting of the KNKS plenary preparation, this framework was proposed as a national Islamic economic and financial strategy in Indonesia. This proposal was then taken to the KNKS plenary meeting with President Joko Widodo. Balance National Policy Data and Information Institution International Policy Co-ordination and Co-operation 3.Development of the Framework for the Indonesia Islamic Economic Masterplan Furthermore, at the Plenary Meeting of the National Islamic Finance Committee (KNKS) dated February 5, 2018, President Joko Widodo directed the KNKS’ stakeholders to compile a Masterplan for Islamic Economy that focuses on developing the real sector of the Islamic economy or known as the halal industry. This is done to encourage the development of Islamic finance, which contributes indirectly to the national economic development. This is because the role of Islamic finance is to support the national economic development and it Indonesia Islamic Economic Masterplan 2019-2024 33 General Description of the Indonesia Islamic Economic Masterplan 2
  50. may not stand alone without the development of the the important factor to support the development of real sector . Therefore, it is necessary to compile an Islamic e conomics. Institutions such as business Indonesia Islamic Economic Masterplan, which can associat i ons, boarding schools, social sectors and be a reference in the development of the Islamic internat i onal cooperation initiatives are needed economy in the country. to stren g then institutions and maintain synergy Initially, MAKSI and the existing Islamic finance blueprint developed the Islamic economic development framework. This proposed framework envisions Indonesia to be the center of Islamic economics in the world that focuses on strengthening the Islamic economy through the development of the Halal Value Chain industry, increasing institutional effectiveness and infrastructure. Within strengthening this supporting framework, three pillars were structured to strengthen the Islamic between the institutions them. This enables the halal industry to progress at the same time encourages the incl u siveness of supporting institutions. While in the t h ird pillar, supporting infrastructure for the Islamic e conomic development and halal industry, such as complete guidelines, the existence of Islamic economic zones in the regions, adequate funding sources and collaboration and connectivity between stakehol d ers of the halal industry are crucial in driving t he growth of this industry. economy. These three pillars include Halal Value The prop o sed national Islamic economic Chain, institutional effectiveness, and infrastructure development framework is enriched with roadmaps strengthening. from various related institutions (such as the creative In the first pillar, halal Value Chain is one of the main strategy that includes several key sectors of halal industry such as halal food and agriculture, modest fashion (Muslim fashion industry), halal pharmaceutical and cosmetics, halal tourism and travel and halal recreation and media. This industrial development has an important role in supporting the implementation of national development. As an illustration, a well-developed halal industry can contribute to the economy through meeting the demands of the domestic halal market, which is currently dominated by global players. This is in line with the momentum of the development of high economy and digital economy roadmap). In addition, it is ne c essary to develop specific strategies for supporti n g ecosystems such as MSMEs and the digital e conomy. Not only that, the framework for this proposal was presented in various forums, such as Focus Group Discussions (FGDs) and public test act i vities involving various Shariah economic stakeholders in the country, which aimed to obtain inputs and improvements for this framework. After receiving these various inputs, this framework was amended. Most of the components in the previous proposal remain in the new framework with slight adjustme n ts in the design. domestic demands for halal products. In addition, One of t h e most important aspirations is the domestic production of halal products can also similari t y of the perception that the masterplan contribute to strengthening the balance of payments, framewor k especially if it is able to meet global demands for developm e nt of Indonesia’s Islamic economy. halal products. This is a shared vision of the Islamic economic In addition to contributing to the economy and strengthening Indonesia’s balance of payments, the principle of Islamic economic system upholds the values ​​of justice and sustainability, which can bring the nati o nal economy to an inclusive, sustainable and robu s t growth against crisis. Therefore, in the second p i llar, institutional effectiveness is one of 34 Indonesia Islamic Economic Masterplan 2019-2024 is created in order to support the policy s t akeholders and is in line with the national development goals. The vision is further elaborated into the targets, main strategies, and basic strategies containe d in the masterplan to meet Indonesia’s needs in promoting Islamic economic potential and addressi n g existing constraints and challenges.
  51. Picture 2 .2 Indonesia Islamic Economic Masterplan Framework ACHIEVEMENT TARGETS MAIN INDICATORS Independent, Prosperous and Civilized Indonesia as the World’s Leading Islamic Economic Centre Increasing the Scale of Islamic Economy Increasing Ranking in the Global and National Islamic Economic Indices Increasing Economic Independence Increasing Welfare Index Increasing Islamic Businesses’ Production and Assets Increasing Score/Ranking in Global Islamic Economic Reports Increasing Food and Energy Self-Sufficiency Increasing National and International Shariah Maqasid Index Strengthening Islamic Finance Strengthening Micro, Small and Medium Enterprises General Description of the Indonesia Islamic Economic Masterplan VISION MAIN STRATEGIES Strengthening Halal Value Chain MAIN PROGRAMS BASE STRATEGIES • Halal Hub Region • Halal Certification • Halal Lifestyle campaign • Investment Incentives • International Collaboration • National Halal Fund • Islamic Inclusive Financial Services Board (IIFSB) • ZISWAF-Fiscal-Commercial Integration • Framework and indicators for monetary, macroprudential and macroeconomy policies Increasing public awareness Increasing quantity and quality of Human Resources In its implementation, the Islamic economic Strengthening Digital Economy • Education for Micro Entrepreneurs • Integrated Financing Facilities for MSMEs • MSME Database • MSME Literacy Increasing research and development (R&D) capacity • Halal Marketplace and Islamic Financing System • HVC Start-up Incubators • Information system integrated with halal product’s traceability Strengthening Fatwa, Regulation and Governance In the end, a mutually agreed upon Islamic development may not stand alone without a well- economic integrated Islamic financial system. Vice versa, the dimensions mentioned above. In this case, Islamic finance requires the real sector to create the masterplan framework is prepared using the an Islamic ecosystem. To integrate the Islamic Strategic Mapping approach or Balanced Scorecard, economic and financial systems and sectors where the basic strategy becomes an important requires supporting infrastructure facilities and element that influences the program, strategies, basic strategies. Therefore, the identification and achievement targets and visions (See Picture 2.1.3). strategy carried out must be able to cover a diverse scope of work, not only locally, but also nationally and internationally. Human Resources, research and innovations, and regulations are still considered development framework covers all The above framework of the Indonesia Islamic Economic Masterplan is explained in detailed as follows: obstacles and challenges in the Islamic economic development. Indonesia Islamic Economic Masterplan 2019-2024 2 35
  52. Vision of Islamic Economy the center of Islamic economy of the world ”. Apart 1.Vision of Islamic Economy from considering the various matters above, the The vision of Islamic economy in Indonesia is formulation of this vision is based on the desire developed from the desirous visions and goals of the to make halal industry and Islamic economy the Republic of Indonesia to be achieved in the future, foundation of the national economy, and become taking into consideration changes that occur globally an important part in realizing the aspirations of the and domestically. In the Indonesian document 2045 nation as a just, prosperous, and sovereign country. issued by Bappenas, Indonesia’s vision for 2045 is In addition, the vision of the Islamic economy in for Indonesia to be sovereign, advanced, fair and Indonesia is based on Islamic values, the basic prosperous. Sovereign, advanced and prosperous principles of Islamic economics, and the potentials describes the independence to achieve the goals of Indonesia’s Islamic economy today. and the desires of the country, to protect the entire nation and all of Indonesia’s blood brothers, advance public welfare, and educate the life of the nation. In addition, Indonesia is also committed to carrying out the world order based on independence, persistent peace and social justice, which are the hallmarks of a civilized society. The detailed explanation of this vision is as follows: Independence or Mandiri As can be seen from the existing potentials, Indonesia is able to move its economy with its own strengths and powers, especially with the abundance Even farther, globally, the Islamic economy of natural resources. This country is identified as industry has received worldwide attention from a self-sufficient nation in all fields. Therefore, the both Muslim and non-Muslim countries. This is meaning of Mandiri is the independence of Indonesia marked by the proliferation of halal industries that not having to rely or depend on other countries, are becoming a global trend. Therefore, several especially to meet the needs of its own people. In countries reconsidered their economic policies to the context of halal industry, independent economy focus on halal industry. In some Islamic countries, is an economy that can be driven by local potentials the development of this sector has also become and resources, especially those that have local a national policy with consistent and continuous expertise that other countries do not have. Economy support from the central government and regional independence can also be interpreted as being able governments. However, until 2018, Indonesia is still to know the supporting and inhibiting factors faced listed as the largest consumer of market for halal in building a sustainable economy. This definition products / services in Indonesia and has yet to can also mean that the independent halal industry become a major player in the world Islamic economy. business’ activities are capable of overcoming value Compared to other countries, Indonesia has still not chain problems and can progress with their own been able to increase literacy and mutual awareness capabilities. on the importance of the halal industry sector as established by government policies. In relation to halal industry, independence can be seen from the upstream process, including, the Therefore, the vision to be achieved by this halal value chain. The value of independence will be independent, created if all halal industry sectors are interrelated prosperous and civilised Indonesia by becoming and can be utilized by one another. The ecosystem masterplan 36 is to produce Indonesia Islamic Economic Masterplan 2019-2024 “an
  53. that can be established will also be a prerequisite realize maqashid syari ’ah by fulfilling human life’s for the realization of economic independence in the needs, especially their basic needs (primer), such halal industry. In this case, Indonesia is very likely to as clothing, food, shelter, education and health. have an ecosystem that can boost the halal industry Brotherhood and justice also demand that resources business sector with the support of government be distributed fairly to all people. policies so that a wider community can feel the Islamic economic independence. In the context of the halal industry, what is meant by prosperity is the utilization of resources for the On the other hand, the meaning of economic production and consumption of this industry in independence is when the Islamic financial services accordance with Islamic values. This is to ensure business is able to move the halal industry sector. that the process and use of goods and services in The advantage of Islamic financial institutions is this sector provides maximum benefit to consumers influential in encouraging this sector to advanced. and producers or the Indonesian public in general. Therefore, the attention and co-operation of Islamic financial institutions is not just for financing but also to be able to prove that Islamic finance is independent of the halal industry both in the upstream and downstream. In addition, economic independence can mean the increase of the people’s income with their involvement in this sector. With rising income, it is hoped that it will elevate an increase in the halal industry not only nationwide but also internationally. Thus, an increase in income will increase the value exports and at the same time will reduce the value of Indonesia’s imports of halal industrial products. At this stage, the condition of self-sufficiency in the halal industry sector can be realized and can improve Furthermore, in the context of the country, a prosperous economy begins with a rapid halal industry that can be enjoyed by all levels of the Indonesian society. Simultaneously, the industry can also reduce reliance on imports. Thus, problems in current accounts can be reduced and prosperity in this sector can be realized. Civilised or Madani In theory, the civil society economy is a manifestation of the value of the society’s values​​ into economic life, which constitutes “shared value”. Economic civil society is a feature of Islamic economy and one of the purposes of Islamic economy. The downfall of conventional economy the welfare of the Indonesian people. is due to the absence of a capable civilized society Prosperity or Makmur to the changing times and noble principles. What is that can drive the economic values in corresponding Prosperity is the main purpose of a national meant by civilized society is a society that has stages economic order. A prosperous economy means of civilization and can change by building, living and being able to prosper the people and reducing interpreting according to Islamic values. economic inequalities. Therefore, prosperity is intended to fulfill the needs of the people. Needs in this context are spiritual and physical needs starting from clothing, food and shelter. Generally, prosperity means contentment, trust and care for one another. Prosperity demands that all resources be utilized to Civilized halal industry activities are activities carried out by the community with high levels of literacy and awareness that can improve the welfare of the people. This can be seen from the improvement of the gini ratio and the economic inequality of the Indonesia Islamic Economic Masterplan 2019-2024 37 General Description of the Indonesia Islamic Economic Masterplan 2
  54. community . Madani from this perspective is based on the stability of the economic life of the community by upholding the values ​​and principles that are in accordance with Islamic t e achings. It is possible for Indonesia with majori t y of Muslims to have its economic activities mobilized by a civilised society. More clearly, Indonesia w i th a civilised economy vision is a manifestation of religious values in its economic activities. 2.Key Target and Indicators With the vision of “an independent, prosperous and civilized Indonesia by becoming the world’s leading economic and Islamic financial center”, there are four main achievement targets recommended in the Indonesia Islamic Economic Masterplan, namely (1) scaling up the business of Islamic economics, (2) increasing rank in the Global and National Islamic Economic Index, (3) Increasing economic independence and (4) Increasing the welfare index. Each of these achievement targets has at least one main indicator. In addition, the main achievement target is also connected to the main strategy and quick wins policies recommended in this report. The following is an explanation of each of the main achievement targets and indicators for the main target. a. Increasing the scale of Islamic economy Increasing the scale of Islamic economy is the main target directly related to all aspects in the vision of Islamic economy and financial development in Indonesia. Scaling-up businesses is a prerequisite to develop a national Islamic economy and finance, so that it can later develop into the world’s leading Islamic and financial centre. By becoming the world’s leading Islamic economic and financial centre, it is hoped that an independent, prosperous and civilized society can be realised in Indonesia. There are two main indicators for this achievement target, namely: •• 100% increase in business scale in the field of Islamic economy and finance (i.e. has doubled the current condition) in the next 5 years. At present, the business scale in the field of Islamic economy and finance in Indonesia is still not clearly defined and may not be specifically measured. However, some indicators (such as a list of non-halal products and a small list of negative investments) can show that the potential for development is large. Thus, with various strategies to accelerate Islamic economic and financial development, especially in the proposed halal industry sector, it is expected that the business scale in this field can increase by 100% or double the current condition in the next 5 years. 38 Indonesia Islamic Economic Masterplan 2019-2024
  55. General Description of the Indonesia Islamic Economic Masterplan 2 •• Increase 20% market share in Islamic finance in the next 5 years. Until the end of 2018, the market share of Islamic finance in Indonesia has only reached 8.58%. However, there is potential for more. Therefore, with various proposed strategies for Islamic economic development, the Islamic financial market share is expected to increase to 20% in the next five years. b. Increase in Islamic Economic Index Nationally and Globally To achieve the goal of becoming the world’s leading economic and financial centre, inevitably Indonesia must show an increase in various global rankings related to Islamic economics and finance. In addition, given that the ultimate goal is to be an independent, prosperous and civilised society within the framework of the unitary state of the Republic of Indonesia, therefore increasing the relevant national index is also a relevant goal. There are two main indicators for this achievement target, namely: •• Enter into the top 5 in the Global Islamic Economic Index (GIEI) in the next 5 years. The Global Islamic Economy Index (GIEI) is one of the global indicators that is most often used to measure the development of the global Islamic economy. The GIEI is a weighted composite index formed from an equal weighted average of four categories of Islamic economic development - namely market share, governance, awareness and consideration / social aspects - compiled from various indicators and includes six Islamic economic sectors in 73 Islamic countries. Based on the aggregate results of GIEI 2018, Indonesia is only ranked 10th in the world (alongside Jordan), although partially Indonesia gets a varied ranking Indonesia Islamic Economic Masterplan 2019-2024 39
  56. in various economic and Islamic financial sectors the share of halal industry exports will also measured in GIEI . Thus, a rating increase is contribute directly to the improvement of very likely to occur if supported by appropriate Indonesia’s strategies and policies. In this case, Indonesia is Economic Index such as GIEI. expected to be able to enter into the top five in strategies and policies carried out, it is expected GIEI in the next five years. to increase the share of halal industry exports to •• Achieve satisfactory performance in the National Islamic Finance and Economics Index in the next 5 years. In addition to the Global Islamic Economy Index, national indicators or indices needs to be ranking in the Global Islamic With various Indonesia’s GDP by 100% or to double the current conditions in the next 10 years. •• Increasing self-sufficiency for food and energy through a reduction of 25% in the strategic industry’s import share in the next 10 years. developed in accordance with the goal of achieving The food and energy self-sufficiency sector can an civilised be seen as a strategic sector that is crucial in Indonesia through Islamic economic and financial the development and economic independence development. This indicator must be in line with of Indonesia. Therefore, an increase in food and the vision of the Indonesian government in 2045 energy self-sufficiency marked by a decline in food and the National Medium Term Development Plan and energy imports was chosen as an indicator of (RPJMN). In the next 5 years, Indonesia can be economic independence. With various strategies expected to achieve satisfactory performance in and policies carried out, in the next 10 years, it this National Islamic Finance Index. is expected that there will be an increase in food independent, prosperous and self-sufficiency and energy through a reduction c. Increased economic independence Economic independence is one of the main goals in Indonesia’s economic development. This has become increasingly relevant presently, where crisis of 25% of the strategic industry’s import share from current conditions. d. Increased Welfare Index and global economic turbulences have affected Increased welfare in various dimensions is the the economic conditions in Indonesia. This also ultimate goal of Indonesia’s national development. caused the current account to be in a deficit and Increased welfare is also a goal of Islamic law or the depreciation of the exchange rate. In fact, economic purpose of Maqasid Shariah. However, at present, independence plays a major role in encouraging the welfare is still measured by ‘conventional’ methods realization of a just, prosperous and civilized society which are not always in line with maqasid al Shariah. in a sustainable manner. Therefore, it is necessary to develop the Maqasid There are two main indicators for this achievement target, namely: •• Increasing contribution or share of halal industry exports to Indonesia’s GDP by 100% (i.e. to double the current conditions) in the next 10 years. Shariah index both nationally and globally. Thus, the main indicator of this main achievement target is the development of (i) the national Maqasid Shariah index and (ii) the global Maqasid Shariah index. In the future, these initiatives are expected to be able to encourage the use of the welfare index in accordance The increase in halal industry’s export share is with a very important indicator, because it directly improvements, especially in Islamic countries. shows the contribution of Islamic economy to the Indonesian economy while demonstrating the expected increase in economic independence from Islamic economics. In addition, increasing 40 Indonesia Islamic Economic Masterplan 2019-2024 Islamic principles in evaluating welfare Furthermore, the targets and key indicators are expected to be implemented gradually, as summarized in the following table.
  57. KPI Strategy /Key Targets No 1 2 3 4 Main Target Base Line (2018) 2019-2020 2021 2022 2023 2024 10% 15% 17.50% 20% Increased scale of Islamic economy business a. Increasing the scale of business in the field of economics and Islamic finance by 100% (or twice the current conditions) in the next 5 years. There is no specific measurement of the Islamic economic Islamic economic business scale business scale measurement and is a national reference b. Increase in market share of Islamic finance to 20% in the next 5 years. 8.58% 9% Increased rankings in Islamic Economic Index a. Enter the top 5 in the Global Ranked in top 10 ( Islamic Economy Index (GIEI) with Jordan) in the next 5 years. Ranked 9th b. Achieve satisfactory performance in the National Islamic Finance and Islamic Index in the next 5 years. National Islamic Economy Index not in existence Developing National Islamic Economy Index a. Increasing the share of halal industry exports to Indonesia’s GDP by 100% (to double the current conditions) in the next 10 years. There is no measurement of the halal industry component in Indonesia’s GDP (Islamic GDP) Islamic GDP calculation study b. Increased self-sufficiency in food and energy through a reduction of 25% in the strategic industry’s import share in the next 10 years. Study of the contribution of the There are no specific food and energy measurements sector to GDP Ranked Ranked Ranked Ranked 8th 7th 6th 5th Increased economic independence Improved welfare index national and The study of a. Developing national and international shariah compilation of international shariah maqasid maqasid Index not in national and Index existence international shariah maqasid Index b. Increase the score / performance in the national and international maqasid shariah index Indonesia Islamic Economic Masterplan 2019-2024 41 2 General Description of the Indonesia Islamic Economic Masterplan Table 2.1
  58. Main Strategies The framework of the Masterplan recommends four main strategies for developing the Islamic economy in the country and realizing Indonesia as the center of the world ’s Islamic economy. First, strengthening the halal value chain with a focus on sectors or clusters that are considered potential and highly competitive. Second, strengthening the Islamic financial sector, as outlined in the Indonesian Islamic Finance Masterplan (MAKSI). Third, strengthening micro, small and medium enterprises (MSMEs) as the main driver of the halal value chain. Finally, utilization and strengthening of digital economic platforms in trade (e-commerce, marketplace) and finance (financial technology or fintech) which are expected to encourage and accelerate the achievement of other strategies. These strategies are further elaborated in various main work programs and are strengthened by the basic strategies related to the Islamic economic ecosystem in Indonesia. 1.Strengthening the Halal Value Chain The main strategy in this masterplan is to strengthen the entire value chain of the halal industry in Indonesia, from upstream to downstream. This is for all clusters, which are prioritised and measured in the Global Islamic Economy Report ranking, as well as those needed by the national economy such as renewable energy or social security. The work programs proposed to strengthen Halal Value Chain is as follows: 1. Building halal hubs in various regions in accordance with the comparative advantages of each of the leading regions. 2. Developing effective halal standards that are accepted throughout the world. 3. Promoting Halal Lifestyle Campaign. 4. Providing incentive programs for local and 42 Indonesia Islamic Economic Masterplan 2019-2024 global players to invest in the development of the Halal Value Chain industry (starting from raw materials, production, distribution and promotion). 5. Building an International Halal Center to strengthen international cooperation. 2.Strengthening the Islamic Financial Sector Strengthening the Islamic Financial Sector is part of the implementation of the Indonesian Islamic Finance Masterplan (MAKSI), and is implemented as an integral part of the MAKSI and Masterplan work programs. The aim of this second main strategy is to ensure that the Islamic financial sector can be driven by the halal value chain or the Indonesian halal industry. At the same time, this strategy also seeks to increase the volume of Islamic banking and financial businesses with wider exposure on the halal production sector. The main programs are as follows: 1. Establishing a National Halal Fund for the halal industry to expedite the growth and halal production centre, which is export oriented. 2. Establishing an Islamic Inclusive Financial Services Board (IIFSB) in Indonesia as a centre for the development of global Islamic social finance. 3. Integrating the ZISWAF, fiscal and commercial sectors to develop outreach in serving all production segments. 4. Developing Frameworks and Indicators for Monetary, Macroprudential and Macroeconomic Policies. 5. Establishing Islamic BUMN Banks
  59. 3 .Strengthening Micro, Small and Medium Enterprises 4.Utilizing and Strengthening the Digital Economy In quantity, Micro, Small and Medium Enterprises The global halal industry is part of the value (MSMEs) are the largest economic sector in Indonesia, chain of various major industries, particularly for although individually the economies of MSMEs are food, fashion and pharmaceuticals. All of these small. In addition, MSMEs also absorbs more than industries are competitive sectors and are the 80% of the national workforce, thus this sector has mainstay of many multinational companies. To an impactful leverage in strengthening the halal value improve competitiveness and endurance from global chain. MSMEs are also the largest business in the competition, the national halal industry must adopt halal value chain, therefore strengthening the MSME a digital strategy for financing and marketing. The sector will directly strengthen the halal industry. In economy and digital platform can also strengthen addition, MSMEs also have a role in achieving key several indicators or achievements in equity, welfare effects, including MSMEs, Halal Value Chain, and the scale and the nation’s economic independence. of production and ranking in global reports. Among The main programs to be implemented are as follows: 1. Establishing educational programs for microbusinesses. 2. Integrating financing facilities for MSMEs. 3. Constructing MSME databases. 4. Establishing MSME literacy programs. strategies or targets simultaneously, the Key Strategies that will be implemented are as follows: 1. Establishing Halal Marketplace and Islamic Financing System. 2. Establishing incubator facilities that can facilitate the growth of start-up companies to strengthen the national halal value chain globally. 3. Integrating information systems for traceability of halal products. Indonesia Islamic Economic Masterplan 2019-2024 43 General Description of the Indonesia Islamic Economic Masterplan 2
  60. Ecosystem Strategy Policy As a prerequisite for the realization of halal To realize this conducive ecosystem , there are Value Chain that can encourage the development several main strategies recommended, including: of Islamic economics and the national economy, 1. Increasing the effectiveness of public literacy. it is important to develop a good, integrated and efficient ecosystem. The intended ecosystem is a system that links the halal value chain as a whole. The ecosystem must also be able to connect all core components and supporters of the halal industry from upstream to downstream. Besides the core players or the various clusters discussed earlier, support system for the Islamic economic ecosystem is equally important. Such support system consists of literacy (related to knowledge, awareness and public education), human resources, research and development, fatwas, regulations and governance. All of these are crucial 2. Strengthening databases related to literacy, education and R & D in Islamic economics. 3. Increasing the effectiveness of the involvement of Islamic entrepreneurs, both in literacy, education and R & D activities. 4. Increasing the quantity and quality of HR and Islamic economic R & D, both in educational institutions, socio-religious institutions and Islamic economic and financial institutions. 5. Strengthening R & D in each sector with a more comprehensive and multi-perspective approach. b. Fatwa, Regulations and Governance in increasing the capacity and scale of the Islamic Fatwas, regulations, and reliable institutional economy and the national halal industry, so that in governance are one of the key factors in realizing the the end it can realize the vision of making Indonesia vision of becoming a global economic and Islamic the center of the world’s Islamic economy. financial center. Legal certainty, relaxed processes, and good governance are factors that all countries a. Literacy, Human Resources and Research and Development Literacy (public awareness and education), human resources (HR), research, and development (R & D) are important parts of the ecosystem and the basic strategy of Islamic economic development in Indonesia. HR readiness is one of the basic capital in dealing with global economic development and the vision of Islamic economic development in Indonesia. In essence, good HR starts from literacy and awareness of a concept and / or a common goal. The HR must also have the willingness to continue to compete and innovate through research and development. This shows the urgency of the literacy, HR and R & D elements because the development of Islamic economics through the halal real industry may not stand alone without competent human resources. 44 Indonesia Islamic Economic Masterplan 2019-2024 refer to (good practice) in the preparation of a masterplan. Completeness of regulations and legal certainty is still a major obstacle in the development of halal industries in particular and Islamic economics in general.
  61. From various major sectors of halal economy , only Islamic finance has been equipped with various legal provisions, fatwas, and dispute resolution mechanisms. While other halal industries still rely on several fatwas relating to halal food, Islamic hotels, and other relevant legal instruments. Some regions, such as Aceh and West Nusa Tenggara, also have Regional Regulations on halal tourism. However, it is specific and does not apply to other regions in Indonesia. For this reason, the immediate step is to ensure that all existing legal instruments can be prepared to support the development of a national Islamic financial market, from credible and professional institutions under a clear legal umbrella. 3. Developing Halal Product Standards and Certifications. 4. Improving sectoral regulations for Islamic economic institutions, which include regulations on Islamic banking, Islamic non-bank (IKNB) financial industries, Islamic philanthropic institutions, and halal industries. 5. Creating a legal framework that links the halal industry and financial institutions. halal value chain. With this perspective, this masterplan recommends the main strategies as follows: 1. Compiling Islamic economic master regulations. 2. The pursuit of the realization of an Islamic economic fatwa covering the needs of the Indonesia Islamic Economic Masterplan 2019-2024 45 General Description of the Indonesia Islamic Economic Masterplan 2
  62. 3 Strengthening Halal Value Chain
  63. The symbol of halal have become the world ’s standard and barometer that determines product quality. Therefore, halal today has become a universal phenomenon that is appreciated by various nations.
  64. Contex As a Muslim majority country , Indonesia should be the world’s Islamic economic centre. The 2.Halal Tourism potential is there beginning with halal certification, This has become an attraction for other countries. public’s awareness on Muslim-friendly products and Although not by Muslim majority countries, some of services, to ease Muslims, their faith and many more. the European countries have contributed to halal The strategy to achieve Indonesia’s vision as the centre of the world’s leading Islamic economy is the strengthening of halal value chain. There are a number of industries relating to the needs of the Muslim communities, which are divided into the following clusters. 1.Halal Food and Beverages tourism. This is a Muslim-friendly tourism genre. This includes Muslim-friendly destinations, with Islamic history or Islamic values, such as al-Hambra in Granada, and various sites with Islamic dynasty inheritance. Others include Muslim-friendly services, such as hotels that offer prayer equipments, kiblat direction, Alquran, and of course halal food. Indonesia has developed such tourism. Halal tourism areas in this country are growing rapidly These are the basic needs of each human for example in West Nusa Tenggara (NTB). There being. For Muslims, halal food and beverage are is a special economic zone (KEK) Mandalika, which compulsory as such consumption illustrates loyalty exhibits the beauty of its coastline. and faith to the Creator. In Alquran’s Surat An-Nahl (16): 114, it sets out the obligation to consume good halal food and beverages. The consumption of these items containing these two values ​​will affect the nutritional quality and the clarity of the heart that will shape a person’s attitude. There is an abundance of halal food in this country; especially in areas with majority Muslim population. Various archipelago specialties, such as rendang, gulai, vegetables, and baked dishes, are available with a variety of extraordinary delights. West Sumatra offers such delicacies. Other regions also have a unique variety of dishes that are equally tempting, and this can attract the world to come and visit Indonesia. 48 Indonesia Islamic Economic Masterplan 2019-2024 3.Muslim Fashion Indonesia is now a mould for such development. A number of Muslim fashion designers have emerged in this country. The hijabi community have also emerged as a group of observers and consumers of the new Muslim fashion. This trend strengthens brotherhood relationship and gave birth to ideas and movements that supports the development of world Muslim fashion trends. Their interactions take place face to face and through online social media.
  65. 4 .Halal Media and Recreation. 6.Renewable Energy Creative industry with Islamic nuances is an Fossil energy will reduce gradually due to an attraction of Indonesia’s community. Among others, increase in consumption. Renewable energy is an creative works in the form of films and animations alternative to ensure that the communities’ mobility originating from novels. For example, Ayat-Ayat remains high. This energy originates from plants and Cinta. It was initially a fictional story written by is developed by scientists via scientific engineering. Habiburrahman Syirazi. It was later adapted into a film and shown in cinemas attracting the national community. Various soap operas had incorporated Islamic Next is the explanation on global and national conditions for each cluster, the challenges and obstacles faced and the main strategies and proposed action plan programs. values in some of its scenes, to the extent of illustrating the value of the product to the majority of the country’s population who embraces Islam as their religion. 5.Halal Pharmaceutical and Cosmetics Cosmetics and medicinal products are now appealing to be labelled as halal. Indonesian Muslims refuses to consume both products if it contains nonhalal elements. This is apparent when observed from Muslims’ reaction on the meningitis vaccination many years before. When it was known that the vaccination contains impure elements (pig), they have collectively rejected it. Majelis Ulama Indonesia later reviewed the content of the vaccination and gradually labelled it as halal. The vaccination is required for Muslims who are performing umrah and hajj. Indonesia Islamic Economic Masterplan 2019-2024 49 Strengthening Halal Value Chain 3
  66. Halal Food and Beverage Cluster The food industry includes a range of activities leading to processing , conversion, preparation, preservation and packaging of foodstuffs. The food industry has now become very diversified, ranging from small manufacturing, traditional, labour intensive family businesses to large capital-intensive industrial processes and industrial mechanical processes (Parmeggiani, 1984). This industry plays an important role in the global food chain by turning raw agricultural commodities into final products to meet the increasingly diverse consumer needs. The issue of halal products and services will always be attached to Muslim consumers. In the Quran, halal and haram are general terms that refers to the category of legitimate or permissible, and haram or prohibited based on Islamic law (Lowry, 2006). Halal products are spread in several industries, including food, cosmetics, fashion and healthcare. However, the intensity of halal sensitivity will increase when it relates to food. The scope of halal food is not only meat and poultry, but also other foods, such as candies, canned and frozen foods, dairy products, bread, organic food, herbal products, and beverages. Halal not only means permissible but it also means “healthy”. For Muslim consumers, halal food undergoes an official halal certification process, to the extent of obtaining authentic halal logo. This means the product has met the requirements set by Shariah law so that it calms the heart of those who consumes it. As for nonMuslim consumers, the halal logo represents a symbol of cleanliness, quality, purity and security (Ambali and Bakar, 2012). Therefore today, halal has become a universal phenomenon and a standard of choice for Muslims and non-Muslims (Nawai, Nooh, Dali and Mohammad, 2007: p.19-44). Indonesia Islamic Economic Masterplan 2019-2024 51
  67. Global and National Conditions of the Halal Food and Beverages Cluster Islam today has the second largest population There are a number of conditions that can widen in the world , after Christianity. According to a recent the opportunity for the halal food industry to become report published by the Pew Research Center Forum the market’s main force in the near future. Elasrag on Religion & Public Life (2017), the world’s Muslim (2016) is of the view that the large increase in Muslim population is expected to increase by around 35% population and purchasing power of Muslims, will in the next 20 years, an increase from 1.6 billion in bring many opportunities for the global halal industry. 2010 to 2.2 billion by 2030 (see Figure 1). On the Another condition is the increased awareness other hand, Surkes (2017) states that between 2010 among Muslims on the need to only consume halal and 2050 the Muslim population has a projected food and the rising trend of consuming halal food growth rate of around 73%, which will be faster than products by non-Muslim consumers for ethical and the average global population growth of 37%. If the safety reasons. growth rate continues until 2050, the global Muslim population will rival Christians in 2060. Tremendous opportunities for the halal market have been grabbed by several countries in the world, In line with the growth of the Muslim population, both Muslim and non-Muslim. Muslim countries demand for halal commodities has also increased. compete against each other to become a halal hub. The latest data from the Global Islamic Economic Malaysia, Indonesia and Pakistan aspire to become Report 2018/2019 states that food and beverages halal hubs and works aggressively to become hold the largest share in the global halal industry key players in producing halal food (Mohamad & with a value of USD 1.303 trillion. Halal food and Backhouse, 2014). Turkey has promoted itself as beverages are projected to reach USD 1,863 billion a halal gateway to Europe and has its own halal in 2023. standards and certification (Ibrahim, 2009). On the other hand, there are many other countries with very small Muslim population who are equally Figure 3.1.1 The Future of Global Muslim Population Source: Pew Research Centre, 2011 6 5.8 B 6.1 B 5.3 B 5 for 40% of the world lamb market where 95% of all New Zealand sheep exports are halal meat and meat and poultry in the world for Muslim-majority countries after Australia, while France has become 2 1.1 B 19.9% 1990 1.6 B 1.3 B 23.4% 21.6% 2000 2010 Non Muslim 52 become significant players in the Global Halal Market has targeted itself as the second largest exporter of 4.2 B 3 0 New Zealand and South Africa are interested to non-halal production is being abolished. Next, Brazil 4.8 B 1 large halal food market. Countries such as Singapore, (Riaz and Chaudry, 2003). New Zealand accounts 7 Billion 4 interested in competing and taking advantage of the Indonesia Islamic Economic Masterplan 2019-2024 1.9 B 24.9% 2.2 B 26.4% an exporter of halal chicken (Ibrahim, 2009). Recently, the halal food market has developed, profited, and influenced in the world food business. 2020 Muslim 2030 Halal food market is a core sector that is structurally
  68. influenced by Islamic values ​​which encourages Figure 3.2.1. consumer lifestyles and business practices (Shikoh, 2015). The potential market for halal food is not only Contribution of the Food and Beverage Processing Industry visible in Muslim countries, but also in non-Muslim Source: BPS (2018) countries. According to the US Halal Association, US Muslims’ purchasing power is around USD 200 billion 6,40% or USD 25,000 per capita and consumes 16% (USD 6,20% 32 billion) of halal meat at Kosher markets because 6,00% of the limited halal products locally available. While 5,80% in the UK, the halal market growth rate is 15%, higher 5,60% than the national growth rate of only 1%. 5,40% Indonesia Halal Food and Beverage Cluster Development 5,20% 5,00% 6,31% 6,14% 5,97% 5,61% 5,32% 2014 2015 2016 2017 The Indonesian food industry has grown rapidly 2018 Triwulan II with a variety of products, as well as the diversity of Indonesian culture that is rich in various types of The Indonesian food industry contributes processed foods and flavors. Indonesia’s agricultural significantly and is developing. The Central Statistics sector is a growing industry, this is because Indonesia Agency (BPS) noted that the processing sector desires to strengthen its agricultural production contributed 20.16% of Indonesia’s total GDP which with an emphasis on increasing food production reached IDR 13,588.8 trillion in 2017. The food and and trade. In the halal food value chain, agricultural beverage industry is still a mainstay of the national products are suppliers that are on the upstream side economy. The important role of the strategic sector of the halal food value chain. can be seen from its consistent and significant During the past five years, the agricultural, forestry and fisheries sectors contributed 13.63% to the GDP. Some of the products and services come from the agriculture, livestock, hunting and agricultural services subsector, which is 10.4% of the total GDP in quarter II-2018. In the same period, fisheries contributed 2.57% and forestry and logging 0.67% of contribution to the GDP of the non-oil and gas industry as well as the increase in investment realization. Although industrial economic growth last year only grew 4.27%, lower than the national GDP growth of 5.07%, the contribution of the food and beverage processing sector continued to show a positive trend over the past 5 years. the total GDP. The agriculture, livestock, hunting, and In addition, the national food and beverage agricultural subsectors are dominated by plantation industry is increasingly competitive because of and food crops. Therefore, the development of the the increasing number. Not only for large-scale agricultural sector through funding support and companies, but also small and medium-sized productivity improvement programs is the capital for industries (IKM) that have reached the regional the expansion of the halal food industry. level. However, according to the MUI LPPOM report, Indonesia Islamic Economic Masterplan 2019-2024 53 Strengthening Halal Value Chain 3
  69. Indonesia is the 4th largest food importing country in the world . This country has not become a major player in the halal food industry. Industries that are leaders in the halal food market in Indonesia are still dominated by large industries (GIEI, 2018/19). Table 3.1 Total of LPPOM Halal Certificate Product Source: LPPOM MUI (2017) YEAR TOTAL ENTREPRENEURS TOTAL SH TOTAL PRODUCTS 2012 626 653 19.830 2013 913 1.092 34.634 2014 960 1.310 40.684 2015 1.052 1.404 46.260 2016 1.335 1.789 65.594 Oct-2017 1.168 1.516 52.982 TOTAL 6055 7764 259984 The halal certification authority in Indonesia is fully managed by LPPOM - Indonesian Ulema Council, but based on Law No. 34 2014 it will be managed to BPJPH under the Ministry of Religion. The MUI Halal Logo has been known throughout the world and is recognized by various halal certification Muslim consumers. Halal certification by MUI plays bodies. Products that have received the halal logo an important role because it is defined as examination by MUI are the first choice for Muslim consumers of certain product processes and meeting hygienic, nationally or globally. MUI’s halal certificates have sanitary and safety requirements. Products that are received recognition from 48 foreign certification certified halal by the board can use the registered bodies in 22 countries. Meanwhile, on February 8, trademark halal logo. Therefore, Hughes and Malik 2018 the MUI has recognized foreign Certification (2017) consider halal certification as a key that Bodies (CB) from 45 countries. enables the development of a successful global At present, halal certification is voluntary but in 2019 it will be mandatory. With halal certification, food and beverage products have many competitive advantages. At present, halal certificates are halal industry. Competitive advantages are obtained by companies with halal certification, especially if they want to penetrate the Muslim community in many countries. an assurance that certain products have been Nooh (2007) argues that halal certification will thoroughly investigated and stated in accordance be a factor that contributes to consumer purchasing with Shariah law and therefore can be consumed by decisions and failure to obtain halal certification 54 Indonesia Islamic Economic Masterplan 2019-2024
  70. Strengthening Halal Value Chain 3 will be a relatively large loss for the entrepreneurs . With the recognition of Indonesia’s halal However, in Indonesia, there are many companies, certification system by Muslims throughout the especially MSMEs that do not apply for certification world, a number of multi-national companies can due to limited resources (Raja Adam, 2012). In line see clear opportunities to have products with with that, Talib et al. (2017) stated that the lack of MUI’s halal certification. Until now, large industries awareness on halal certification process and the still dominate the halal food and beverage market complexity in the process is a barrier for many because all halal certified products are sold in both MSMEs. For small industries and micro halal domestic and foreign markets. Furthermore, the certification, it has not become a priority, so it is not large scale of production and wide market share included in the calculation of Indonesian halal food in the international market made large food and production. In line with that, Talib et al. (2017) stated beverage packaging companies a major player in the that the lack of awareness on halal certification halal food and beverage sector. process and the complexity in the process is a barrier for many MSMEs. Indonesia Islamic Economic Masterplan 2019-2024 55
  71. Challenges and Opportunities for the Development of Halal Food and Beverage Clusters In the development of the halal food and beverage from when it is being bred , fed, and the fertilizers and industry in Indonesia, it certainly requires a chain that chemicals used must also be halal. The halal value can illustrate a map of opportunities and challenges in of the product must be maintained from processing the industry. Where in the context of the halal food and raw materials to the final product. beverage industry, the halal value of a product must be maintained from raw materials to finished products that are ready for consumption. The application of halal value chain management is necessary to guarantee the service quality of a halal product. Product handling must be different and it must separate between halal and non-halal and the process must be guaranteed from upstream to downstream. Furthermore, the process and distribution of halal food and beverage products must also be guaranteed in the shipping or logistics stages, such as warehousing, packaging, cooling rooms, and shipping. Subsequently, it must show Islamic values during marketing, both when it is taken to the supermarket and until it is bought by consumers i.e. restaurants, hotels, and food stalls and that the products are not With the existence of halal value chain, the to be mixed with impure substances. Then as a form expectation of quality standards, product quality, of development that is intact in maintaining the value and services for products and halal services can of halal and integration, the financing carried out in be fulfilled and is integrated starting from input, the industry must also use Islamic finance. As well production, process and distribution, marketing and as using Islamic insurance or takaful facilities so that consumption. The input in processing food products business’ risk can be mitigated. such as meat must be halal guaranteed, starting Figure 3.1 Halal Value Chain for Food and Beverage Industry RESEARCH & DEVELOPMENT Raw materials ISLAMIC FINANCING 1. Agriculture 2. Plantation 3. Farming 4. Fisheries & marine products Technology 1. Food Processing Technology 2. Slaughterhouse 3. Bioindustry Agricultural Technology Manufacture 1. Food Packaging 1. Logistics Industry 2. Channel 2. Beverages Packaging (Wholesale, Retails, Processing Industry Online) 3. Meat and Seafood Processing 4. Cereals, Flour, Milk and Cocoa Processing REGULATION 56 Indonesia Islamic Economic Masterplan 2019-2024 Distribution & Commercialization Promotion 1. Media 2. Exhibition 3. Collaboration 4. Zoning TECHNOLOGY
  72. Table 3 .2. Value Chain for Halal Food and Beverage Industry Value Chain Main Industry •• Agricultural industry Raw materials Supporting Industry •• Plantation industry •• Industrial research and development •• Livestock industry •• Association •• Fisheries and marine products industry •• Material processing technology Technology •• Industrial research and development •• Food ingredients processing technology Slaughterhouses/ Abattoirs •• Educational institutions •• Bio-industry agricultural technology •• Food packaging industry •• Packaging beverage processing industry Manufacture •• Processing meat, seafood •• Industrial research and development •• Processing cereals, flour, milk, cocoa •• Association •• Processing vegetables, fruits, nuts •• Educational institutions •• Food industry residues and waste •• Manufacture of equipment and equipment quality control •• Packaging industry Distribution channel •• Land transport industry •• Goods delivery services •• E-commerce •• Retail store Retailer •• Exhibition •• Media •• Restaurants Financing •• Islamic banking industry •• Islamic IKNB Meanwhile, in the application of halal value chain in the halal food and beverage industry, the opportunities and challenges of the halal industry in Indonesia are grouped in several aspects as shown in the table below. Indonesia Islamic Economic Masterplan 2019-2024 57 Strengthening Halal Value Chain 3
  73. Table 3 .3. Opportunities and Challenges of Halal Food and Beverage Clusters Based on Ecosystems Aspect Opportunities 1. Growth in the number of Muslims in Indonesia and the world Demand and market Technology and information Regulation Challenges 1. Multi-national products that began working on the halal food sector 2. The target market in Indonesia is very large, with 2. Access to the international market is still the growth of the middle-class community 7-8% per small year so that purchasing power increases 3. Lack of research regarding market movements, segmentation and market 3. Increased public awareness to consume halal food tastes 1. Rapid technological development 2. The development of e-commerce and media 1. Information technology utilization is still low 1. Government support for the food and halal industry in general through Law No. 33 of 2014 1. The policies of the central and regional governments are still not aligned 1. Opportunities for co-branding with the halal tourism 1. Asymmetric information between sector sectors Cooperation with 2. Opportunities for co-marketing with the media and other sectors recreation sector 2. Cooperation bureaucracy between sectors 1. More alternative financing platforms Financing R&D 58 1. Financial institutions do not understand the ins and outs of the creative industry 2. Opportunities for collaboration with Islamic banking and financial institutions 2. Funding institutions still need guarantees that are tangible, such as: degrees, 3. The increasing number of friendly financing certificates, and especially business schemes of IKM (KUR, LPEI, Ventura) plans, most of which cannot be fulfilled by entrepreneurs. 1. Research collaboration with food research bodies, universities and companies Indonesia Islamic Economic Masterplan 2019-2024 1. Lack of research on testing halal food ingredients 2. Limited availability of halal food database
  74. To meet the needs of the community for halalan- the international market . Then the development of thayyiban food, various countries has implemented the halal industry is still constrained by the limited halal standards. In Southeast Asia, countries that supply of raw materials that meets halal criteria. and Malaysia. The Thai government through Thai Agricultural Standard (TAS) 8400-2007 issued by the Ministry of Agriculture and Cooperatives has set halal standards for agricultural products. The same thing was done by the Malaysian government through MS1500: 2009-Halal Food. These standards have met the requirements applied by international standard institutions i.e. the International Standardization Organization (ISO). of halal products, the Indonesian government has issued Law No.33/2014 on Halal Products Basically, government the important aspects to ensure agricultural products are halal in the development of the halal food industry. Currently, standardization and Indonesia halal product certification which also includes agricultural products such as meat is still not widely recognized in the global market. Regulatory support and the establishment of BPJPH are expected to increase global community recognition of Indonesian halal standards. Responding to the trend of standardization Assurance. Standardization and certification are also one of regulations related to product standards, especially halal food in Indonesia are not new. Indonesia has a guideline for halal certification issued by the Indonesian Ulama Council, namely Requirements of Halal Certification HAS 23000 (Policies, Procedures and Criteria). In addition, several government legal products have regulated various elements to ensure the halal value chain from agricultural production. Indonesia does not only have the potential as the largest market share of halal food consumption, but also has the potential to become the biggest halal food producer with a wealth of natural resources. However, these opportunities have not been fully utilized. Indonesia is still the market destination for halal products from abroad. The development of Indonesia’s halal industry is considered stagnant. This is because entrepreneurs in Indonesia have not considered the halal industry as a big and important Efforts to improve the halal industry in Indonesia have been hampered by technical problems that have a significant negative impact on the growth of the halal industry in Indonesia. With these conditions, it certainly inhibits Indonesia from becoming a major player in the halal industry and to compete with other countries such as Malaysia, Singapore, Thailand and Japan. Moreover, the governments of these countries fully support the development of the halal industry in their countries by issuing various policies and strategies that are carried out genuinely, quickly, and appropriately, as well as good synergies from various parties. To come out with a strategy for the development of the halal food and beverage industry, it is necessary to map the current condition and position of Indonesia. One of them is by using SWOT analysis. Mapping of strengths, weaknesses, opportunities, and challenges based on the Value Chain of the halal food and beverage industry is summarized in the table below. business opportunity. A legal umbrella for halal products in Indonesia, UU no. 33 of 2014 concerning Halal Products Assurance, the effect has not been significantly felt for the growth and acceleration of the halal industry. Differences in standardization and certification of halal products in each country are obstacles to Indonesia’s halal food industry and to penetrate Indonesia Islamic Economic Masterplan 2019-2024 59 Strengthening Halal Value Chain have implemented halal standardization are Thailand 3
  75. Table 3 .4 Halal Food and Beverages Industry SWOT Analysis Strengths Weaknesses 1. Diversity of resources (raw material). 1. Lack of value-added commodities, competitiveness in meeting export markets and import substitution 2. Raw material technology innovations are being developed 2. Imports of domestically produced food commodities (rice, salt and meat) 3. Having the capacity to fulfill the demand Raw Materials for halal food (local and global). 3. Lack of technology in the raw material industry 4. Education, research and development (R & D) of halal agriculture are still limited. 5. Long distribution chain HR 1. Countries with the largest number of 1. Lack of research and HR competencies are not yet Muslims with 207.18 million people (BPS sufficient 2010). 2. Lack of value gap skills in the halal food production systems. 2. Increased awareness of the potential of the halal industry including the 3. The awareness of the Indonesian Muslim community agricultural sector as a development over the urgency of halal agricultural products is still machine. low. 3. The involvement of the younger generation and start-ups in the halal industry. 4. More and more study programs related to food technology Industry Distribution, Commercialization and Promotion 60 1. The main industry in the processing industry group 1. Low knowledge about the opportunities and needs of the halal market, especially the MSME sector. 2. Has a significant income distribution for GDP 2. Low level of certification of halal products. 3. Having national standards in each production activity 4. product quality assurance 1. The food and beverage business is the mainstay of the IKM business 1. Lack of promotion on the image of domestically produced goods Indonesia Islamic Economic Masterplan 2019-2024 3. Lack of efficiency in processing and
  76. 3 Threats Strengthening Halal Value Chain Opportunities 1 . Natural resources that can be developed 1. Maintain a halal value chain in the distribution of foodstuffs 2. Modernization of agricultural Raw Materials HR management as the introduction of modern technology 2. Dependence on imported raw materials which can cause turmoil in production 1. The projected growth in the halal food industry in Indonesia is high. 1. Time gap to answer legal challenges and the speed of developments in the global halal market trend. 2. Increased awareness on the potential of the halal industry including the agricultural sector as a development machine. 2. The number of halal auditors are still limited 3. There is no study program or subject matter 4. specifically regarding halal food and beverage standards 3. Growth of the global Muslim population. 4. The rise of halal lifestyle campaigns in society 1. Growth in the market share of domestic halal food and exports 1. Production costs in other countries are cheaper therefore Indonesia can compete 2. Government support to develop the halal 2. Strict competition between producers of halal foods food industry. such as Malaysia, Thailand and Australia. Industry 3. Growth in the value of consumption of halal food globally. 3. Halal assurance system supervision standards (Halal Assurance System / HAS) are not yet available. 4. Technological developments that support halal industries such as e-commerce and fintech. 1. Distribution channels in the domestic market are increasing and diversifying Distribution, Commercialization and Promotion 1. Massive promotion of other countries’ products 2. Marketplace products from other countries 2. The use of e-commerce and social media as a tool for promotion and shopping in a very easy way 3. Sectoral and regional development to improve the comparative advantage and competitive industrial halal food Indonesia Islamic Economic Masterplan 2019-2024 61
  77. Special Strategies for Halal Food and Beverage Clusters No Programs /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 Strategy I    Strengthening the Domestic Market 1 Standardization of halal products in the country.           b. Formulate an efficient and effective standardization mechanism by utilising technology             c. Formulate standardization policies for halal products             d. Socialisation of policies and mechanisms for standardization of halal products             e. Application of halal product halalization standardisation             Promotion and literacy of halal products as Muslim lifestyle                         c. Promotion and literacy financing             d. Implementation of promotion and literacy             b. Compilation of promotional and literacy collaborations with various media and communities 62 •• Effective promotion and literacy of halal products to the community   a. Formulation of promotion and literacy strategies 3     a. Coordinating the implementation of standardization with relevant stakeholders 2 •• The creation of an efficient standardization programs Halal certification for MSME products. •• Increased number of halal a. Socialisation of the benefits of halal certified MSME certification to MSME businesses products b. Improved understanding of MSMEs on halal product certification procedures and standards                         c. Assistance to MSMEs in halal certification             d. Implementation of halal product certification that can be accepted internationally             Indonesia Islamic Economic Masterplan 2019-2024 MUI, BPJPH, Ministry of Agriculture, Ministry of Trade, Ministry of Industry, Ministry of Cooperatives   Ministry of Economy, Communication and Information Technology, Ministry of Industry, Ministry of Trade, Ministry of Finance BPJPH, MUI, KemenKUKM, Ministry of Industry, Ministry of Trade
  78. Strategy II Market diversification for export & product specialization 1 Open a distribution chain abroad a. dentification of targets in foreign markets b. Consolidation with local stakeholders 2 3 •• Opening of outlets and   distribution chains for Indonesian halal   products abroad                     c. Source for distribution partners in the target country             d. Foreign market expansion             •• Effective   marketing of Indonesian halal a. Compilation of marketing strategies   products abroad that are in accordance with the characteristics of target countries                           c. Creation of marketing materials / tools based on the application             d. Carry out exhibitions and activities by involving the Indonesian community abroad             a. Socialisation of the concepts of Good Hygiene Practices (GHP), Good Manufacturing Practices (GMP) and Hazard Analysis and Critical Control Points (HACCP)                     ••   •• Increasing the amount of b. Mutual Recognition Agreement production for (MRA) with halal certification bodies the local and in other countries export markets from digital MSME players.       b. Establish Indonesian halal product brands •• Recognition of Indonesian halal standards at   the international level     Promotion of Indonesian halal products abroad Standardization of halal food quality according to international standards Ministry of Economic Affairs, Ministry of Trade, Ministry of Industry, Ministry of Foreign Affairs, Associations BPJPH, MUI, BPOM, Ministry of Trade, Ministry of Industry, KemenKUKM, Local Government/ City Government, Private Sector Indonesia Islamic Economic Masterplan 2019-2024 63 Strengthening Halal Value Chain 3
  79. Strategy III Shifting production to domestic raw materials 1 2 Investment to support self-sufficiency •• The creation of in raw materials self-sufficiency in food raw a. Research and develop the food materials industry by utilizing b. Agriculture-bioindustry training and technology Corporate Farming                         c. Infrastructure development and connectivity that can support industrial development             d. Socialisation of the use of Islamic financing instruments             e. Implement agriculture-bioindustry system and Corporate Farming             Superior regional program                         c. Socialisation of halal food and beverage industry development programs             d. Infrastructure development and connectivity that can support industrial development             e. Implementation of programs for the development of halal food and beverage industries             a. Identification of regional market potential b. Preparation of strategies for the development of regional halal food and beverage industries 3 Incentive programs for businesses a. Preparation of incentive programs that can encourage the development of halal food and beverage industries b. Socialisation of incentive programs c. Implementation of incentive programs 64 •• Strengthening the local halal food and beverage industry Indonesia Islamic Economic Masterplan 2019-2024 •• Increased participation of halal food and beverage industry •• Halal value added in the value chain in halal certified food and beverage products     Ministry of Agriculture, Ministry of SMEs       Local government, Ministry of Trade, Ministry of Industry, BPJPH, Association                                              
  80. 1 Halal food R & D with industry 4.0 a. Develop a framework and mechanism to measure the readiness and capability of existing industries, including MSMEs, to the parameters of industry 4.0 b. Conduct market research, survey market demand preferences c. Technology development research that can support industrial development •• Industry Readiness Index   4.0 •• Available data centre for Indonesian halal food and beverage industry •• Research journal for halal food and beverage industry                                   Ministry of Research and Technology, Ministry of Industry, Ministry of Trade, Communication and Information Technology, KemenKUKM •• Increased volume of Indonesian halal products 2 •• Efficient use of technology in the development of halal food a. Collaboration with state universities and beverage in each region industries b. Socialisation of MSME mentoring •• The creation of programs a sustainable Ministry of Research and Technology, Establishment of halal centres in each region c. HR training and training experts in halal food d. Application of the programs                                     •• Absorption of   workers with expertise related to the halal industry     Halal value chain   Ministry of Industry, Kemnaker, Ministry of Trade, KemenKUKM           Indonesia Islamic Economic Masterplan 2019-2024 65 Strengthening Halal Value Chain 3 Strategy IV Strengthening the halal food value chain ecosystem with industrial technology 4.0
  81. Quick Wins for Halal Food and Beverage Cluster 1 .The acceleration of regulation of industrial halal related matters such as the Draft Government Regulation related to BPJPH make matters easier for entrepreneurs, especially MSMEs, to access halal-related information, for example information on halal certification. This is also a form of assistance in the process of halal standardization of a product. This information Appropriate with the main quick wins where system can also be used as a medium for delivering the development of the halal food and beverage any product that already has halal certification. industry needs to be supported by strengthening Hence, it is not only intended for entrepreneurs of legal aspects and coordination. This can be but this information system can also facilitate done with the existence of a legal or regulatory consumers by showing what halal products can be umbrella that can be the basis for the industry consumed. to work. One of the most important and very influential regulations in the development of the halal industry is government regulations related to BPJPH. This is because the official operation of the BPJPH can be a step to encourage certification 3.Halal Center and Halal Insurance Agency to accelerate the halal certification process that can also provide a domino effect for the halal Establishment of Halal Center and LPH (halal food and beverage industry. However, until now the guarantor institutions) throughout Indonesia by government regulations related to BPJPH have not involving various relevant stakeholders (among yet been approved and are still in the process of others, by collaborating with universities, local being approved by the relevant parties. governments, and related government agencies. Institutions related to halal industries such as Halal 2.Halal Information System centers and LPH can act as the frontline in the development of the halal food and beverage industry, The issue why Indonesia has not become a for example collaboration with university halal major player in the halal food and beverage industry centers can be the foundation for strengthening the is because Indonesian products have not been halal food and beverage industry where university standardized with halal certification. Indonesia’s halal centers can link each stakeholders in the halal halal food and beverage industry is supported by food and beverage industry. micro, small and medium-class industries where the halal certification has yet to become a priority. The effectiveness of the halal certification process is very much needed to support the development of the halal food and beverage industry. For this reason, it is necessary to have an information system that can 66 Indonesia Islamic Economic Masterplan 2019-2024
  82. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 67
  83. Halal Tourism Cluster Global and National Conditions of Halal Tourism Clusters The Tourism Sector is one of the potential sectors in the world . The increasing number of destinations and tourism investments, has encouraged this sector to be a major factor in foreign exchange earnings, employment, business development and infrastructure. In addition, tourism is also one of the largest and fastest growing sectors compared to other sectors (UNWTO Tourism, 2014). According to a report from the World Travel & Tourism Council (WTTC) (2018), the tourism and travel sectors have a positive contribution to the global economy. Complete information can be found below: Figure 3.2 Impact of Tourism on the Global Economy Source: Travel & Tourism Economic Impact World Report (WTTC, 2018) The Travel & Tourism Sector contributed 10.40% to the global GDP Encouraged global economic growth of 4.60%. This growth surpassed other sectors for 7 consecutive years IMPACT OF TOURISM ON THE GLOBAL ECONOMY Absorbed 313 million jobs, or 9.9% of total employment Indonesia Islamic Economic Masterplan 2019-2024 69
  84. Figure 3 .3 Development of Muslim Tourists and its Development Forecast Until 2026 Source: GMTI, 2018 2000 25 Millon Visitors 2010 98 Millon Visitors 2017 Travel Expenditure 2020 300 131 158 Millon Visitors Millon Visitors US$ Billion by 2026 Based on the table above, it can be seen that the The increasing number of Muslim tourists travel & tourism sector globally contributes to macro visit many Muslim-majority countries and Muslim variables such as the GDP, economic growth, and minority countries. GMTI research (2018) publishes reducing unemployment. The development of global 10 countries that are most visited by Muslim tourists. tourism and travel are inseparable from the visits of The country is classified as an OIC country and non- foreign and domestic tourists. One potential market OIC country. The ten countries as in the table below: that is predicted to continue to increase from year to year is the visiting Muslim tourists. This is as stated in the 2018 Global Muslim Travel Index report, that Muslim travel markets are growing rapidly Tabel 3.5 even predicted to increase USD 220 billion in 2020 Top 10 Inbond Destinations and are expected to increase USD 80 billion to USD Source: GMTI, 2018 300 billion by 2026. In 2017, 131 millions of Muslim tourists globally increased from 2016 which was only 121 million and predicted to increase in number in 2020, namely by 156 million tourists. This number represents 10% of the total segmentation of the No Top 10 Muslim Inbound Destinations -OIC Top 10 Muslim Inbound Destinations -Non OIC 1 Arab Saudi Rusia 2 Turki Spanyol 3 Malaysia Prancis of collaboration between Thomson Reuters and 4 Uni Emirat Arab Thailand DinarStandard) also supports that the Halal travel 5 Bahrain Singapura 6 Maroko Italia billion. The expenditure was mostly dominated by 7 Kazakstan Georgia Muslim travelers from the Middle East, especially 8 Libanon Yunani 9 Tunisia Inggris 10 Yordania India travel sector as a whole. In addition to the above data, State of the Global Islamic Economy Report 2018/19 (Report sub-sector in 2023 is predicted to increase to USD 274 billion, of which in 2017 it was only USD 177 Saudi Arabia, the United Arab Emirates, and Qatar. 70 Indonesia Islamic Economic Masterplan 2019-2024
  85. 7 factors that have caused the rapid growth of the global halal travel sector namely the growth of the Muslim population , growth of Muslim middleincome / disposable income, the millennial Muslim population, increased access to travel information, increased travel service providers that accommodate Muslim (Muslim-friendly) spiritual needs, Ramadan travel, and travel businesses. Existing Halal Condition for Halal Tourism in 3 Indonesia The development of global tourism which is increasingly significant indirectly also has a positive impact on developing countries, Indonesia is no exception. This is mentioned in the WTTC report (2018) where Indonesia is ranked 9th out of the top 10 strongest tourism in the world. This position is the best compared to other ASEAN countries such The above factors encourage countries in the world to slowly focus on developing halal tourism. The development according to GMTI (2018) needs to be focused on four main items, namely ease of access, communication, environment, and service. as Thailand which is ranked 12th, Malaysia and the Philippines ranked 13th, Singapore ranked 16th and Vietnam in the 21st position. Here is a list of Travel & Tourism Countries Power Ranking (absolute growth) per 2017 (WTTC, 2018). Although based on the table above, Indonesia is one of the countries that has a strong tourism sector, but the data of the Minister of Tourism states that in 2017 the foreign exchange from the tourism sector is Rp 200 trillion and the contribution to GDP only reached 5%. One of the efforts of the Ministry of Tourism to increase the number of domestic and foreign tourists is through the program of 10 leading Tabel 3.6 List of Travel & Tourism Countries Power Ranking per 2017 Source: Travel & Tourism Economic Impact World Report (WTTC,2018) No Countries Overall rank GDP Rank No Countries Overall rank GDP Rank 1 China 1 1.5 12 Thailand 12 15.5 2 United States 2 2.5 13 Philippines 13 19.75 3 India 3 4.25 14 Malaysia 13 19.75 4 Mexico 4 6.75 15 Sweden 15 24 5 United Kingdom 5 8 16 Singapore 16 25.75 6 Spain 6 9.25 17 Norway 17 26 7 Spain 7 10.75 18 Chile 18 26.75 8 Canada 8 13 19 Italy 19 27.75 9 Indonesia 9 14.25 20 Iran 20 28.75 10 Australia 10 14.75 21 Vietnam 21 29.5 11 UAE =10 14.75 Indonesia Islamic Economic Masterplan 2019-2024 71 Strengthening Halal Value Chain According to the GMTI report (2018), there are
  86. Indonesian tourist destinations in 2018 . The ten tourist attractions are: 1. Danau Toba, North Sumatera 2. Tanjung Kelayang Beach, Bangka Belitung 3. Tanjung Lesung Beach, Banten 4. Seribu Island, DKI Jakarta 5. Wisata Candi Borobudur Park, Central Java 6. Nasional Bromo Tengger Park, East Java 7. Kawasan Mandalika, Lombok, NTB 8. Labuhan Bajo, NTT 9. Morotai Island, Halmahera, North Mauku 10.Nasional Park Wakatobi, Shoutheast Sulawesi In addition to leading tourism programs, Indonesia actually has a large potential which can boost tourism, namely tourism / travel based on halal or better known as halal tourism / halal travel. Other terms besides halal tourism are Islamic tourism or Muslim-friendly tourism. The concept of halal tourism can actually be applied in Indonesia, there are at least 2 supporting factors, namely internal factors and external factors. 1. Internal factors Potential internal factors are the sustainability of natural resources and the large number of human resources. Based on the population’s census in 2010, the population of Indonesia reached 237,641,326 people (BPS, 2010) where when classified according to religion, Islam is the religion with the largest number of followers, namely 207,176,162 people or 87% of the total population. From the data it means that Indonesia is correct to adopt the concept of halal tourism / travel. However, as of 2018 Indonesia is still a Muslim market potential in the world, to be reiterated again that there must be cultural boundaries that can be accepted by Shariah. 2. External factors External factors are factors that are external or global conditions that can affect Indonesia in developing halal tourism / halal travel. These factors include the 2018 GMTI report on Muslim-friendly tourist destinations in the world, halal tourism awards at the 2016 World Halal Tourism Awards, where its position is ranked 6th (GMTI), 2018). and tourist visits. Each factor is described below. Geographically, Indonesia is the largest archipelagic 1. The first factor, based on the Global Muslim Travel country in the world with more than 17,508 islands Index (GMTI) published in April 2018, shows that (Indonesian Ministry of Trade, 2018). Surely, many Indonesia’s ranking has increased from rank 3 to tourist destinations can attract both local and foreign rank 2 in 2017 to 2018. The report in Table 3.11 tourists. Cultural wealth is also a great potential below shows 10 friendly tourist destinations to develop the halal tourism industry. It only needs Muslims in OIC countries. The GMTI findings (2018) are as follows: 72 Indonesia Islamic Economic Masterplan 2019-2024
  87. Strengthening Halal Value Chain 3 Table 3 .7 Top OIC Countries Destinations Source: GMTI, 2018 Ranking 2017 Countries Score Ranking 2018 Countries Score 1 Malaysia 82.50 1 Malaysia 80.6 2 Uni Emirat Arab 76.90 2 Indonesia 72.8 3 Indonesia 72.60 2 Uni Emirat Arab 72.8 4 Turki 72.40 4 Turki 69.1 5 Arab Saudi 71.40 5 Arab Saudi 68.7 6 Qatar 70.50 6 Qatar 66.2 7 Maroko 68.10 7 Bahrain 65.9 8 Oman 67.9 8 Oman 65.1 9 Bahrain 67.9 9 Maroko 61.7 11 Iran 66.8 10 Kuwait 60.5 Indonesia Islamic Economic Masterplan 2019-2024 73
  88. Increased in Indonesia ’s ranking on a global scale shows that many tour packages in Indonesia have provided facilities that are friendly to Muslim tourists. 2. The second factor is that a number of halal tourism industries in Indonesia were recognized at the 2016 World Halal Tourism Awards event where out of 16 categories, Indonesia managed to win 12 categories. •• World’s Best Airline for Halal Travellers (Garuda Indonesia) •• World’s Best Airport for Halal Travellers (Sultan Iskandar Muda International Airport, Aceh) •• World’s Best Family Friendly Hotel (The Rhadana Kuta, Bali) •• World’s Most Luxurious Family Friendly Hotel (The Trans Luxury Bandung) (Sembalun Valley Region, West Nusa Tenggara) •• World’s Best Hajj & Umrah Operator (ESQ Tours and Travel) •• World’s Best Halal Destination (West Sumatera) •• World’s Best Halal Culinary (West Sumatera) •• World’s Best Halal Cultural Destination (Aceh) 3. The third factor can be seen in terms of tourists’ visits. The increase in the number of tourists in Indonesia over the past 5 years from 2014 to 2018 (as of August) shows a significant development, especially tourists from Malaysia for OIC and China for Non-OIC Countries. The following shows the development of foreign tourists from OIC and non-OIC countries over the past 5 years. •• World’s Best Halal Beach Resort (Novotel Lombok Resort and Villas) •• World’s Best Halal Tour Operator (ERO Tours West Sumatera) •• World’s Best Halal Travel Website (www. wonderfullomboksumbawa.com) In table 3.8 it can be seen that the highest number of tourists visiting Indonesia comes from non OIC countries, namely China, Singapore and Australia. Whereas from OIC Countries, Malaysian tourists ranked first in Indonesia. Therefore, it is appropriate if the main aspects and supporters of •• World’s Best Halal Honeymoon Destination Table 3.8. The largest number of foreign tourists (OIC countries) 2014-2018 Source: BPS, 2018 Non-OIC Countries 2014 2015 2016 2017 2018 (as at August) China 1.052.705 1.249.091 1.556.771 2.093.171 1.488.168 Singapura 1.559.044 1.594.102 1.515.701 1.554.119 1.214.232 Australia 1.145.576 1090.025 1.302.292 1.256.927 849.807 Jepang 505.175 528.606 545.392 573.310 346.525 Korea Selatan 352.004 375.586 386.789 423.191 241. 856 2014 2015 2016 2017 2018 (as at August) 1.418.256 1.431728 1.541.197 2.121.888 1.695.846 261.589 293.006 367.587 284.369 198.792 OIC Countries Malaysia Kawasan Timur Tengah 74 Indonesia Islamic Economic Masterplan 2019-2024
  89. When referring to the internal and external factors are friendly to Muslims or apply the concept of halal above , where data sourced from the GMTI 2018, the tourism. Especially if Indonesia wants to attract World Halal Tourism Awards 2016 and BPS data foreign tourists from the Middle East region which shows comprehensive data on halal tourism in incidentally are Muslim countries with the largest Indonesia in terms of potential and awards obtained. travel expenditure (Top 4 Muslim Expenditure: However, based on the final report of the Ministry 21 16 spent by Saudi Arabian tourists spent by UAE tourists Miliar USD Miliar USD 13 10 spent by Qatar tourists spent by Kuwait tourists Miliar USD Miliar USD of Tourism’s Islamic tourism development study in 2015, stated that the condition of halal tourism in Indonesia is still not optimal. Even if this program is prioritized, it is impossible for it to become a leading sector that can increase economic growth. Based on observation, foreign tourists visiting is actually not limited to Muslim tourists only. Therefore, the target of halal tourism is also for non-Muslim tourists. At present, the government is still trying as much as possible to come out with halal tourism programs that are globally acceptable, by both Muslim and non-Muslim markets. At present, foreign tourist from the Middle East are still very low when viewed from the data above. Middle Eastern countries are one of the largest Halal Tourism consumers in the world, therefore Indonesia must develop a strategy to attract these tourists. However, the concept of halal tourism is not only targeted at Muslim tourists but also non-Muslim tourists. This is because halal tourism is only a tourism subcategory that is friendly to Muslims and belongs to religious tourism values (Gohary, 2016). Indonesia Islamic Economic Masterplan 2019-2024 75 3 Strengthening Halal Value Chain tourism or travel must also provide facilities that
  90. Challenges and Opportunities for the Development of Halal Tourism Clusters To evaluate the opportunities and challenges Halal Industry Tourism Value Chain of the Halal Tourism industry in a comprehensive manner , the first step is to recognize and learn the components of the Halal Value Chain Tourism industry. Then Strategic Analysis can be developed based on advantages, disadvantages, opportunities and threats (SWOT) of each entry point in the value chain. From the strategies that have been formed, the next step is mapping the quick wins action strategy and recommendations for the long-term strategy. The halal tourism industry may not be separated from its supporting industries or in this case entered into a series of entry points. Some of these entry points form a Value Chain for halal tourism which consists of tourism destinations, transportation equipment, hotels and accommodations, restaurants and cafes, and travel and tours. The following is an illustration of the halal value chain tourism industry that describes the processes and relationships of each entry point and its supporting ecosystems. Figure 3.4. Halal Tourism Industry Value Chain REGULATION TRAINING & DEVELOPMENT Technology Tourism Destination 1. Media & Recreation 2. Food & Beverages 3. Modest Fashion 4. Hotel 5. MSME 6. Renewable Energy Transportation 1. Media & Recreation 2. Halal Food & Beverages 3. Modest Fashion 4. MSME Human Resources Hotel & Accommodation 1. Media & Recreation 2. Halal Food & Beverages 3. Modest Fashion 4. MSME Infrastructure & Facility Indonesia Islamic Economic Masterplan 2019-2024 1. Halal Food & Beverages 2. MSME Travel & Tours 1. Halal Food & Beverages 2. Hotel 3. Airlines 4. MSME Sustainable Tourism ISLAMIC FINANCING 76 Restaurant & Cafe
  91. Table 3 .9 Halal Tourism Value Chain Source: Writers’ analysis from various sources, 2018 Value Chain Halal Tourism Main Industry Supporting Industry 1. Media & Recreation Industry 1. Technology Industry 2. Food & Beverage Industry 2. Training & Development Industry 3. Modest Fashion Industry 3. Construction Industry 4. Hotel Industry 5. MSME Industry 6. Renewable Energy Industry 7. Islamic Finance Industry 1. Media & Recreation Industry 2. Food & Beverage Industry Airlines & 3. Modest Fashion Industry Transportation Hub 4. MSME Industry 1. Technology Industry 2. Training & Development Industry 3. Construction Industry 5. Islamic Finance Industry Hotel & Accommodation 1. Media & Recreation Industry 1. Technology Industry 2. Food & Beverage Industry 2. Training & Development Industry 3. Modest Fashion Industry 3. Construction Industry 4. MSME Industry 5. Islamic Finance Industry Restaurant & Cafe 1. Food & Beverage Industry 1. Technology Industry 2. MSME Industry 2. Training & Development Industry 3. Construction Industry Travel & Tours 1. Food & Beverage Industry 1. Technology Industry 2. Hotel Industry 2. Training & Development Industry 3. Airlines 4. MSME Industry Table 3.9 above shows that the tourism industry In the ecosystem of the halal tourism industry, in interrelated with several other industries, both the of course there are opportunities and challenges main industry and supporting industries. This is a that must be optimized and resolved properly. Some justification on the magnitude of the multiplier effect aspects described consist of demand and market, on the development of the tourism sector on the technology and information, regulation, financing, economy. Especially in the halal tourism industry, the and R&D. Opportunities and challenges in these related industry is certainly the halal sector in the real aspects are summarized in table 3.10 below. sector and the financial sector. This simultaneous relationship can contribute significantly to the development of Islamic economics in Indonesia. Indonesia Islamic Economic Masterplan 2019-2024 77 Strengthening Halal Value Chain 3
  92. Table 3 .10 Opportunities and Threats of Halal Tourism based on Ecosystem Source: Writers’ analysis from various sources, 2018 Aspect Opportunity Demand and Market 1. Growth in the number of Muslims in Indonesia and the world 1. The development of halal tourism in Muslim and non-Muslim countries in the world 2. Income growth of the Muslim middle class 3. The development of halal tourism activists 2. Branding of halal tourism on an international scale is still weak 4. Increasing public awareness in implementing the halal lifestyle 3. The quality of halal tourism facilities in competing countries are relatively better 1. The development of digitalization in the tourism industry in general 1. The use of information technology in the halal tourism industry is still low Technology and Information Threat 2. Development and increasingly innovative information media Regulation 1. Government support for the development of halal tourism 2. There are regional regulations related to halal tourism in several provinces 3. The coordination of several institutions / ministries in the development of halal tourism 1. There is no highest regulating body that regulates the implementation of halal tourism in Indonesia 2. There is no specific regulation that requires Islamic financial institutions to provide financing to the halal industry 4. There are already government strategies and policies related to the development of the tourism industry and halal tourism. Financing 1. Increasingly developing Islamic finance 2. Collaboration opportunities to obtain financing from banks and to issue sukuk 1. Islamic financial institutions do not have a specific financing target for the halal industry, including halal tourism. 3. Development and implementation of Islamic insurance schemes for commercial tourism R&D 1. To have a special tourism school that also teaches halal tourism 1. Lack of research on market segmentation and preference for halal tourism in Indonesia 2. Development of research on halal tourism 2. There is no national level halal tourism curriculum SWOT Analysis Based on Entry Points in the Halal Tourism Industry Value Chain To develop a strategy for developing the halal tourism industry, it is necessary to map the current condition and position of Indonesia. This can be done by doing a SWOT analysis. Mapping of strengths, 78 Indonesia Islamic Economic Masterplan 2019-2024 weaknesses, opportunities, and challenges based on each entry point in the halal Value Chain tourism industry is summarized in table 3.11 below.
  93. Table 3 .11 Halal Tourism Industry SWOT Analysis 3 STRENGTHS WEAKNESSES 1. Indonesia is blessed with natural beauty including beaches, 1. Lacks connectivity (access to tourist mountains and mesmerizing underwater experience destinations) for the supporting sector. 2. Indonesia is rich with culture and heritage 3. The welcoming vibe from the locals towards foreign tourists is by itself an attraction Tourism destinations 4. Indonesia is 2nd most visited country by world Muslim tourists based on the MasterCard & Crescent Rating on Global Muslim Travel Index 2018 5. Sembalun Valley Region, West Nusa Tenggara are recognized as World’s Best Halal Honeymoon Destination at the World Halal Tourism Awards 2016. 2. Lack of qualified human resources particularly in relation to halal tourism. 3. Halal destinations yet to obtain halal certification for food and beverage. 4. Poor facilities such as the restrooms and prayer rooms at several local halal destinations. 5. Language barrier when foreign tourists visit halal destinations (except Bali and Lombok). 6. Padang, West Sumatera are recognized as World’s Best Halal Cultural Destination at the World Halal Tourism Awards 2016. 6. Lack the use of technology to facilitate Muslim tourists. 7. Acheh is recognized as World’s Best Halal Cultural Destination at the World Halal Tourism Awards 2016. 7. Absence of laws as guidance. 8. Abundance availability of self-claimed halal food near tourist spots. 1. Garuda Indonesia is recognized as World’s Best Airline for Halal Travelers at the World Halal Tourism Awards 2016. Airlines & Transportation Hub 1. Inadequate infrastructure of prayer rooms at the airports. 2. Poor facilities such as the restrooms and prayer rooms at bus terminals, car 2. Sultan Iskandar Muda International Airport is recognized stations and ports. as World’s Best Airport for Halal Traveler at the World Halal Tourism Awards 2016. 3. Poor condition of transportation such 3. Almost all airports in Indonesia have prayer rooms to facilitate Muslims. 4. Availability of halal certified restaurants at the airport compound. as busses, cars and ships. 4. Low level of security in the transportation center. 5. Abundance of halal food and beverage products sold at convenient stores. 5. Foreign language is a barrier when dealing with foreign tourists especially at the public transportation facility besides the airports. 1. Indonesia ranked 2nd as country most visited by Muslim tourist based on the Report of MasterCard & Crescent Rating in relation to Global Muslim Travel Index 2018 1. Number of Shariah compliant hotels and spas are limited and data are not recorded in an efficient manner. 2. Hotel Sofyan Betawi is recognized as World’s Best Family Friendly Hotel at the World Halal Travel Awards 2015 held in United Arab Emirates. 2. There is an assumption that 3. Islamic hotels have a low market share and do not even produce optimal turnover 3. The Rhadana Kuta, Bali is recognized as World’s Best Family Hotel and Friendly Hotel at the World Halal Tourism Awards 2016 accommodation 4. Minimum role played by LKS’ in 4. The Trans Luxury Bandung is recognized as World’s Most Luxurious Family Friendly Hotel at the World’s Halal Tourism Awards 2016. providing Islamic finance (mainly due to the strict requirements of Shariah screening checklist) 5. Novotel Lombok Resort and Villas is recognized as World’s Best Halal Beach Resort at the World Halal Tourism Awards 2016. Indonesia Islamic Economic Masterplan 2019-2024 79 Strengthening Halal Value Chain Source: Writers’ analysis from various sources, 2018
  94. 1 . Padang and West Sumatera are recognized as World’s Best Halal Culinary at the Halal Tourism Awards 2016. 2. Availability of self-claimed halal food near tourist spots. Restaurants and cafe 1. Low numbers of halal certified restaurants, from 2,916 restaurants only 303 are halal certified. Another 1,800 are in the midst of transforming to halal restaurants. 2. Inadequate qualified human resource particularly for halal tourism. 3. Language barrier when foreign tourists visit halal destinations (except Bali and Lombok). 1. ERO Tours, West Sumatera are recognized as World’s Best Halal Tour Operator at the World Halal Tourism Awards 2016. Travel & Tours 1. Lack of travel & tours entrepreneurs in offering halal tourism packages. 2. www.wonderfullomboksumbawa.com is recognized as World’s Best Halal Travel website at the World Halal Tourism Awards 2016. 3. ESQ Tours and Travel is recognized as World’s Best Hajj & Umrah Operator at the Halal Tourism Awards 2016. ENTRY POINTS OPPORTUNITIES THREATS 1. The issuance of fatwa DSN MUI No. 108/DSNMUI/X/2016 in relation to Tourism Implementation Guidelines Based on Shariah Principles. 1. The unavailability of Ministry of Tourism regulations on guidelines to implement Halal Tourism has made Local Governments and entrepreneurs 2. Benchmarking against Padang, West Sumatera for reluctant to develop Halal Tourism other destinations in Indonesia to be developed as Halal destinations. Tourism. Tourism Destinations 3. The issuance of tourism minister’s decision no. KM.40/ 2. The complexity and high cost of halal certification is still an obstacle in the UM.001/MP/2018 in relation to Indonesia Tourism Halal process of halal food and beverage Logo. certification. 3. The lack of qualified human resources will have an impact on the quality of services in Halal Tourism destinations which will ultimately have an impact on the level of tourist satisfaction. Airlines & Transportation Hub 80 1. To become Muslim friendly airlines’ company in 1. The lack of proper infrastructure and Indonesia by making Garuda Indonesia a benchmark for supporting facilities at the development. 2. public transportation centers will have an impact on the level of tourist 2. To increase the number of Muslim Friendly airports satisfaction. in Indonesia to by referring to Sultan Iskandar Muda International Airport, Aceh, which has been recognized as the World ‘s Best Airport for Halal Travelers at the 2016 World Halal Tourism Awards. Indonesia Islamic Economic Masterplan 2019-2024
  95. 2 . The issuance of the MUI Fatwa No: 108 / DSN-MUI / X / 2016 in relation to the Guidelines to Regulate Tourism based on Shariah Principles to manage hotels, spas, saunas, massages, tourist attractions and travel agencies. 1. The issuance of Tourism Minister’s Regulation No. 11 Year 2016 in relation to the elimination of the Republic of Indonesia Minister of Tourism and Creative Economy Regulation Number 2 of 2014 concerning Guidelines for Implementing Shariah Hotel Businesses. 3. Ministry of Tourism is developing 10 provincials for 2. The absence of laws or ministerial the purpose of halal tourism, namely West Sumatera, regulations related to the Acheh, Riau and Riau Island, Jakarta, West Java, Central implementation of Shariah based Java, D.I. Yogyakarta, East Java, Lombok NTB and Hotel and tourism. South Sulawesi. Accommodation 3. Insufficient qualified human resource 4. To increase the number of hotels with Muslim friendly who understands Shariah. concept and to increase Muslim tourists’ satisfaction by referring to Hotel Sofyan Betawi which won the 4. Lack of Shariah supervisory boards of World’s Best Family Friendly Hotel at the World Halal MUI who are experts in Shariah hotels. Travel Awards 2015 in the United Arab Emirates and The Rhadana Kuta, Bali which won the World Halal Tourism Awards 2016. 5. To increase the number of resorts with Muslim friendly concept by referring to Novotel Lombok Resort and Villas which won the World’s Best Halal Beach Resort at the 2016 World Halal Tourism Awards. 1. With the majority of the population of Indonesia being 1. The expensive and complicated Muslim, the understanding of halal food ingredients and process of halal certification will hinder the process of making halal food is understood. This food businesses and halal drinks in Restaurants and is expected to be a great potential for increasing the obtaining it. Cafe number of restaurants and cafes that are halal certified in Indonesia. Travel & Tours 1. Tremendous potential of halal tourism destination makes this industry lucrative for entrepreneurs in developing halal tourism programs. 1. The absence of clear laws regarding halal tourism from the Ministry of Tourism can hamper the travel industry & tours in organizing Halal Tourism programs. Every entry point in the halal tourism industry in its shortcomings and respond to the challenges Indonesia in general has a good opportunity strength. faced such as weak human resources, especially in This was evidenced by the awards received at the mastering foreign languages, regulations that do not 2016 World Halal Tourism Awards on all categories have the authorities, low utilization of technology, of halal tourism industry entry points, namely tourism trifling halal certification, and infrastructure that is destinations, airlines & transportation hubs, hotels & still limited. accommodations, restaurants & cafes, and travel & tours. Nevertheless, Indonesia needs to overcome Indonesia Islamic Economic Masterplan 2019-2024 81 3 Strengthening Halal Value Chain 1. Indonesia’s majority Muslim population is suitable with the application of halal concepts, especially in hotels.
  96. Specific Strategies for Halal Tourism Clusters No Programs /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 Strategy I    Strengthening the Domestic Market 1 Halal standardization of domestic products a. Coordinating the implementation of standardization with relevant stakeholders ** 2                     c. Formulate standardization policies for halal products             d. Dissemination of policies and mechanisms for standardizing halal products             e. Application of standardized halal products             Halal product promotion and literacy as Muslim lifestyle * •• Effective promotion and literacy of halal   products to the community                       c. Financing promotion and literacy             d. Promotion and literacy             b. Compilation of promotional and literacy collaborations with various media and communities 82   b. Formulate an efficient and effective standardization mechanism by utilizing technology a. Preparation of promotion strategy and literacy 3 •• The creation   of an efficient standardization   program Halal certification for MSME products. * •• The increasing number a. Dissemination of the benefits of MSME of halal certification to MSME products is businesses halal certified b. Improving the understanding of MSMEs towards halal product certification procedures and standards **                         c. Assistance to MSMEs in halal certification             d. Implementation of halal product certification that can be accepted internationally             Indonesia Islamic Economic Masterplan 2019-2024 MUI, BPJPH, Ministry of Agriculture, Ministry of Trade, Ministry of Industry, Ministry of Cooperatives   Ministry of Economy, Ministry of Communication and Information, Ministry of Industry, Ministry of Trade, Ministry of Finance BPJPH, MUI, KemenKUKM, Ministry of Industry, Ministry of Trade
  97. No Programs /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 Strategy II Market diversification for export & product specialization 1 Open foreign distribution chain * a. Identify foreign target markets b. Consolidation with local stakeholders c. Looking for distribution partners in the target country •• Opening of outlets and distribution chains for Indonesian halal products abroad d. Foreign market expansion 2 Promotion of Indonesian halal products abroad a. Preparation of marketing strategy abroad that is in line with the characteristic of the target states 3 •• Effective marketing of Indonesian halal products                                                                             c. Making marketing materials / tools based on the application             d. Carry out exhibitions and activities by involving the Indonesian community abroad             •• Recognition of Indonesian halal standards   at the international level           •• Increasing the amount of production for b. Mutual Recognition Agreement   the local and (MRA) with halal certification bodies export markets in other countries from digital MSME players.           a. Socialization of concept of Good Hygiene Practices (GHP), Good Manufacturing Practices (GMP) and Hazard Analysis and Critical Control Points (HACCP)     b. Establish Indonesian halal product brands International standard halal food quality standardization The Coordinating Ministry for Economic Affairs, Ministry of Trade, Ministry of Industry, Ministry of Foreign Affairs, Association   BPJPH, MUI, BPOM, Ministry of Trade, Ministry of Industry, KemenKUKM, Local Government / City Government, Private Sector Indonesia Islamic Economic Masterplan 2019-2024 83 Strengthening Halal Value Chain 3
  98. No Programs /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 Strategy III Strengthening and Increasing the effectiveness of halal-related institutions in the industry 1 Investment to support self-sufficiency in raw materials •• The creation of self-sufficiency in food raw   materials by utilizing technology             c. Infrastructure development and connectivity that can support industrial development **             d. Dissemination of the use of Islamic financing instruments             e. Implement agriculture-bio industry system and Corporate Farming             a. Research and develop the food industry b. Agriculture-bio industry training and Corporate Farming 2 Tuition program                               c. Program promotion for the development of halal food and beverage industry             d. Infrastructure development and connectivity that can support industrial development             e. Implementation of programs for the development of halal food and beverage industries             Incentive program for entrepreneurs   b. Preparation of strategies for the development of regional halal food and beverage industries 84     a. Identify regional market potential 3 •• Strengthening the local halal food and beverage industry   •• Increased participation of halal food a. Preparation of incentive programs and beverage that can encourage the development industry of halal food and beverage industries •• Halal value b. Dissemination of incentive programs added in a Value Chain in c. Implementation of incentive halal certified programs food and beverage products Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Agriculture, UKM Ministry     Local Government, Ministry of Trade, Ministry of Industry, BPJPH, Association                                                
  99. No Programs /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 3 1 Halal food R&D with industry 4.0 a. Develop a framework and mechanism to measure the readiness and capability of existing industries, including MSMEs, to the parameters of industry 4.0 b. Conduct market research, survey market demand preferences c. Technology development research that can support industrial development •• Industry Readiness Index 4.0 •• Available data center for Indonesian halal food and beverage industry •• Research journal for halal food and beverage industry                                     Ministry of Research and Technology, Ministry of Industry, Ministry of Trade, Ministry of Communication and Information, KemenKUKM •• Increased volume of Indonesian halal products 2 Establishment of halal centers in each province * a. Collaboration with state universities in each district ** b. Dissemination of MSME mentoring programs c. HR training and training experts in halal food d. Application of the program •• • Efficient use of technology in the development of the halal food   and beverage industry •• The creation of a sustainable   Halal Value Chain   •• Absorption of workers with expertise   related to the halal industry Ministry of Research and Technology,                                   Ministry of Industry, Ministry of Manpower, Ministry of Trade, KemenKUKM   Indonesia Islamic Economic Masterplan 2019-2024 85 Strengthening Halal Value Chain Strategy IV Strengthening halal food Value Chain ecosystems with industrial technology 4.0
  100. Halal tourism Cluster Quick Wins 1 .Arranging Integrated Halal Tour Packages in Each of the Featured Provinces Each province has its own advantages in attracting tourists, including aspects of natural and cultural wealth. The cultural character and habits of the people become important aspects that are considered in attracting tourists. To optimize tourism branding that can target market share broadly, it is necessary to build halal tourism packages with integration of nature, culture, and shopping centers Tourism can lead coordination in the implementation of the exhibition, in collaboration with regional tourism offices, supporting industries, and halal tourism operators in all regions of Indonesia. This program is part of the main quick wins of the Islamic economic masterplan in the form of a national campaign “Halal Lifestyle Literacy”. 3.Formulating and Validating the Law on Halal Tourism. The implementation of halal tourism will get supported by good infrastructure in the area of​​ greater attention if it has obtained a mandate from leading tourist destinations for halal tourism. I n the central government. However, the condition addition, regional community leaders must be the is not so. There is not a regulator that regulates spearhead in building community awareness in the implementation of halal tourism in Indonesia, preparing integrated cultural tourism contained even though in some regions there have been in halal tourism packages. Therefore, integrated local regulations related to halal tourism. A new tourism packages that are halal, can be promoted breakthrough is needed in the process of formulating appropriately to achieve the target number of and ratifying the Halal Tourism Law in order to realize domestic and foreign tourists made by the Ministry Indonesia’s ideals of being the best center for halal of Tourism. tourism in the world. 2.Branding Halal Tourism through Social Media and Exhibition As a short-term strategy (quick win strategy), local governments can formulate local regulations on Halal Tourism and ratify them together with regional Products of halal tourism must be introduced to representatives, then regional leaders spearhead the the global community. In the current era of industrial formulation of their implementation so they have revolution 4.0, social media can be an effective and competitiveness in increasing regional tourism. This fast means of strengthening halal tourism branding. program is part of the main quick wins of the Islamic Therefore, a special work unit at the central and economic masterplan in the form of strengthening regional levels is needed to promote halal tourism legal aspects and coordination. through social media to gain awareness in order to compete with other tourist destinations. Halal tourism exhibition is a program that must run continuously. In the short term, exhibitions are expected to be a means of promoting superior halal tourism products to the wider community. In the long term, the exhibition will strengthen Indonesia’s tourism branding on a global scale. The Ministry of 86 Indonesia Islamic Economic Masterplan 2019-2024
  101. 3 Strengthening Halal Value Chain Quick Wins Klaster pariwisata halal Indonesia Islamic Economic Masterplan 2019-2024 87
  102. Muslim Fashion Cluster Global and National Conditions The fashion industry currently is a subsector of the creative economy field . Creative Economy Agency (Bekraf) recorded in 2016 that the fashion industry contributed around 18.01% towards the Creative Economy’s GDP where it contributed 7.44% to Indonesia’s economy with an average growth rate of 3.63%2. The calculation of the GDP for this subsector was done by BPS and Behkaf based on the mapping by KBLI 2015 where the fashion subsector had broadened in the business industry such as processing, wholesale and retail trade, vehicle reparation and maintenance and educational services. Graph 3.4.1 Fashion Industry Contribution toward the Economy (%) Source: BPS and Bekraf (2017) 18,15 18,1 18,14 18,12 1,35 18,05 18,01 18 1,34 17,95 17,9 2014 2015* 1,34 2016** 1,352 1,35 1,348 1,346 1,344 1,342 1,34 1,338 1,336 1,334 5 200.000 150.000 4,08 142.189 119.172 100.000 4,05 166.135 154.658 112.481 127.453 2,78 4 3 2 50.000 1 0 2014 2015* 2016** 0 GDP at Constant Prices (in Billion Rupiah) Share on GDP Top GDP Applicable (in Billion Rupiah) Share on National GDP Growth Rate (on the basis of Constant Prices, in %) If observed from the trend in 2014-2016, fashion subsector contributes a stable 1.35-1.34% to the national GDP where in fact contribution to the creative economy declined in 2016. This is because of the increase in other sub sectors such as radio and television, application and game developer, and production. From the GDP’s perspective, both at constant and current prices, both show a positive trend but with a growth rate which is quite volatile. The Ministry of Industry estimates that the contribution of the Muslim fashion sector in the GDP of the fashion subsector was 28.9% in 2016.3 2 3 PDB Creative Economy Report Year 2014 – 2016. http://www.industry.co.id/read/21809/industri-busana-muslim-indonesia-makin-dilirik-pasar-dunia Indonesia Islamic Economic Masterplan 2019-2024 89
  103. Beyond its contribution to GDP , the fashion sector also has a multiplier effect on national output, income and labor. Based on the results of the 1.The Position of Indonesian Muslim Fashion in the World analysis of the 2014 Input-Output Updating Creative Globally, Indonesia was ranked 2nd in the Top 10 Economy Table, the fashion sector ranked 5th in the GIE Indicator in Muslim fashion and ranked 3rd as magnitude of the output multiplier with an output the country with the highest expenditure on Muslim multiplier figure of 1.62271. This means that every apparel (with around 7.4% from global expenditure) increase in the final demand for the fashion sector in 2018. This indicates that Indonesia is a country to by 1 unit will increase economic output by 1.62271. be considered in the Muslim fashion sector. For income multipliers, the fashion sector ranked 15th and for the labor multiplier in the fashion sector was ranked 4th. This shows that the fashion sector is still one of the labor-intensive industries that plays a role in the absorption of labor which also increases output in the economy. With more motivation, Indonesia’s position in this field continues to show significant improvement. Until 2017, Indonesia has never been ranked in the Top 10 in Muslim fashion. Likewise, the GIE Score was stagnant in the range of 19 to 21. However, in 2018, Indonesia managed to accelerate and In terms of exports, in 2015 Indonesia was ranked second with a score increase of 14 from ranked in the top five of the member country of the the previous year’s score. Indonesia succeeded in Organization of Islamic Cooperation (OIC) as the shifting Turkey which was previously ranked 2nd and largest textile exporter after Bangladesh, Turkey and made Morocco exit the Top 10. This shows that the Pakistan with a market share of 11.7%.4 Meanwhile, Muslim fashion sector in Indonesia has improved specifically for Muslim fashion, the Ministry of in various indicators such as finance (i.e. exports to Industry stated that currently the export value of OIC countries), awareness (number of news articles the Indonesian Muslim fashion industry is projected and number of events), and social (clothing pricing to reach USD 7.18 billion, which is the third largest index and labor fairness index). position in the world after Bangladesh (USD 22 billion) and Turkey (USD14 billion) with a market share of 1.6% based on the OIC data5. Indonesia’s export performance for the Muslim fashion industry is in line with the export performance of textile and textile products, as one of the Muslim fashion One of the causes of Indonesia’s performance in the Muslim fashion industry in the world is due to the active nature of Indonesia in holding various international modest fashion shows. Among them are Indonesian Muslim Fashion Week, upstream industries, where the value continues to increase and is always included in the 10 main export commodities in 2012-2016. rapid Graph 3.4.3. Indonesia’s GIE Score in Modest Fashion Industry Source: State of the Global Islamic Economy Report 2014-2018, processed 34 4 Textile and Ready Garment Industry in OIC Countries, August 2016. 5 http://www.industry.co.id/read/21809/industri-busana-muslimindonesia-makin-dilirik-pasar-dunia 90 Indonesia Islamic Economic Masterplan 2019-2024 19,4 20 2014 2015 21 2016 20 2017 2018
  104. the International Indonesian Islamic Fashion Fair , of Industry estimates that the contribution of the Muslim Fashion Festival Indonesia, and the latest is Muslim fashion sector to the GDP of the fashion the Modest Fashion Summit in December 2018. This subsector is 28.9%6 in 2016. international-scale fashion show is expected to be fashion products to Muslim fashion stakeholders at a global level. 2.The Development of Muslim Fashion in Indonesia The year 2010 was the initial period in which the Muslim fashion industry began. In terms of supply, Muslim fashion began with the emergence of Muslim fashion designers both senior and junior designers. While from the demand side, it is increasingly In terms of exports, the Ministry of Industry stated that currently the export value of the Indonesian Muslim fashion industry is projected to reach USD 7.18 billion, and this is the third largest position in the world after Bangladesh (USD 22 billion) and Turkey (USD 14 billion) with a market share of 1.6% based on OIC data7. Indonesia’s export performance for the Muslim fashion industry is in line with the export performance of textile and textile products, as one of the Muslim fashion upstream industries, where the value continues to increase and is always included in the 10 main export commodities in 2012-2016. developing with a Muslim community based that has conscience for the modest fashion industry as one of the industries that depicts halal lifestyle. Until 2015, various fashion week events were held in Indonesia to promote the variety of products in the Muslim fashion industry. For example, in 2010, the Indonesia Islamic Fashion Fair (IIFF) was held By looking at the promising performance of the Muslim fashion industry, the Ministry of Industry has a vision for Indonesia to become the world’s Muslim fashion mecca in 2020. Until now, the Directorate General of Small and Medium Industries under the Ministry of Industry completed the Indonesian Muslim Fashion Industry Roadmap 2018 - 2025. for the first time by the Indonesia Islamic Fashion Consortium (IIFC) and in 2012 APPMI held Indonesia Fashion Week (IFW). Subsequently, various similar activities at the regional level began to be held. In 2015, the Indonesia Fashion Chamber (IFC) initiated the Indonesian Muslim Fashion Festival (MuFFest). Since 2016, the concept of ethical fashion and sustainable fashion are in the Indonesia’s fashion industry. In the context of the Muslim fashion industry, this is in sync with the values ​​promoted by this industry. At the national level, the Ministry of Industry estimates that Muslim fashion can absorb as many as 1.1 million workers, or about 29%, of the total 3.8 million workforces in the fashion industry. Modest fashion contribution to Indonesia’s GDP, until now there has been no official data from BPS available, but the data that is often used as a proxy is data on the contribution of the fashion industry. The Ministry 6 7 http://www.industry.co.id/read/21809/industri-busana-muslimindonesia-makin-dilirik-pasar-dunia http://www.industry.co.id/read/21809/industri-busana-muslimindonesia-makin-dilirik-pasar-dunia Indonesia Islamic Economic Masterplan 2019-2024 91 Strengthening Halal Value Chain an exhibition to introduce various Indonesian Muslim 3
  105. Challenges and Opportunities for Development Almost three decades behind , the Muslim an industry, the value chain of modest fashion is fashion industry in the world began to develop and generally divided into four, namely raw materials, diversify along with the increasing needs of religious designers, manufacturers, and retailers. followers, including Islam, to look in accordance with the values of their religion (Lewis, 2011). As Figure 3.7 Halal Muslim Fashion Value Chain RESEARCH & DEVELOPMENT Raw Materials ISLAMIC FINANCING 1. Textile 2. Textile Crafts 3. Supplementary Materials Human Resources 1. Designer 2. Fashion Schools and Training 3. Association Industry 1. Industrial sewing equipment and sewing pattern equipment 2. Quality Control Equipment and Equipment Industry 3. Mannequin Industry 4. Sewing Technology Industry REGULATION 92 Indonesia Islamic Economic Masterplan 2019-2024 Distribution & Commercialization 1. Logistics 2. Channel (Wholesale, Retail, Online) Promotion 1. Media 2. Exhibition 3. Collaboration 4. Zoning TECHNOLOGY
  106. Table 3 .5 Muslim Fashion Value Chain Source: Bekraf (2016) Value Chain Raw materials Main Industry Supporters 1. Textile Industry 1. Research and Development Industry 2. Textile Craft Industry 2. Association 3. Complementary Materials Industry Designer 1. Fashion school 1. Computer and Technology 2. Associations Manufacture 1. Industrial Pattern Cut Sewing Equipment and Equipment 1. Research and Development Industry 2. Quality Control Equipment and Equipment Industry 3. Mannequin industry 4. Sewing Technology Industry Distributor 1. Packaging Industry 2. Land, Sea and Air Transportation Industry 3. Freight forwarding service Retailer dan Promotion 1. E-commerce 1. Halal Tourism Industry 2. Retail Store 2. Halal Media Industry 3. Exhibition and Stage Equipment Industry 4. Media Industry 5. Printing and Publishing Industry Financing 1. Islamic Banking Industry 2. Shariah IKNB The target market for the Muslim fashion As an industry that is developing and becoming industry in Indonesia is very large because the a concern, the modest industry has benefited a lot majority of the population are Muslims. At present, from the growth of the middle class which continues there are awareness from Muslim women to cover to grow every year in Indonesia. The growth of the their aurah making Muslim fashion products sought middle class will be in line with the purchasing power after. Moreover, many influencers have sprung up on of the modest fashion. In addition, millennials also social media such as Instagram. The increasingly began to dominate the pyramid of the Indonesian massive use of social media has led to the promotion population, which in this case the role of technology and purchase of Muslim fashion items that are has been very significant in the sense that it can increasingly accessible to consumers. help the modest fashion industry develop through e-commerce. From the 2016 Economic Census BPS it was noted that the number of e-commerce in Indonesia Islamic Economic Masterplan 2019-2024 93 Strengthening Halal Value Chain 3
  107. Indonesia has reached 26 .2 million with an increase of 17% from the last 10 years. The total population of millennials in 2020 based on BPS data is 83 million people or 24% of the total population in Indonesia (Ali & Purwandi, 2016). In terms of the industry itself, the number of human resources engaged in the fashion sector is already quite large considering that the number of graduates from fashion schools are increasing. However, the lack of research causes human resources’ competencies in this field to not develop properly. The Creative Economy Agency (2016) notes that there are three problems found in human resource for the fashion industry which includes: 1. The lack of competition in the human resources due to lack of qualification and special skills in the technical field hampers the production process; 2. Awareness towards work safety is still low; 3. Human resource personnel are not disciplined to comply with applicable work competent standards which results in low productivity. In terms of raw materials, Indonesia has potential and abundance natural resources to make textiles, particularly from cotton plants. However, raw materials for Indonesian cotton are still being supplied from imports of major countries such as China and the United States. According to the As for marketing problems, even if the Ministry of Industry, Indonesia imports cotton as products produced are of good quality, there raw material / cotton fabric and reached 99.2% are still challenges in terms of marketing. This is of all national cotton needs per year. This can because fashion entrepreneurs still lack expertise cause concern for Indonesia because if there is or knowledge in the marketing field. They also an increase in interest rates in the United States still have not mastered technology, even though or the slowing of Chinese economic growth, it will mastery of technology, especially social media, also affect the continuity of the domestic textile greatly influences the efficiency in marketing industry. In addition, many are still using traditional products. In addition, the biggest challenge for looms and tools where production is limited and fashion time consuming. Many of the clothes production medium industries, is capital. According to the machines are also old / worn out. Ministry of Industry, Small and Medium Enterprises entrepreneurs, especially small and (IKM) tend to be difficult in guaranteeing their 94 Indonesia Islamic Economic Masterplan 2019-2024
  108. Strengthening Halal Value Chain 3 capital because of the high interest rate . However, products at a lower cost due to abundance of the emergence of alternative financing platforms raw materials, cheap labor, and also the use of such as crowdfunding or funding programs carried sophisticated technology. This requires Indonesia out by the Ministry of Cooperatives and MSMEs to to struggle to get its own market and not lose to fund e-commerce-based MSME projects may bring China. the modest fashion industry opportunities to grow. In terms of competition with other countries, China is one of the countries that dominates the fashion industry. At present, China is ranked first as the largest textile exporter in the world which produces 110 trillion US Dollars (Statista, 2017). China is able to produce raw materials and fashion Indonesia Islamic Economic Masterplan 2019-2024 95
  109. Table 3 .13 Opportunities and Challenges of Muslim Fashion Clusters Based on Ecosystems Source: Ministry of Industry (2018), Bekraf (2016), and FGD Results Aspect Demand and Market Opportunities Challenges 1. Growth in the number of Indonesian Muslims and the world 1. Western brands, which is now beginning to expand into the fashion 2. The target market in Indonesia is very large, with the modest line growth of the middle-class community 7-8% per year commensurate with purchasing power 3. The development of the hijab and designer community 2. Access to the international market is still weak 4. Public awareness to wear clothes that cover the aurah is high 3. Modest fashion products from China with more competitive prices Technology and 1. Rapid technological development Information 2. The development of e-commerce and media Regulation 1. Government support for the fashion industry in general 2. Through Presidential Regulation No. 2 of 2015 (RP-JMN 2015 - 2019) where the general policy is to increase economic growth that is inclusive and sustainable, among others through the development of a creative economy 1. The use of information technology is still low 1. The policies of the central government and the regions are not yet uniformed 3. Government support for the modest fashion industry in particular 4. There is already a roadmap, strategy, and government policy related to the Muslim fashion and fashion industry where tit is supported by he relevant Ministries and Institutions 5. Regulation of Intellectual Property Rights (HAKI) which procedures have been simplified Financing 1. More alternative funding platforms 2. Opportunities for collaboration with banking and Islamic finance institutions 3. The increasing number of friendly financing schemes of IKM (KUR, LPEI, Ventura) R&D 96 1. Financial institutions do not understand the creative industry 2. Funding institutions still need tangible guarantees, such as: diplomas, certificates, and especially business plans, most of which cannot be fulfilled by businesses 1. Collaborative research with various existing fashion schools 1. Lack of research regarding market movements, segmentation and market appetite Indonesia Islamic Economic Masterplan 2019-2024
  110. Table 3 .14 Muslim Fashion Industry SWOT Analysis Raw materials Human resource Weaknesses 1. Raw materials are available, provided that they are regulated and utilized efficiently so they can meet the domestic industrial needs 1. Domestic raw materials cannot meet the demands of the textile industry, raw materials are still dependent on imports 2. Technological innovations in raw materials (other than technology) are being developed 2. Access to SMIs for raw materials is still limited 1. High number of human resources Lack of research where human resource competencies are not yet sufficient 2. Many young people in Indonesia have started businesses including Muslim clothing business and some of them are tech savvy 3. The cost of energy (e.g. electricity) is expensive 3. More quality fashion schools Industry 1. The number of companies that are growing fast 1. Old production machined 2. 30% of the Small and Medium Industries in Indonesia are dominated by the Muslim clothing industry 3. Small entry barrier Distribution, Commercialization and Promotion 1. The Muslim clothing business in Indonesia has mushroomed, especially in Java Island Opportunities Raw materials 1. Natural SDA that can be developed (rocks, natural fibers, etc.) 2. Standardization in quality and quantity of key materials and supporting materials for the garment industry (fabric, lining, interlining, etc.). has not been applied. 1. Marketing of products that are still restricted Threats 1. Concern about maintaining Islamic values ​​in production 2. Dependence on imported raw materials which can cause turmoil in production Human resource 1. The large number of workers available 1. The modest fashion designer association is limited 2. So far there have only been Muslim Fashion Designer Associations (IPBM) 3. Scholarships for fashion education are still lacking because the fashion sector is considered a type of vocational education Industry 1. Collaboration with the textile industry and designers 1. Production costs in other countries are lower, to enable Indonesia to compete 1. Distribution channels in the domestic market 1. Other countries have held similar shows and Distribution, activities are increasing and diverse Commercialization and Promotion 2. The use of e-commerce and social media as a tool for promotion and shopping is very convenient 3. More fashion week shows are open for modest fashion both at national and international levels Indonesia Islamic Economic Masterplan 2019-2024 97 Strengthening Halal Value Chain Strengths 3
  111. Special Strategies for the Muslim Fashion Cluster No Programmes /Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholder Strategy I: Strengthening Muslim Fashion Domestic Market 1 Increasing HR competency •• Increased   number of   Muslim fashion fashion schools                       a. Organizing a Business Matching Forum and coaching clinic (which covers coaching for design, marketing •• Competency and legal aspects) with several worldcertification renowned and recognized designers ** b. Increasing the number and quality of fashion schools, curriculum, teaching human resources that are in line with the needs of the Muslim fashion industry c. Designer business meeting with universities and the textile industry to understand textile raw materials Ministry of Industry, APPM, IKATSI, Muslim Fashion Industry, Indonesian Textile Association, Bekraf, Ministry of Education and Culture d. Establishment of center of excellence that involves collaboration between universities and the government 2 Increased number of Muslim fashion entrepreneurs a. Implementing a business matching forum •• Increasing number of entrepreneurs b. Build a Muslim fashion business incubator           c. Facilitating the emergence and development of new start-ups 3 Increased awareness and love for Muslim fashion products a. A love campaign for Muslim fashion products by nation’s children through various media and communities ** b. Encouraging the utilization of online / e-commerce markets with e-smart IKM integration 98 Indonesia Islamic Economic Masterplan 2019-2024 •• The emergence of the love movement of Muslim fashion products in the country                                           Ministry of Industry, Association of Designers and Employers’ Associations, BNSP Ministry of Industry, Ministry of Religion, Ministry of Trade
  112. No Programmes /Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholder Strategy II: Market Driver Muslim Fashion Products 1 Strengthening link and match and increasing production capacity (especially IKM) •• Establishment of Material Centers for IKM   a. Development of wearable new products / functional clothing & sustainability clothing and modest sportwear b. Creating a community of business people who become a forum for coordination and cooperation between entrepreneurs                         Ministry of Industry, Ministry of Trade, Ministry of Finance, Association, Ministry of Communication, IKATSI c. Business collaboration between research institutions, designers, fashion industry and universities d. Utilization of IKM material centers to increase access to raw materials for the Muslim fashion industry 2 Strengthening the raw material industry and Muslim fashion manufacturing industry •• Availability of alternative raw materials a. Increase research in the use of alternative raw materials from nature 3 Establishment of R & D center and integrated Muslim fashion innovation a. Database socialization and strengthening, IKATSI               •• Availability of research grants for the Muslim fashion industry b. Availability of research grants related to the Muslim fashion industry             c. Providing research and innovation incentives in the publication of scientific journals and articles related to Muslim fashion             Ministry of Industry, Ministry of Religion, Bekraf, Research Institute, Kemenristek Dikti, University, IKATSI Ministry of Industry, Ministry of Religion, Bekraf, Research Institute, Kemenristek Dikti, University, IKATSI Indonesia Islamic Economic Masterplan 2019-2024 99 Strengthening Halal Value Chain 3
  113. No 4 Programmes /Activities Protection against plagiarism and copyright a. Facilitating patent and intellectual property registration Output Utilization of industrial technology 4.0 through digital platforms 2019 2020 2021 2022 2023 2024 •• Increased   number of HaKI for Muslim   fashion   b. Carry out international standard promotional events and participation in international Muslim fashion events ** 5 Year                     •• There is a digital   platform a. Building a digital platform to connect designers and the fashion industry             b. Facilities for the ability to establish retail stores and e-commerce as well as integration with e-smart IKM             Stakeholder Ministry of Industry, Kemenkumham Ministry of Industry, Kemenristekdikti, Ministry of Communication and Information Strategy III: Collaboration and Synergy with Other Halal Value Chain Sectors 1 Co-branding with halal cosmetic products and co-marketing with halal travel / halal tourism in Indonesia a. Co-branding with cosmetic products through massive promotions and appointment of brand ambassadors •• Co-branding with the halal and halal tourism sector                           Ministry of Industry, Association, Kemenpar, Bekraf b. Co-marketing with halal travel / halal tourism c. Facilities for fashion gallery and district Muslim establishments * 2 Collaboration with Islamic finance •• Increased   funding for Muslim fashion   industry players           b. The priority of funding assistance to industrial SMIs is feasible but not yet bankable             c. Facilities for increasing the competence of business management and financial administration of the Muslim fashion industry             a. Initiation of IKM-friendly financing schemes: venture capital, cooperatives, and CSR 100 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Economic Affairs, Ministry of Industry, BI, Financing Institutions, Investors, BKPM, KemenKUKM
  114. No Programmes /Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholder 3 1 2 Increased exports to potential •• Increased destination countries as the main export export volume target   a. Intra-trade agreement initiation between destination countries through the International Halal Center *             b. Facilitate financing facilities and international financial transactions for export destination countries             Meeting international standards a. Identify HS Code for Muslim fashion 3 Expansion of global distribution channels with e-commerce a. Increased number of e-commerce sites and Muslim fashion media b. Collaboration with international e-commerce sites for market access to export destination countries •• Available HS   Code for Muslim   fashion •• Increased number of e-commerce Muslim fashion areas                                               Ministry of Industry, Ministry of Foreign Affairs, Ministry of Trade, Association, BI, Ministry of Finance Kemenperin, Kemenlu, Kemendag, Asosiasi, BI, Kemenkeu Ministry of Industry, Ministry of Communication and Information Indonesia Islamic Economic Masterplan 2019-2024 101 Strengthening Halal Value Chain Strategy IV: Mastering the Muslim Fashion Industry Export Market
  115. Muslim Fashion Industry Quick Wins 1 . Conducting Business Matching Forum Business matching forum is a B2B meeting between entrepreneurs, retailers, agents, distributors and potential investors or partners. This activity is considered to be efficient in bringing together investors and entrepreneurs because business matching forums can expand networking on a timelier and costly basis. The success of this activity can be seen from the number of Memorandums of Understanding (MOU). One of the K/L in Indonesia that often holds business matching forum activities of ambassadors can also be used as an option to increase the intensity of this campaign. With this campaign, it is expected that public awareness of halal products will increase. This is in line with the main quick wins of the Islamic Economic Masterplan in the form of a national halal lifestyle literacy campaign. 3. Conducting Promotional Events of International Standard and Participating in International Muslim Fashion Events is Bekraf. Activities organized by Bekraf bridge In addition to business matching activities entrepreneurs to be able to submit financing forums, international fashion shows as well proposals to conventional banks. Therefore, one of can be an effective means of promoting Indonesian the modifications that can be made for the Muslim Muslim fashion products to the international market. fashion industry is to bring entrepreneurs to Islamic At the end of 2018, Indonesia is trusted to host the banking. Modest Fashion Summit. This event will be attended by more than 1,000 delegates from 40 countries. 2. Campaigns to love Muslim fashion products produced by the nation through media and community One of the biggest challenges faced by Muslim fashion industry entrepreneurs is the swift imitation of Muslim fashion items at low prices. This results in consumers shifting their demand to imported goods compared to domestic Muslim fashion products. Thus, a campaign to increase public awareness is needed to improve the competitiveness of domestic products. This campaign can be initiated by the Ministry of Industry through various media and communities. In addition, the appointment 102 Indonesia Islamic Economic Masterplan 2019-2024 The implementation of this quick wins is expected to be in line with the main quick wins in the form of strengthening international economic cooperation.
  116. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 103
  117. Halal Media and Recreation Cluster Global and National Conditions of Halal Media and Recreation Cluster State of the Global Islamic Economy Report 2018 /19 also confirms that Muslims spends US $ 209 billion in 2017 on time and on media and recreation for, and is estimated to reach US $ 288 billion by 2023. The expenditure is mostly dominated by media and recreation originating from Turkey, United States, Russia, Saudi Arabia, Britain, Indonesia, Germany, France, Egypt and Iran. Based on the report, Indonesia is not even in the top 10 providers among the top 15 countries in the global halal industry services. On the other hand, Indonesian consumption of halal media and recreational products is ranked sixth with a value of US $ 8.8 trillion. 1.The Development of National Halal Media and Recreation Cluster The media and recreation industry is currently a sub-sector of the potential creative economy. GDP growth rate for Film, Animation and Video sub-sector increased rapidly along with the increase in national film production and audiences. The potential for films is increasingly supported by the proliferation of various streaming video applications and services that are developing. The development of the economy’s GDP growth and posture shows that there are three biggest contributing sub-sectors, namely culinary, fashion and craft with a total contribution of around 76%. On the other hand, the media and recreation sub-sector has not been the biggest contributor to the GDP of the creative economy. In addition, there is no mentioned on the contribution of halal media and recreation to the GDP of the creative economy. The International Federation of Phonographic Industry (IFPI) stated in one of its reports that music can be a driver of economic activity, absorb labor, export, and be a source of tax revenues. In line with this statement, the music sub-sector in Indonesia is experiencing a rapid development with a GDP growth of above seven percent in 2016. For this reason, BEKRAF is also very optimistic in making the music sub-sector as one of the priority sub-sectors. The digital application industry (apps) has recently become significant in contributing to the decline in numbers of unemployment. This sub-sector is predicted to continue to grow with the rise of startups that have sprung up in recent Indonesia Islamic Economic Masterplan 2019-2024 105
  118. Graph 3 .4.1 Creative Economy GDP’s Sub-Sector Growth (in %) Source: Bekraf (2018) Economic Expenditure 0 5,18 Art 2,4 5,75 5,72 6,33 5,69 4,29 5,79 6,59 6,03 Performing Arts 7,55 6,01 9,34 7,32 8,38 Television and Radio 3,93 Production 5,04 4,47 2,8 Fashion 5,53 5,85 5,69 2015 6,22 4,08 7,26 5,02 Culinary Craft 2,67 Photography 1,65 2,85 3,65 5,04 2,03 1,94 Visual Communication Design 2013 5,51 2012 6,13 2011 4,97 4,89 6,68 5,31 8,36 2,85 2,76 2,71 4,98 Interior design 5 Architecture 9,06 4,00 10,28 5,71 6,09 6,51 6,07 2,00 8,36 5,56 4,71 3,34 0,96 5,19 4,64 4,51 2,95 Film, Animation and Video 9,45 7,47 7,18 3,94 2014 7,99 5,79 Music 0,00 8,42 4,89 5,11 3,45 Games and App Developer 9,74 4,19 3,98 14,31 13,44 6,36 Advertising Product Designs 11,67 11,32 6,00 7,4 7,66 6,82 6,91 6,68 8,93 8,00 10,00 12,00 14,00 16,00 years, such as Agate Studio, Altermyth Studio, Toge (GDP) in 2015 was around 53.6 trillion rupiah. Based Production, Tinker Games, Touch Ten Games, and on the summarized data, the publishing industry others. Sub-sectors that attract funding from these contributes 6 percent to the total gross domestic investors also generate large transaction value. This product creative industry in 2015 with an average also may not escape from the increasingly frequent growth of gross added value of 2.5 percent for the use of mobile devices for the need to play games. period 2010-2015. According to the Super Data report, the average smartphone user plays mobile games three times a day, with an average time of ten minutes for each game session. Halal media and recreation contributes to the total economy, this can be seen from distribution channels in the media and recreation sectors. Implications from the film industry are related to The Central Statistics Agency (BPS) and the media production and recreational facilities. Indirect Creative Economy Agency (BEKRAF) have identified influence on other sectors that are closely related business fields that are included in the publication, to the process of making or producing the media such as publishing, printing, newspaper publishing, industry and improving recreational infrastructure. and magazines. Based on the definition, BPS has The influence of income or income from the media collected data on several economic indicators of and recreation industries, both directly and indirectly this sector: added value, labor and international will have an induction effect that is closely related to trade. The direct contribution of the publishing other sectors, for example: food, clothing. This can sector to Indonesia’s Gross Domestic Product be seen from the chart below. 106 Indonesia Islamic Economic Masterplan 2019-2024
  119. Figure 3 .6 Halal Media and Recreation Influence Channel towards the Economy 3 INDUSTRIAL INFLUENCE INDIRECT INFLUENCE Outputs and work related to purchasing activities in the media and recreation industries by other industries, such as market surveys, electricity DIRECT INFLUENCE Strengthening Halal Value Chain Source: oxfordeconomics, 2015 Output and work related to direct or indirect income expenditure in the media and recreation industries can benefit the food sector and the clothing industry Job opportunities in the media and recreational industry Outputs and work related to media and recreational industry activities The media and recreation industry has not been maximized in meeting the halal market share industry in Indonesia. This can be seen from the lagging in Islamic media and Islamic films. DKI Warkop Movie Reborn: Cricket Boss! part 1 is watched by 6.8 million Indonesians. Whereas religious nuances are still lagging behind, and watched by 3.5 million viewers. This can be seen from the data below. Halal Media and Recreation are experiencing positive developments. However, the lack of facilities 4.7 4,5 Watched Laskar Pelangi Watched Habibie & Ainun 3,5 2,1 Watched Ayat-Ayat Cinta Watched Ketika Cinta Bertasbih Million Viewers Million Viewers Million Viewers Million Viewers and the low level of halal literacy urges the media and recreation industries to be further improved. In addition, the majority of Indonesia’s population are Muslims. Television programs do not support the development of halal media and recreation. Many programs and television programs are far from exhibiting Islamic values. From the suppliers’ perspective, production houses have begun competing in order to boost their productivity in working on quality Islamic nuances in terms of stories that are inspired by Islamic values. Furthermore, application providers and games are now featuring Indonesia Islamic Economic Masterplan 2019-2024 107
  120. content that makes it easy to learn Islam and its values ​​for example Quranic that displays verses from the Qur’an and the translation is integrated with the musi c industry and uses sign language. Also propagating dakwah through social media such as YouTube, Facebook, Instagram and Twitter. Whereas from the demand side, the community has begun to impro v e themselves and learn Islamic values​​ through h alal media and recreation. State of the Global Islamic Economy Report 2018/19 (Report of collaboration between Thomson Reuters a nd DinarStandard) also confirms that Muslims’ expenditure for media and recreation is USD 209 b illion in 2017, and is estimated to reach USD 288 billion by 2023. The expenditure is mostly dominate d by recreational and media originating from Tur k ey, United States, Russia, Saudi Arabia, United Kingdom, Indonesia, Germany, France , Egypt, and Iran. Based on the report, Indonesia is not even included in the top 10 providers among the top 15 countrie s in global halal industry services. On the other hand, Indonesia’s consumption of halal media and recreational products is ranked sixth with a value of USD 8.8 trillion. Figure 3.7 Best Selling Movies in Indonesia 2007-2018 Source: http://filmindonesia.or.id Warkop DKI Reborn: Jangkrik Boss Part 1 6.858,623 Dilan 1990 6.315,665 Lakar Pelangi 4.719,456 Habibie & Ainun 4.583,648 Pengabdi Setan 2 4.206,106 Warkop DKI Reborn: Jangkrik Boss Part 2 4.206,108 Ayat-ayat cinta Ada apa dengan cinta? 2 My stupid Boss Ayat-ayat cinta 2 108 Indonesia Islamic Economic Masterplan 2019-2024 3.676,145 3.665,56 3.052,668 2.840,162 Jumlah Penonton
  121. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 109
  122. Challenges and Opportunities for the Development of Halal Media and Recreation Cluster By standardizing and optimizing the supply chain According to the State of the Global Islamic and management (supply chain management) it can recreation consists of suppliers (talent, film & music achieve the goals expected by media and recreation. infrastructure/ equipment, toys/games material Raw materials for the media and leisure industries providers, TV & Radio infrastructure / equipment), make supply chain management more complex Service production, and intersects with marketing, management and print production, toys / games production, TV & technical matters, and involve many professionals. Radio production and film production), channels The growth of media and recreation programs is (distributors broadcasters), inseparable from the logistics and supply chain of consumers (online/app, TV & radio, retail, cellular the media and recreation industries. The Halal Value mobile, print and theater). To manage high Chain for the media and recreation industry can be operational cost for the increasing media and summarized, as follows: Economy Report 2018/19, Providers and (Online halal / media app satellite/cable recreation production, a professional and efficient team of management is required. Figure 3.8 Value Chain of Halal Media and Recreation RESEARCH & DEVELOPMENT Facilities Sarana film, animasi, video, aplikasi, games dan musik Industry ISLAMIC FINANCING Human Resources 1. Pelaku media dan rekreasi halal 2. Infrastruktur musik, film, aplikasi & games, TV & radio 1. Logistics 1. Media video production 2. Games & apps 2. Channel (media server, streaming, 2. Exhibition 3. Collaboration production 3. Music industry 4. Production industry REGULATION Indonesia Islamic Economic Masterplan 2019-2024 Promotion 1. Film, animation and 3. Developer / Tecnopreneur 110 Distribution & Commercialization broadcasting, production house 4. Zoning TECHNOLOGY
  123. Table 3 .15 Value Chain of Halal Media and Recreation Value Chain Distributor Main Industry Supporters 1. Film Production House 1. Human resource 2. TV and radio 2. Research and development 3. Production 3. HAKI 4. Application and games provider 4. Royalty distribution 5. Music and art industry 5. Technology 6. Marketing Financing 1. Islamic banking 1. Shariah compliant 2. Non-Islamic Banks Financial Industry (IKNB) Investor Incubator 1. Private sector 1. Waqf, sukuk, crown funding, Islamic venture capital 1. Primarily business incubation services 1. University incubators 2. Primarily technology incubation services 2. Entrepreneurs incubators 3. Mixed incubation services 3. Corporate university Cultural Festival 1. Cultural art performances 1. Arts and culture department 2. Art association Universities 1. Study center concerning halal media and recreation 1. Study center for media and recreation 2. Study center for culture 3. Multimedia facilities 4. Music studio Digital Economy 1. e-commerce Association 1. technopreneur 1. Islamic TV and radio association (ARTIVISI) 2. Indonesia Film Board 3. Indonesia Film Producer Association 4. KCI (Indonesia copyright work) 5. GAPERINDO (Indonesian Record Companies Association) 6. IMOCA (Indonesian Mobile & Online Content Provider Association) 7. Indonesian Game Association (AGI) Indonesia Islamic Economic Masterplan 2019-2024 111 Strengthening Halal Value Chain 3
  124. To develop a strategy for developing a halal the strengths , weaknesses, opportunities, and media and recreation industry, it is necessary to challenges based on the Value Chain media industry map the current condition and position of Indonesia. and halal recreation are summarized in the table One of them can use a SWOT analysis. Mapping below. Table 3.16 Halal Media and Recreation SWOT Analysis STRENGTHS HR 1. Large pool of HR 2. Many creative young people in Indonesia have already started to plunge in the media and technology literacy WEAKNESSES 1. Lack of research where the HR competencies are not sufficient 3. More and more schools with a concentration of quality media and information technology Industry 1. - The number of start-up companies that are growing rapidly 1. - Media technology is still inadequate and expensive 2. - Culture in some regions has embraced Islamic values 2. - Not yet implemented the standardization of the quality of halal media and recreation 3. - The level of interaction with media apps is 1. - halal media & recreation competition that Distribution, getting higher. is still low Commercialization, and Promotion 4. - The majority of Indonesian Muslims are more 2. - Product marketing is not maximal interested in da’wah through media such as 3. - Investors still have very limited confidence films, app store applications and Islamic TV and appreciation for halal media and programs. recreation OPPORTUNITIES HR 1. A large number of labour is available THREATS 1. The limited association of Muslim fashion designers. 2. So far there are only Muslim Fashion Designers (IPBM) 3. Scholarships for fashion education are still lacking because the fashion sector is considered a type of vocational education Industry 1. Collaboration with other industries such as tourism, halal food and beverages, pharmaceuticals and cosmetics, and Muslim fashion 1. Distribution channels in the domestic market Distribution, are increasing and diverse, for advertising Commercialization, agencies, or online advertising platforms and Promotion 2. Millennials are looking for a more positive image of Islam in the media, potential for games and apps developers 3. The growth of the Islamic industry is large and fast 112 Indonesia Islamic Economic Masterplan 2019-2024 1. Being in the early stages of growth, many regulations are not yet available, HR is not permissible (Quality & Quantity), financing. 1. Other countries that already have the relevant regulations
  125. Table 3 .17 Opportunities and Challenges of Halal Media and Recreation Clusters Based on Ecosystems Demographic Increased market demand Technology and information Potential Challenges 1. 60% out of 237 million Indonesians 1. Creative education and increase in creative human are within productive age (15-55 resource capacity years) and 27% are young generations (16-30years). 1. Growth and development of halal media and recreation 1. The number of cinema screens is only 10% of the total number of districts / cities in Indonesia 1. Increased penetration of the use of gadgets for applications 1. Inadequate number of qualified apps developer 2. Internet connectivity is not widely made available 3. Costly internet fee 4. Financial board is not interested to invest because of high risk Culture 1. The large number of both traditional and contemporary performing arts has been created. 1. Limited performing stage. 2. No regulation to differentiate halal and non-halal media and recreation. Indonesia Islamic Economic Masterplan 2019-2024 113 Strengthening Halal Value Chain Aspects 3
  126. Specific Strategies for Media Clusters and Halal Industries No . Programs/Activities Indicator Target Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy I: Increase in the quantity and competency of creative HR throughout the value chain of media and the creation of creativity and the influence of technical and association effectiveness 1 Increasing the number and competence of creative human resources in the field of media and media production innovation and understanding the needs and characteristics of halal culture in Indonesia. •• Socializing the   halal media and recreation subsector through creative activities that are easily   a. The assistance of creative industries for recognized in media and recreation by coaching and the community mentoring entrepreneurs in halal media and recreation, renowned producers, artists and internationally recognized media designers b. Organizing Islamic media and recreational festivals to search new talents   c. The introduction of International Islamic book fair, and indoor or outdoor media recitation, games (Archery, horse riding, horse riding) to increase awareness, quality and number of tourists to Indonesia as the center of Islamic economics.   d. Media and recreation business meetings with the film academy department, designers and universities, as well as the media and recreation industries to improve the quality and quantity of media production and recreation.   Ministry of Industry, Media industry: film, music, news, Technopark,                 Creative Economy Agency, Creative Media and Industry Association, Aprofi, BFI,         Ulama Council of Indonesia, Bank Indonesia, Cooperative Ministry and MSMEs,         Ministry of Economic Affairs, Ministry of Finance, Ministry of BUMN, BPJPH, Ministry of Industry, Ministry of Trade, Communication and Information Technology 114 Indonesia Islamic Economic Masterplan 2019-2024
  127. 2 3 4 Increasing the number of facilities , quality, •• Increase and productivity of human resources in graduates who media and recreation to market media possess halal and recreation by utilizing information media and technology recreational competencies a. Strengthening Vocational Training •• The increasing Institutes and the human resource for number of media and recreation competency ecoapplication system. developers and b.  Implementation of technical guidance quality games, on media production: film, music, books technopreneur, / 3D drawing / computerized design, musicians, c. Implementation of technical guidance artists and on the use of media technology and writers. applications for media marketing and recreation                                    Increasing the number and quality of art and media schools, as well as the recreation, curriculum, teaching human resources that are in accordance with the needs of the halal media and recreation industry •• The increasing   number of experts and professionals who have the competence of halal media and a. Encouraging the development of quality   recreation. higher education institutions.         b. Alignment of curriculum and competence of graduates according to the needs of the media and recreation industry           c. Competency and certification improvement, lecturer / teacher innovation.           d. Collaboration and co-operation with well-known media schools, film, music from abroad.                      Increasing the number of new entrepreneurs in the field of halal media and recreation and the establishment of business incubators •• Services integrated to facilitate licensing to establish a halal media and recreation publisher               •• Availability of halal media and c. To develop policies to ease businesses   recreational in the field of halal media and recreation. workforce                 a. To carry out new entrepreneurial technical guidance on halal media and recreation b. To develop a business incubator for halal business and recreation Ministry of Industry, Ministry of Religion, Kemenristekdikti, Ministry of Education and Culture, BNSP, LSM, Aprofi, BFI, Islamic Media Industry Ministry of Industry, Kemenristekdikti, Media Association and Tourism Entrepreneurs Association Ministry of Industry, Asosiasi Designer Association and the Employers’ Association, BNSP, OSS, BKF, Local Government/City Government Indonesia Islamic Economic Masterplan 2019-2024 115 Strengthening Halal Value Chain 3
  128. 5 Increased recognition of international media , labels and halal media and recreational products         b. Building a mechanism of partnership between leading producers, music and recreation both locally and internationally and potentially to be developed through a coaching, mentoring and partnership process.           c.  Building an Indonesian database and promote actively at home and abroad           d. Facilitate networking and partnerships between technician talents, music and music, Indonesian media publications around the world for knowledge sharing           Increased research and publications on halal media and recreation and the use of media and the internet in the halal media and recreation industry •• Increasing   branding and halal and media recreation market share           b.  Providing research incentives and information in scientific journal publications and articles related to halal media and recreation           c.  Encouraging the growth and development of halal media / media sites and recreation           a. Encourage research and the benefits of intelligence halal media and recreation market 116     a. Provide support to the community to participate in international level events both domestically and abroad 6 •• Increasing halal media and recreation products that can compete globally Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Industry, Ministry of Foreign Affairs, Ministry of Trade, Bekraf, Association of Designers, Industrial Associations Mnistry of Industry, Ministry of Trade, Ministry of Communication and Information, University Academics or Practitioner, Journal Institute
  129. 1 Increasing the attractiveness of the halal media and recreation subsector , as an attractive place for a career and investment             b. To increase market appreciation which will increase the potential of domestic and international market in films, music and publication for example “Ayat-ayat Cinta”, “Novel Islam” dan “Ketika Cinta Bertasbih”.           c. Organizing and revitalizing distribution regulations (markets, distributors), export-import regulations (protection, tariffs, subsidies, and monetization of tariffs to increase added value and to increase market potential).           d. Uphold the law on smuggling, illegal imports, piracy and violations of IPR which will reduce the amount of market potential in the halal media and recreation industry.           Increasing production of halal media and recreation that is comfortable and safely enjoyed by increasing the quality and quantity in order to achieve production and market size through collaboration of producers with the media and recreation industries •• To increase   the amount of platform involved in halal media and recreation a. Widening distribution, for example by expanding distribution channels 2 •• Increased employment and absorption of media and recreational workforce •• Operational and production efficiency, to increase halal media and recreation export                     c. Encouraging directors, script writers to provide quality Islamic values to be enjoyed and to become mass production           d. Developing digital platforms that connects media producers and recreation location to ease the consumers to enjoy halal media and recreation           a. Market and research product development b. Developing business collaboration that is profitable through distribution of royalty to directors, script writers and production houses Ministry of Industry, Ministry of Trade, BKPM, Regional RTSP, CSS, Kemenkumham, Polri, TNI, Ministry of Finance, Association of Media Distributors and Books. Ministry of Industry, Associations, Entrepreneurs, Sutradara, Communication and Information Technology, Kemenkumham Indonesia Islamic Economic Masterplan 2019-2024 117 3 Strengthening Halal Value Chain Strategy II: National halal media and recreation industry as a mainstay in the export market and to be a host in its own country with capabilities in innovating and diversifying products.
  130. 3 Encouraging the development of new media and recreation products , in films, music, publication and worthy location recreation, with Islamic spirit. a. Market research and development of halal media and recreational products in accordance with the characteristics and culture of Muslim communities in Indonesia. 4 5         b. Business co-operation with Islamic financial industry and co-marketing with Indonesia halal travel/tourism.           c. Collaboration with technology industry to develop products.           Implementing co-branding with the •• Increasing   Islamic finance industry and co-marketing the volume of with halal travel / tourism in Indonesia. product sales and halal media a. Co-branding with Islamic financial   and recreation products through massive services promotions and appointment of brand ambassadors, for example the film “5 Menara”.         b. Facilitate the establishment of Islamic halal district media animation (8 corridors) by benchmarking against: (Malaysia Islamic Science Center, Alhambra Spain, British Islamic Museum, Turkey)           c. Implementation of co-marketing with halal travel/tourism that are suitable and attractive) such as “jejak rasul” documentaries.                     Encouraging the use of multichannel marketing channels (offline-online) a. Increasing SDM’s capacity in marketing media and recreation b. Facilitating the capacity to establish retail stores and e-commerce and integrating halal deal apps for example, halal market. 118 •• Increasing   numbers of production for local and export market from   halal media and recreation Indonesia Islamic Economic Masterplan 2019-2024 •• Increasing the halal media and recreation market share                       Research institute, Universities, Ministry of Industry, Kemenristekdikti, Technology Industry, Ministry of Religion, Communication and Information Technology. Ministry of Industry, Kemenpar, Bekraf, Regional Government, Ministry of Religion, Islamic Banking, Associations Ministry of Industry, Kominfo, e-commerce
  131. Encouraging the media and recreation industry to develop production line •• Availability of halal media and recreation a. Encouraging inter-industry co-operation products for to strengthen the halal media and innovative recreation industry in Indonesia millennials and abroad to make the largest halal recreational media products in Indonesia, for example in the form of nasyid music, history books for Malay- Islam and the Ottoman Islamic kingdom, Turkey..             b. Conducting research and developing halal media and recreation products for the millennial generations.           Ministry of Industry, Film Associations, Books Associations and Industry Strategy III: Forming media and recreation center, production process, channel distribution/marketing (media and internet/ e-commerce) by benefiting technology industry 4.0. 1 Establishment of technological bases to support creative industries towards technology clusters a. Prioritizing the supporting bases of technology in films and halal recreation, especially commercialization of information and communication technology b. Facilitating coordination and collaboration between supporting industries, such as the paper industry and Islamic magazines, intensively between government research institutions and universities c. Developing incubator businesses, in framing the technology spread d. Developing the domestic hardware industry as a support for the creative industry technology •• Increase   technological and internet range that is   expedient in halal media and recreation •• Encourage the growth of   technology support bases for film and halal recreation, in particular commercialisation   of information and communication   technology                                 Ministry of Industry, Ministry of Communication and Information Technology Indonesia Islamic Economic Masterplan 2019-2024 119 3 Strengthening Halal Value Chain 6
  132. 2 Use of information technology and implementation of industry 4 .0 for the media and recreation industries •• Availability of technology and information that supports industry 4.0                               d. Developing internet connection between halal industry centers           e.  Incentives and investments in implementing industry 4.0 in media and recreation           f.  Providing incentives to invest in machines/ modern tools.           Increasing the number of e-commerce and •• Facilities for halal media and recreation sites entrepreneurs to enter into a.  Encouraging the growth of e-commerce digital economy and halal media and recreation sites ecosystem b. Encouraging the benefit of online•• Availability of e-commerce market by integrating halal media e-smart IKM and recreation c. Co-operation with international application e-commerce sites for market access integration abroad for export purposes   Encouraging media and recreation •• Interlinkage functional collaboration and raw materials between halal technology with company technology industry cluster   a. Co-operative research in developing functional media and recreation product that is technology friendly           b. Co-operative research in developing raw material           c. Business co-operation through comarketing collaboration with product technology.           a. Conducting training in computers and ICT •• Increased incentive and investment in implementing c. Developing digital business platforms by industry 4.0 consolidating designers, media industry in media and and recreation and e-commerce recreation b. Establishing a strategic partnership with countries advanced in creative technology 3 4 120   Indonesia Islamic Economic Masterplan 2019-2024                               Ministry of Industry, Kemenristekdikti, Technology Industry, Universities, Review Boards Ministry of Industry, Communication and Information Technology Ministry of Industry, Kemenristekdikti, Technology Industry, Universities, Review Board
  133. 1 Increasing linkage between graphic designers , media and recreation industry             b. Developing online platforms for graphic product designer, media and recreation industry           c. Socializing and strengthening media and recreation data base           d. Optimizing supply chain in the halal media and recreation industry by strengthening the halal media and recreation industry with halal tourism           a. Business matching graphic designer – media and recreation industry – outdoor and indoor recreation, retail store/ecommerce 2 •• Halal media and recreation database Strengthening innovation in benefiting human resources a. Encouraging research and innovation of media and recreation products by leveraging on human resource from boarding schools as the center of Islamic studies b. Developing media and recreation products, film and documentaries of boarding schools and Islamic scholars in Indonesia •• Media and   recreational products with   the use of boarding school resources as a centre of Islamic study   to become a superior product of Indonesia                 Ministry of Industry, Ministry of Religion, Ministry of Finance, Associations, Communication and Information Technology Ministry of Industry, Ministry of Religion, Bekraf, Review Boards, Kemenristek Dikti, Universities, Boarding schools Strategy V: Formation of business ecosystem required my consumers through co-branding and co-marketing together with assurance of convenience in commencing pro-business investment climate 1 Respect for intellectual property rights •• Protection (HKI), MURI and recognition of its benefits against piracy to the economy and copyright infringement a. Encouraging halal media and recreation product creativity and invention for example Islamic animation             b. Facilitating patent registration, HaKI and MURI           c. Protection against piracy and copyright infringement           d. Facilitating implementation of broadcasting media and recreation on large and massive production scales, such as advertising for halal recreation           Ministry of Industry, Kemenkumham, TV & Radio, Label Music, Producers Indonesia Islamic Economic Masterplan 2019-2024 121 3 Strengthening Halal Value Chain Strategy IV: The occurrence of forward and backward linkage in the value chain for the media and recreation industry to produce good added value
  134. 2 3 4 Increasing the pride and love of Muslims towards halal media and recreational products •• Increase awareness towards halal media and a. Campaigning to love local Islamic media recreation of production, such as the film“Laskar nation’s work Pelangi”.             b. Favouring the government in adding Islamic media and recreation facilities by broadcasting Islamic media and recreation on TV.           Increasing media and recreation exports •• Increasing the   to member of OIC countries with bilateral/ position of multilateral agreement halal media and recreation at the a. Conducting market intelligence and   world level exploring co-operation with member countries of OIC, such as international book fair in Egypt.         b. Initiating trade agreements with member countries of OIC to commit to increase halal media and recreation products between member countries of OIC           c. Increasing productivity of media and recreation industry locally and product competitiveness           d. Facilitating adoption of international business standard model           e. Facilitating international financing facility and financial transaction           f.  Performing technical guidance and organizing media export by fulfilling international standard           Organizing a world class promotional event and participate in international media and recreation events (exhibition/ seminar) •• Halal media and recreation production globally recognised and accepted             b. Organizing a world class event and inviting international media and recreation investors           c. Identifying events abroad which are considered significant towards halal media and recreation in Indonesia           d. Facilitating potential international label/ designers/media and recreation industry           a. Benchmarking against international halal media and recreation event abroad and applying it locally 122 Ministry of Industry, Ministry of Religion Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Industry, Ministry of Foreign Affairs, Ministry of Religion, Association, BI, Ministry of Finance Ministry of Industry, Ministry of Religion, Ministry of Foreign Affairs, Association
  135. Protecting the domestic market from low quality media and recreation coverage •• Outstanding   halal media and production           b. Creating non-tariff barriers in order to protect the media and recreational industries DN           c. Encouraging the development of halal media and recreation community, such as round table forum, bikers.                     a. Organizing and absorbing halal media and recreation standards Ministry of Industry, BSN, Ministry of Religion, Ministry of Finance Strategy VI: Easy access and financing from financial institutions or non-financial institutions and easy investment 1 2 Creation of financing schemes and institutions and supporting their growth and development in Indonesia   a. Encouraging the creation of creative industry financing schemes such as venture capital, seed capital, angel capital, angel investors, bank loans or CSR, such as waqf for film“Iqra’2”           b. Develop funding institutions in Indonesia’s creative industry centers           c.  Prioritizing funding assistance to the creative industry MSMEs / IKMs that are feasible but not yet bankable           d. Facilities for enhancing competency in business management and industrial finance and recreation management           Implementation of industry-friendly / IKM financing schemes   a. Facilitate to obtain working capital (KUR)           b. Financing facilities are adopted by large industries / buyers / investors with mutually beneficial cooperation           c. Encourage collaboration with IslamFinance / Islamic finance           3 Strengthening Halal Value Chain 5 Ministry of Industry, BI, Financing Institutions, Investors, BKPM, KemenKUKM Ministry of Industry, Associations, KemenKUKM, Banking Indonesia Islamic Economic Masterplan 2019-2024 123
  136. Halal Media and Recreation Quick Wins 1 . Use of halal media and recreation in supporting the branding of the halal industry 2. Establishment of leading sectors and media and recreation priorities Halal media and recreation to brand the halal The establishment of this priority sector in halal industry by massive promotion and appointment media and recreation is focused on the sub-sector of brand ambassadors with their respective of film, animation and video, applications and games regional media and recreation brand activation and halal recreation and recreation are urgently programs through regional festivals and various needed. print and electronic media. Then, choosing brand ambassadors who represents Indonesia in participating in festivals, trade missions, B to B people networking / works / businesses and halal recreation in Indonesia and abroad. Hence, it can create a cooperative relationship between creative countries as soft power to promote domestic music in the global market. Quick wins are related to the main program of Islamic economics masterplan, namely the national campaign “halal lifestyle” and strengthening national economic cooperation. 124 Indonesia Islamic Economic Masterplan 2019-2024 3. Encouraging the creation of halal media and recreation financing schemes The creation of a financing facility scheme for beginner creative entrepreneurs in starting their businesses. Facilitating capital gains, Islamic financing schemes such as BUS (Shariah Commercial Banks), Islamic venture capital, and Islamic capital markets which will be facilitated through the main strategy program, namely halal fund.
  137. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 125
  138. Halal Pharmaceuticals and Cosmetics Cluster Pharmaceuticals and halal cosmetics are pharmaceutical and cosmetic products made from materials that are in accordance with Islamic law . The material does not contain components from animals which are prohibited and those that are slaughtered not in accordance with Islamic guidance. The product must be produced and processed using a tool that is not mixed with substances that are not in accordance with the Shariah. Thus, halal pharmaceuticals and cosmetics are harmonization of Islamic law, Good Manufacturing Practice (GMP) and halal raw materials (Rina, Khanapi, & Hasan, 2013) Graph 3.5.1 PDB ADHK According to Business Field 200.000,00 182.378,90 175.000,00 150.000,00 164.843,00 174.469,80 153.191,90 125.000,00 100.000,00 2014 2015 2016 2017 Indonesia Islamic Economic Masterplan 2019-2024 127
  139. Global and National Conditions of Halal Pharmacy and Cosmetic Clusters In Indonesia , the GDP contribution of the In the global pharmaceutical industry, there are chemical, pharmaceutical and traditional medicine four opportunities that can be utilized. Sales of industries hves increased for five years. During the over-the-counter or OTC drugs (drugs that can be 2014-2017 period the largest growth value occurred purchased freely without a doctor’s prescription) in 2015 with an additional value of Rp. 11,651.1 are estimated to be dominated by the Asia Pacific billion. While in 2018 the growth of the chemical, by 36% until 2022. The categories of sleeping pills pharmaceutical and traditional medicine industries and tranquilizers are also predicted to increase in the third quarter was recorded at 3.91% (yoy). sales during 2017-2022. Factors that influence Globally, the cosmetics and pharmaceutical industry is growing each year. In 2017 the value of the cosmetics industry increased by 5% in 2017. Currently, the trend in the beauty industry is to offer premium opportunities through new concepts by increasing perceptions of quality besides higher prices and luxury labels. Skin care products are predicted to grow by 31% during 2017-2022 and it is to be led by the Asian region. This was motivated by an increase in awareness of skin care and company this are increasing levels of stress on society, high levels of activity, and a fast and modern lifestyle. Online drug sales with vitamin and supplement categories are predicted to grow in the same period. When compared to the cosmetics industry, the pharmaceutical industry tends to grow faster in developing countries, because in aggregate it follows macroeconomic indicators. This caused Indonesia to be ranked third from ten countries with the fastest development of the pharmaceutical industry market. expansion as well as rising consumption of the Graph 3.5.2 middle class in Asia, the Middle East and Africa. There are five main keys in the global cosmetics Muslim Global Consumption towards Pharmaceutical Cosmetics industry. Firstly, beauty is a lifestyle. This is in line with Source: Global Islamic Economy Report (2018) the increasing awareness of healthy lifestyles to take good care of one selves. Cleanliness, compatibility 100 with ethics and inclusive beauty became the second 80 key in the development of the cosmetics industry. A 60 growing trend now are natural cosmetics with organic 40 raw materials. This is believed to be able to support 20 environmental sustainability and fulfill social goals. In addition, ethics will encourage the involvement of religion and cultural values. The third key is experience and empowerment. Experience focuses on increasing emotional ties with consumers, one of which is a digital approach with increased product selection, education and monitoring. The fourth key is digital and intensified technology. Interaction between producers and consumers today are intensively digital. The last key is the development of premium perceptions. 128 Indonesia Islamic Economic Masterplan 2019-2024 0 72 46 2013 54 56 2014 2015 Pharmaceoutical farmasi 87 83 78 75 57 2016 Cosmetic kosmetik 61 2017
  140. Globally , based on the State of Global Islamic The pharmaceutical and cosmetics industry has Report Muslim consumption of pharmaceutical been included in the list of the mainstay industry and chemical products from 2013-2017 shows an sectors of the Ministry of Industry. From 2013 to increasing trend. 2017 the market share of pharmaceutical products At the moment, Indonesia is ranked at 4th place for most consumed pharmaceutical products. Meanwhile in the cosmetics sector, Indonesia is in Indonesia have increased, but performance sales are still declining. Based on Euromonitor Consumer Health in place for most consumed cosmetic Indonesia Country Report 2017, the pharmaceutical products behind India. In the year 2023 it is estimated market share in 2017 remains positive and it that the pharmaceutical market will increase by 7% is estimated that in 2018 sales will reach IDR to USD131 million and the cosmetic market will 51,535.5 billion rupiah and IDR 55,874.9 billion increase by 6.9% to USD 90 million. in 2019. Growth occurs in analgesic, vitamin, ranked 2 With nd the increasing trend, multinational entrepreneurs has begun to target Muslims’ market by producing halal products. In the pharmaceutical field, South Korea pharmaceutical companies collaborates with Iran pharmaceutical companies to produce biopharmaceutical products. Japan’s MC Biotech has striven to obtain halal certificate from Brunei Darussalam and to market the products to the community. There is a South Korea Beauarti In the cosmetic industry that produces halal cosmetics for the market in Malaysia. Domestic Pharmaceutical Market Share Source: Euromonitor (2018) 50000 18.00% 40000 31880 15.30% 36756 40542 30000 10.30% 20000 43874 8.20% 47499 8.00% 10000 0 2014 2015 Pangsa Pasar (Miliar Rupiah) half of all health product sales in 2017. Increased consumption of vitamin products and supplements occur due to three factors; unpredictable weather changes in Indonesia due to global warming, the increasing number of workers in Indonesia who are increasingly active to the extent of working overtime, therefore vitamins and supplements are needed to stay fit. In addition, poor sanitation in unclean settlements. As a developing country, 2016 2017 pharmaceutical products will continue to be needed. It is predicted that consumption of vitamins and food supplements will continue to grow. Market share value and sales performance for cosmetics in Indonesia is fluctuating in terms of 14.40% growth. Between 2013-2017, the highest increase 10.80% in the market share value occurred in 2014 with an 7.20% increase of IDR 6,664.8 billion. In the same year the 3.60% 2013 products and supplements accounted for almost Indonesia faces many health problems, therefore Graph 3.5.3 15.10% food supplement and herbal products. Vitamin sales performance reached the highest number. 0.00% Penjualan Sales Indonesia Islamic Economic Masterplan 2019-2024 129 Strengthening Halal Value Chain 3
  141. Graph 3 .5.4 The purchasing power of the Indonesian Cosmetic Share Market cosmetics industry as a whole in 2017 is Source: Euromonitor (2018) experiencing a shift directly caused by the economic slowdown. However, the main factor that influences 80000 14.60% 15.20% 70000 60000 50000 40000 42714.42 49218.7 the movement is consumer behavior. Indonesian 0.16 13.50% 55883.5 61490.2 10% 66961.7 0.14 0.12 8.90% 0.1 0.08 30000 0.06 20000 0.04 10000 0.02 0 2013 2014 2015 Nilai Value 130 Indonesia Islamic Economic Masterplan 2019-2024 2016 2017 Performa Performance 0 consumers tend to prioritize buying experience rather than products.
  142. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 131
  143. Development Challenges and Opportunities for the Halal Pharmaceutical and Cosmetic Cluster The pharmaceutical and cosmetic industry is also increasing public awareness on health and the one of the industries determined by the Ministry potential for increased health spending on GDP per of Industry in the National Industrial Development capita also contributes to the growth of the national Master pharmaceutical industry which results in additional Plan . The Indonesian pharmaceutical market grew by an average of 20.6% / year (CAGR) demand for medicines. in 2011-2016. Indonesia’s increasing population is Table 3.18 Opportunities and Challenges of Halal Pharmaceuticals and Cosmetics Cluster Based on Ecosystem Aspect Demand and market Opportunities 1. Growth in the number of Muslims in Indonesia and the Muslims 1. Mulitinasional products that start working on the halal cosmetics sector 2. The target market in Indonesia is very large, with the growth of the middle class community 7-8% per year so that purchasing power increases 2. Access to the international market is still small 3. Increasing trend in consumption of beauty products Technology and 1. Rapid technological development information 2. The development of e-commerce and media Regulation Collaboration with other sectors Financing Threats 3. Lack of research regarding market movements, segmentation and market tastes 4. Fake cosmetics on the market 5. The high dependency of the industry on imported raw materials 1. Information technology utilization is still low 1. Government support for the halal industry in general through Law No. 33 of 2014 1. Policies between government ministries and institutions are still not aligned. 2. There are strategies and government policies related to halal pharmaceuticals and cosmetics carried out by relevant ministries and institutions 2. There are no guidelines and provisions for infrastructure that can support halal pharmaceutical production. 1. Opportunities for co-branding with the halal 1. Asymmetric information between sectors tourism sector 2. The bureaucracy cooperates between sectors 2. Opportunities for co-marketing with the media and recreation sector 1. More and more alternative financing platforms 2. Opportunities for collaboration with Islamic banking and financial institutions 1. Funding institutions still need tangible guarantees, such as: diplomas, certificates, and especially business plans, which most businesses have yet to fulfilled 3. The increasing number of friendly financing schemes of IKM (KUR, LPEI, Ventura) R&D 1. Research collaboration with research institutions, universities and companies 1. Lack of research and follow-up regarding the testing of halal cosmetic and pharmaceutical ingredients 2. Availability of a database of halal pharmaceutical and cosmetics industries is limited 132 Indonesia Islamic Economic Masterplan 2019-2024
  144. influences the potential of the cosmetics market . Based on the Ministry of Industry, at this moment cosmetic products have become a primary need Halal Value Chain for women. The national cosmetics industry Value Chain is an activity in the production recorded a growth of 20% or four times the national process, where producers can add certain value to economic growth in 2017. The domestic cosmetics the item. Halal Value Chain is a process of adding industry increased by 153 companies in 2017, and halal value to the production process. Halal Value currently the number has reached to more than 760 Chain is a method in an effort to maintain the halal companies. From medium and large scale industries, status of an item (Wing & Rayner, 2017) so that all some have already exported their products abroad systems in the Value Chain must comply with halal such as Asean, Africa, Middle East and others. In principles and standards, and avoid those prohibited 2017, the export value of national cosmetic products by the Shariah. Therefore, it is necessary to specialize reached USD 516.99 million, an increase from in the production process of halal goods in order to USD 470.30 million in 2016. The potential of the avoid mixing substances that are not in accordance cosmetics market is influenced by the trend of the with Islamic law. people and their preference to use natural products (back to nature), thus opening opportunities for the emergence of natural cosmetic products such as spa products from Bali. In addition, the increasing population of youth or millennial generations also Figure 3.9 Value Chain of Halal Pharmaceutical and Cosmetic RESEARCH & DEVELOPMENT Raw Materials 1. Chemical raw materials 2. Natural raw materials Industry ISLAMIC FINANCING 1. Upstream chemical industry Human Resources 2. Downstream chemical industry Distribution & Commercialization 1. Logistics 2. Channel (media server, streaming, broadcasting, production house) Promotion 1. Media 2. Exhibition 3. Collaboration 4. Zoning TECHNOLOGY 1. Halal auditor 2. Educational institution 3. Association REGULATION Indonesia Islamic Economic Masterplan 2019-2024 133 Strengthening Halal Value Chain 3
  145. To ensure the production process meets halal has more elements to consider . Some that must be standards, a halal strategy must be determine considered relating to the implementation of halal with certain benchmarks that include Value Chain Value Chain (Ab Talib, Hamid, & Zulfakar, 2015), objectives, structure, business procedures and namely; government regulations, transportation, performance (Tieman, van der Vorst, & Ghazali, 2012). data, human resources and community approaches When compared with conventional, halal Value Chain Table 3.19 Halal Pharmaceutical and Cosmetic Value Chain Value Chain Raw materials Main Industry Supporting 1. Upstream chemical industry 1. Research and development industry 2. Anorganic chemical industry 2. Associations 3. Organic chemical industry Technology 1. Animal element / content detection technology 1. Research and development industry 2. Education board Manufacture 1. Upstream chemical industry 1. Research and development industry 2. Association 3. Education board Distribution Channel 1. Packaging industry 2. Land transport industry 3. Freight forwarding service Retailer 1. E-commerce 2. Retail store 3. Exhibition 4. Media 5. drugstore Financing 1. Islamic banking industry 2. Shariah IKNB 134 Indonesia Islamic Economic Masterplan 2019-2024
  146. out with the SWOT method which is grouped based and cosmetics industry , further analysis is carried on ecosystems in the Value Chain. Table 3.20 Halal Pharmaceutical and Cosmetic SWOT Analysis STRENGTHS Raw materials 1. Biodegradable that can be processed into natural raw materials WEAKNESSES 1. Large industries are still dependent on imported raw materials 2. There is a research that produces alternative ingredients to replace impure ingredients HR 1. Large Muslim population in Indonesia 1. Low halal literacy 2. Educational institutions specific for pharmacy 2. Does not understand the urgency of halal Industry 1. There are a few companies that have exported pharmaceutical products 1. No synergies between the upstream and downstream industry 2. 95% small and medium industry (Ministry of Industry, 2018) Distribution, commercialization and promotion 1. Several cosmetic businesses OPPORTUNITIES Raw material 1. Indonesia’s natural potential used as raw material for making nutraceuticals 2. Rich source of sea products HR Industry Distribution, Commercialization and Promotion 1. Large industries dominating the market THREATS 1. Cheap imported raw materials 2. Imported raw materials from countries that do not have halal certification regulations 1. The existence of halal research institutions in universities 1. halal institutions at the tertiary level are still limited in conducting research in the lab, not conducting a halal socialization / literacy movement 1. Market driven 1. Imported cosmetics 1. Usage of e-commerce that is intended to ease transactions Indonesia Islamic Economic Masterplan 2019-2024 135 3 Strengthening Halal Value Chain To find out the state of the national pharmaceutical
  147. Specific Strategies for Halal Pharmaceuticals and Cosmetic Cluster No Strategy /Programs/Activities/Output Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholder Strategy 1: Halal value literation 1 Developing educational program and literacy on halal products a. Trainers and education for related stakeholders Availability of human resources that are competent in halal industry Education board, Keminfo, LPPOM, Ulama Council Indonesia, BPJPH, Associations Increased halal literacy to the public at large Keminfo, TV stations, Ulama Council Indonesia Community educated with halal concept and products Keminfo, TV stations, Ulama Council Indonesia Online halal education movement Associations, education board, LPPOM, Ulama Council Indonesia, BPJPH Awareness from education board/ students on the importance of halal products Education board, associations, Ulama Council Indonesia, BPJH b. Halal awareness movement c. Advertisements on public’s acceptance on media, television and social media d. Availability of halal directory containing halal goods and services 2 Developing entertainment programs a. Talk show specifically for discussion on halal products broadcasted on television 3 Dakwah programs a. Urgent message to consume halal products 4 Social media a. Halal products word of mouth b. Designated social media account to discuss halal 5 Socialization from halal center universities a. Halal lifestyle movement at university level b. Establishment of halal gallery (halal investment benchmark) c. Nuances of halal living lifestyle d. Socialization to campus community e. Socialization to community at large 136 Indonesia Islamic Economic Masterplan 2019-2024
  148. Strategy 2 : To become market driver for halal health and cosmetics products 1 R&D element to replace pharmaceutical and cosmetics a. Research grant for researchers b. Educational competition at the university level on halal theme for all fields 2. Attracting academicians to conduct research on halal Data and integration for halal center universities Findings of alternative materials to replace a. Continuing co-operation between halal haram materials centers at the university level Kemenristekdikti, education board, financial institutions/ boards Education board, Kemenristekdikti, BPJPH b. Lab research standardization at the university level c. Research to search for alternative materials to replace haram materials d. Experimenting with haram material alternatives 3 Promotion of Indonesia’s halal products abroad Indonesia halal products recognized at the a. Co-operation with major ambassadors international level b. Observing international exhibitions c. Participating in Indonesia’s cultural events Minister of Foreign Affairs, associations, Kadin, Ministry of Industry, BPJPH, Ulama Council Indonesia d. Harmonizing and standardizing halal certification at the international level 4 Organizing halal medicines manufacturing a. Classification of haram raw materials based on risks Standardization on the assurancesystems/ halal management b. Education and training on halal medicines manufacturing c. Halal audit certification as added value to industry practitioners Ministry of Health, BPO, LPPOM, Ulama Council Indonesia, BPJPH, associations, higher education board Strategy 3: Consolidation of domestic market 1 Optimizing the use of local raw materials Less usage of imported raw a. Substitution of imported raw materials materials b. Empowerment to domestic business (farmers) to produce raw materials for pharmaceuticals and cosmetics Ministry of Industry, Kadin, association, Ministry of Health, Ministry of Trade Indonesia Islamic Economic Masterplan 2019-2024 137 Strengthening Halal Value Chain 3
  149. 2 Introducing awards for halal products a . Developing appreciation program for the best halal product and management every year 3 Breakthrough in production technology a. New breakthrough in pharmaceutical and cosmetic technology Halal industry will be competitive Associations, Ministry of Industry, Creative Economy Agency Modernization of the halal industry Ministry of Industry, associations, BPJPH, LPPOM, Ulama Council Indonesia, BPPOM, Ministry of Health b. Forum for discussion between fatwa makers and practitioners to discuss new technology and new findings c. Exhibition of tools made locally Strategy 4 : Synergy 1 Developing sales center for halal pharmaceuticals and cosmetics a. Duty free center for halal pharmaceuticals and cosmetics at tourism destinations Increasing product sales that are halal certified Ministry of Tourism, Ministry of UMKM, associations Halal pharmaceutical and cosmetic products fulfills international standards Ministry of Health, Ministry of Industry, BPPOM, associations, Kadin, Ministry of Trade b. Events at festivals/exhibitions on pharmaceutical and cosmetic products 2 Synergy with international producers to develop products a. Co-operation with research field b. Strategizing to compete globally 3 4 a. Collaboration with stakeholders a. cooperation in the form of policy harmonization between BPOM and LPPOM regarding licensing of drug distribution and halal cosmetics * Harmonization rules Pharmaceutical and cosmetic consortium Funding for research and development activities of the halal pharmaceutical and cosmetic products a. Fund allocation specifically for research and development of halal industry 138 Indonesia Islamic Economic Masterplan 2019-2024 LPPOM, BPOM, association Financial board/ institutions, associations, Kemenristekdikti, Ministry of Industry
  150. 1 . The establishment of the Halal Lifestyle movement through various activities, media and socialization. At this moment, public awareness is critically high to understand more on the composition and status 2. Collaboration in the form of harmonizing policies between BPOM and LPPOM regarding the distribution of halal pharmaceuticals and cosmetics. BPOM and LPPOM are institutions that of halal pharmaceutical and cosmetic products. regulate, supervise and review the distribution of However, such awareness has yet to spread to pharmaceuticals and cosmetics in Indonesia. With pharmaceutical products. The UU Halal Assurance the existence of cooperation and harmonization of plan will be implemented in 2019 and some regulations, it is expected to strengthen the halal practitioners have started to register their products pharmaceutical and cosmetics industry. for halal certification. Unfortunately, the awareness has not spread to the community at large. The awareness to consume halal pharmaceutical and cosmetic products ought to be socialized to all levels of the community until there is a high demand for halal pharmaceutical and cosmetic products. This quick wins also supports and becomes part of the main program milestone of the Islamic Economic Masterplan in relation to the National Campaign for 3. Grouping raw materials that have been indicated as mixed or containing unclean ingredients or unclear halal status. Based on the level of risk Grouping of raw materials to facilitate the process of halal certification in pharmaceutical and cosmetic products. ‘Halal Literacy’. Indonesia Islamic Economic Masterplan 2019-2024 139 Strengthening Halal Value Chain 3 Quick Wins for the Halal Pharmaceuticals and Cosmetic Cluster
  151. Renewable energy Global and National conditions The global energy requirements for human living are projected to increase . Until 2017, 80% of human life depended on energy derived from fossil fuels such as oil, gas, and coal. In the graph below, the highest energy consumption is still dominated by oil, coal, and gas. Meanwhile, other energy sources, such as hydroelectricity, nuclear energy, and renewable energy make up a smaller portion of consumption. This shows that other energy sources, such as renewable energy, is an energy source where the potential has not been utilised to support global and regional energy needs. Energy consumption will continue to increase until 2040. Global energy demand until 2040 reaches up to 13,000 Mtoe. Countries that dominates energy consumption are OECD countries which consume 50% of the world’s energy average. China, which has an increasing energy consumption, is predicted to be very significant in the market considering its developing economy. In general, it can be said that the consumption of Graph ‎3.6.1 World Energy Consumption Source: BP Statistical Review of World Energy 2018 14000 Coal Renewables Hydroelectricity Nuclear Energy Natural Gas Oil 12000 10000 8000 6000 4000 2000 92 94 96 98 00 02 04 06 08 10 12 14 16 Indonesia Islamic Economic Masterplan 2019-2024 17 141
  152. Graph 3 .6.2 world’s energy was supplied by OECD countries; but Primary Energy Consumption Based on Activities 23 years later, that number has declined significantly Source: BP Statistical Review of World Energy 2018 under three decades. This information shows how to 38%. This change has occurred over a period of dynamic global energy suppliers can be. 20 Renewable energy is divided into several energies, Other Africa Other Asia India China OECD 15 10 including bioenergy, hydropower, wind, solar-PV, solar-thermal, geo-thermal, and sea energy. These seven energies have their own respective roles and markets. Based on the International Energy Agency’s 5 (IEA) Renewables 2017 report, as of 2016, China in particular excelled in renewable energy production, 1970 1980 1990 2000 2010 2020 2030 2040 followed by the United States and India. China’s success in leading renewable energy production is transactions is the highest in the Asian region. This can be a sign for various parties to develop industries to support renewable energy sector, especially in the Asian region. attributed to a massive solar construction in 2016, which can produce up to 74 gigawatts of electricity. It is predicted that by 2022, the creation of solar panel units in other countries will be more than 920 gigawatts of electricity for the entire world. Usage Comparison of the energy supply amount in the of renewable energy began a few years ago; it is 2018 World Energy Balance report shows a significant predicted that the number of renewable energy users increase. Globally, the increase in supply surpasses will continue to increase until 2023, and that their 100%. Interestingly, there has been a change in usage will be dominated by bioenergy in particular. energy suppliers over time. In 1971, 61% of the Graph 3.6.3 Regional Energy Suppliers in 1971 and 2016 Source: World Energy Balance 2018 1971 142 2016 OECD 61% OECD 38% Non-OECD 13% Non-OECD 35% Non-OECD Europe & Eurasia 16% Non-OECD Europe & Eurasia 8% Non-OECD Americas 3% Non-OECD Americas 5% Africa 3% Africa 6% Middle Eastern 1% Middle Eastern 5% Bunkers 3% Bunkers 3% Indonesia Islamic Economic Masterplan 2019-2024
  153. Furthermore , based on the analysis of the ASEAN energy is India, and many are applauding India’s Energy Outlook 2015-2040, projections for the success. India is a developing country, therefore Total Final Energy Consumption (TFEC) in 2040 will it has many limitations in developing renewable increase by 2.4 times more compared to the 2015 energy. In addition, it is commonly understood that TFEC of 427 Mtoe for the Business as Usual (BAU) renewable energy is currently an exclusive type of scenario, and increase by 2 times compared to the energy and lack competitive prices in the market. On AMS (Asean Member States) Target Scenario (ATS). top of that, India is a country with a huge population As for the more ambitious target of the 2016- of 1.35 billion (UN Data, 2018). 2025 ASEAN Regional Plan of Action for Energy with Cooperation (APAEC), the TFEC will increase 1.8 populations of 630 million inhabitants and a times more compared to the ASEAN Progressive total GDP of 2.4 trillion in 2015 have consistently Scenario (APS) in 2040. This shows a decline in surpassed global economic growth, with an the TFEC of 18, 2% for the ATS scenario, and 26.3% annual real GDP growth rate of 5.3% from 2007 to for the APS scenario, where in order to achieve the 2015. The establishment of the ASEAN Economic target, each member country must achieve national Community at the end of 2015 was an integration and regional targets, one of which involves both milestone in the regional economic agenda, which developing and utilising renewable energy to its resulted in many opportunities and challenges to maximum potential. In addition, the three largest meet energy needs and grew by 3.6% per year on sectors in energy consumption are the industrial, average from 2007 to 2015. transportation, and residential sectors. Regionally, members of ASEAN One factor that was significantly affected was The BAU scenario reflects the assumption that regional energy mapping. In 2015, an estimated there are no significant changes in the practices of 107 million people lived without grid-connected each member country, and that there are no specific . Regional electricity consumption per capita was, policies to achieve the targets of Energy Efficiency on average, only 1,287 kWh per year, a value which (EE) and Renewable Energy (RE). Meanwhile, the does not reach even half of the global consumption ATS scenario describes a target-based scenario in average. which each member country successfully achieves Graph 3.6.4 2017-2023 Renewable Energy Consumption Prediction Based on Technology Source: International Energy Agency Report 2017 60% 50% 50% 46% Bioenergy 40% 30% Hydropower 31% Wind 27% Solar PV 20% 10% 0% 9% 12% 4% 2017 4% Solar Thermal 8% 2% 4% Geothermal 3% 2018-2023 Growth Indonesia Islamic Economic Masterplan 2019-2024 143 3 Strengthening Halal Value Chain In the Asian region, the leader in renewable
  154. the national targets set for EE and RE . The most In the 2016 study, “Renewable energy Outlook for optimistic scenario is the APS scenario, in which ASEAN: A Remap Analysis”, renewable energy targets all ASEAN member countries provide maximum are expected to reach 23% of the total energy supply contributions to achieving the 2016-2025 APAEC by 2025. To be able to achieve the AMS scenario regional targets. target, each ASEAN member country is expected to reach a national target, which is determined according to the following data: Graph ‎3.6.5 In terms of energy production measured by the ASEAN TFEC Projection with 2015 Base Total Primary Energy Supply (TPES), for the BAU Source: The 5th ASEAN Energy Outlook 2015-2040 (ACE, 2017) scenario, without an increase in EE and RE, the TPES will increase by 2.3 times and reach 1,450 Mtoe by 1,200 2.4x 1,000 2.0x Mtoe 800 Non-energy uses 1.8x Agriculture 2040. If the EE and RE targets are optimized, this will reduce TPES by 13.9% for the ATS scenario and Commercial 22.6% for the APS scenario compared to BAU by Residential 2040. In 2040, oil is projected to remain the largest 400 Transport source of energy consumption in all scenarios, 200 Industrial 600 0 Base year 2015 BAU ATS 2040 APS followed by coal in the BAU and ATS scenarios. As for the APS scenario, renewable energy is the second largest energy source after oil consumption. Table 3.21 Renewable Energy Targets for ASEAN Countries Source: The 5th ASEAN Energy Outlook 2015-2040 (ACE, 2017) AMS Sectors Reference Documents Official Targets EE Brunei Darussalam Energy White Paper 2014 a. Reducing Energy Intensity (TFEC/GDP) to 2035 by 45% based in 2005 level RE Energy White Paper 2014 a. In Power Generation: 124 GWh RE by 2017 and 954 GWh by 2035 (10% RE share in power generation) EE Cambodia Energy Efficiency Plan a. Reducing Energy Consumption (TFEC) by 20% in 2035 as compared to BAU Cambodia b. Ibudstry: Up to 20% in garment factories and 70% in ice factories c. Residential: Up to 50% d. Commercial: 20 to 30% e. Rural Electrification Energy Savings: Up to 80% f. Replacement of Biomass use 30-50% Indonesia 144 RE PDP 2008-2021 (For Hydro Target) EE Government Regulation a. to achieve 1% energy intensity reduction per annum, up to 2025 and energy elasticity less than 1 in 2025. No 79/2014 National Energy Policy b. reducing energy consumption (TFEC) in 2025 by 17% in industry, 20% in transportation, 15% in household, 15% in commercial building as compared to BAU. Indonesia Islamic Economic Masterplan 2019-2024 a. No specific energy target, excluding large hydro: 2241 MW (approximately 80% of total installed capacity) by 2020
  155. Lao PDR Malaysia Myanmar Phillipines Singapore Thailand Vietnam Sectors Reference Documents 3 Official Targets RE Government Regulation a . 23% share of TPES (around 92.2 Mtoe in 20250 which consists of 69.2 Mtoe (45,2 GW) for electricity and 23 Mtoe for non electricity No 79/2014 and 31% RE share in 2030. National Energy Policy EE National Energy Efficiency Policy 2016 a. reducing TFEC 10% in 2030 compared to BAU. RE RE Development Strategy Policy a. 30% RE share of total energy consumption by 2025 (approxi-mately 1479 ktoe) excluding large hydro (>15 MW capacity) EE National Energy Efficiency Action Plan a. reducing electricity consumption by 8% in 2025 as compared to BAU RE National RE Policy and Action Plan and 11th Malaysia Plan a. RE installed capacity of 2080 MW (excluding large hydro) b 2020 contributing to 7.8% of total installed capacity in Peninsular Malaysia and Sabah EE National Energy Efficiency and Conservation Policy, Strategy and Roadmap a. reducing electricity consumption by 8% in 2030 as compared to BAU RE National RE Policy and Planning (Draft) a. by 2030-2031, energy mix of 38% hydro, 20% natural gas, 33% of coal and 9% of renewable sources. EE Energy Efficiency Roadmap for the Phillippines, 2017-2020 a. reducing TFEC by 1% per year as compared to BAU until 2040, equivalent with the reduction of one third of energy demand. RE National RE Program Roadmap 2010-2030 a. 15,2 GW RE installed capacity in 2030; RE additional target additional biomass capacity of 277 MW in 2015, additional wind capacity of 2345 MW in 2022, additional hydro of 5398 MW in 2023, additional ocean energy capacity of 75 MW in 2025, additional solar capacity of 284 MW in 2030, and additional geothermal capacity of 1495 MW. EE Singapore Sustainable Blueprint 2009 a. reducing EI (TFEC/GDP) by 35% from 2005 levels by 2030 RE Singapore Sustainable Blueprint 2015 a. solar power installation of 350 MWp by 2020 and 10140 tonnes per day by 2018 for waste to energy plant. EE Thailand EE Policy 2015 a. reducing energy intensity (TFEC/GDP) by 30% compared 2010 level RE Alternative Energy Development Plan 2015-2036 a. 30% renewable in total energy consumption by2036, in form of electricity (20.11% in generation, approximately 19,684 MW), heat (36.67% heat production, approximately 25088 ktoe), and biofuels (25.04% in transportation sector, approximately 8712,43 ktoe) EE National Target Program for EE and Conservation a. Reducing TFEC by 8% in 2020 as compared to BAU. Decision 428/QD TTg dated March 18 March 2016 a. 21% RE of 60 GW installed capacity on 2020, 13% RE of 96 GW in 2025 and 21% RE of 130 GW consist of 2.1% wind, 15.5% hydro, 2.1% biomass and 3.3% solar. RE b. reducing energy intensity (TFEC/GDP) by 40% in 2040 as compared to 2005 level b. Reduce energy intensity of energy intensive industries by 10% by 2020 Indonesia Islamic Economic Masterplan 2019-2024 145 Strengthening Halal Value Chain AMS
  156. Countries in the ASEAN region , including Graph 3.6.6 Indonesia, face the challenge of achieving the Costs and Saving of Remap Options in 2025 23% target by 2025. According to the International Source: IRENA 2018 Renewable Energy Agency (IRENA), the portfolio for RE options to increase the portion of RE in total (MWh) of total RE in 2025, where this value is only Costs energy only costs USD 1.9 per megawatt-hour 4 2 0 60% cost-effective options with 40% additional -2 costs. The benefits obtained will significantly exceed the costs incurred if the reduction of externalities Savings as large as annual GDP in 2025. The RE map identify Change in costs resulting from REmap Options Co² Air pollution (outdoor) -4 Energy system cost -6 is taken into account, namely a decrease in level of -8 outdoor air pollution and CO2 emissions. The Power -10 sector (electricity) plays a key role in the reductions, Transport Power Industry Buildings Total followed by the transportation sector, which can reduce the level of air pollution in cities, as described in the following graph: Indonesia is a unique country because it is rich in socio-economic, demographic, political, and friendly new and renewable energy (EBT), while also reducing carbon emissions and attaining energy independence. geographical aspects. This will certainly have an Energy use in Indonesia is still dominated by impact on the country’s development agenda. electricity fulfillment needs, particularly household Indonesia has more than 17,000 islands, is a new and industrial needs. According to the graph above, democratic nation, has the fourth highest population energy demand in Indonesia until 2050 will still be in the world, and is also rich in culture. Indonesia’s dominated by the industrial sector, followed by the economic development has soared over the past transportation and household sectors. two decades. Many of its economic developments contributed to poverty reduction, placing it among the top 10 highest income countries in the world (World Bank, 2018). According to the Ministry of Indonesia’s energy indicators include energy potential, energy mix, primary energy supply, final energy consumption, electrification ratio, electricity Energy and Mineral Resources (2016), the condition of Indonesia’s energy usage currently includes energy Graph 3.6.7 as its basic need, with an average annual energy Energy Needs by Sector growth of 7%. Furthermore, 94% of Indonesia’s Source: BPPT 2018 Indonesian Energy Outlook energy needs still depend on fossil energy. Reflecting on the current conditions, Indonesia contributes the largest amount of carbon emissions 4,569 from the Land Use, Land Use Change and Forestry contributes to carbon emissions by 30%, while be mitigated through government policies, especially in the energy sector, with the use of environmentally 146 Indonesia Islamic Economic Masterplan 2019-2024 Other Sector Comercial 1,780 the transportation sector contributes up to 12% . In Yudha’s view (2017), this pollution problem can Total 3.109 (LULUCF) sector by 50%. The energy sector 795 2016 Household Transportation 1,019 2020 Industry 2030 2040 2050
  157. Figure 3 .10 Aceh 97,68% Sumut 99,90% Kalbar 89,93% Kaltar 84,78% Kalteng 80,82% Sultra 81,54% Sulteng 79,31% Pabar 95,70% Sumbar 89,15% Sumsel 88,38% Jakarta 99,99% Jateng 96,30% Jatim 92,03% Maluku 87,39% NTT 59,85% Papua 61,42% Table 3.22 Indonesia Electrification Ratio 2017 Source: Directorate General of EBTKE 2017 No Sumatra Jawa-Bali-Nusra Sulawesi Kalimantan Maluku dan Papua 1 Aceh 97,68% Banten 99,99% Sulsel 99,12% Kalbar 89,93% Maluku 87,39% 2 Sumut 99,90% Jakarta 99,99% Sultra 81,54% Kalteng 80,82% Malut 96,09% 3 Sumbar 89,15% Jabar 99,99% Sulbar 95,28% Kalsel 92,12% Pabar 95,70% 4 Riau 95,25% Jateng 96,30% Sulteng 79,31% Kaltim 99,99% Papua 61,42% 5 Kepri 76,97% DIY 99,99% Gorontalo 86,56% Kaltar 84,78% 6 Jambi 93,68% Jatim 92,03% Sulut 94,56% 7 Bengkulu 96,49% Bali 97,12% 8 Sumsel 88,38% NTB 84,11% 9 Lampung 91,96% NTT 59,85% 99,99%   10 Babel   Indonesia Islamic Economic Masterplan 2019-2024 3 Strengthening Halal Value Chain Indonesia Electrification Ratio 2017 147
  158. consumption , and electricity consumption growth. One indicator of energy use is the electrification ratio, which in Indonesia has reached 95.35% by 2017. Indonesia is considered to have a good distribution of electrification ratio because most of its territories have an electrification ratio above 70%. There are only two regions that have a ratio below 70%, namely Papua and NTT. Particularly within the field of the Indonesian government’s energy independence, there is work to meet its targets, among others, : attaining energy independence by 2020, reaching an electrification ratio of almost 100 percent, and increasing the production of energy resources, one of which are New and Renewable Energy resources (EBT). In Graph ‎3.6.8 Trend of the Electrification Ratio for 2007-2017 Source: Directorate General of EBTKE 2017 terms of energy distribution, especially natural gas, the emphasis is on the construction of transmission pipelines, 12,597 km of gas distribution pipelines, 2 units of SPBG (APBN), and city gas networks in 12 locations (Ministry of Finance, 2017). 100% The principle of national energy development 80% refers to the principle of KEN that is equitable, sustainable, and environmentally sound, in order to 60% create national energy independence and security. 40% Today, the government’s encouragement towards achieving 20% energy independence in Indonesia, 2019 2018 2017 2016 2015 2014 2013 2012 2011 including increasing EBT, has been devoted to: 2010 0% •• Energy buffer reserves are not yet available. •• Presidential Regulation Number 2 of 2017 concerning RUEN (General National Energy Plan) The current national energy issues, which serve •• Ministry of Finance Regulations concerning the as the basis for the government to model energy Public-Private Partnership financing scheme that supply needs up to 2050, have been stated in RUEN provides facilities, including Project Development with the following main issues: Funds •• Energy resources are still treated as commodities that are a source of state foreign exchange, and not yet as development capital. •• The decreasing production of oil and volatility in oil prices. (PDF), Viability Gap Funds (VGF), Availability Payment (AP), and Government guarantees to infrastructure projects. PMK No. 223/PMK.011/2012; PMK No.190/PMK.08/2015 and PMK No. 95/PMK.08/2017. •• Ministry of Energy and Mineral Resources Regulations - Ministry of Energy and Mineral •• Limited energy access and infrastructure. Resources Regulation No. 50/2017 concerning •• Dependence on imports of BBM and LPG. Utilization of renewable energy in electricity •• The price of New and Renewable Energies (EBT) have not been competitive, and energy subsidies have not reached the target. generation. •• ESDM Ministry concerning Regulation Accelerating rural No. 38/2016 electrification •• Energy utilization is currently inefficient. in remote areas, borders, and small islands •• Research, development, and mastery of science inhabited through small-scale electricity supply businesses. and technology is still limited. •• World geopolitical environmental 148 conditions issues. Indonesia Islamic Economic Masterplan 2019-2024 and global •• Government Regulation PP No.23/2014, previously PP No.14/2012 concerning Electricity
  159. Business , which allows private companies to Presidential Regulation is the function of RUEN participate. as a reference for the preparation of both central concerning the Establishment of a “One Door Service”, concerning the issuance of permits for the electricity sector. •• Government concerning Regulation National PP Energy No. 79/2014 Policy. •• Ministry of Finance Regulation PMK No.21/ PMK.011/2010 concerning the Provision of tax and customs facilities for activities using renewable energy sources. •• Revision of Law No. 30 of 2009 concerning Electricity, to enable the private sector to have opportunities to assist in electricity supply independence and implementing regulations related to regulations in the New Energy and Renewable Energy (EBT) field. •• Law No.30 of 2007 concerning Energy. development planning documents and regional development planning. In addition, this Presidential Regulation relates to the issue of renewable energy because it also functions as preparation for the National Electricity General Plan (RUKN) and the Electricity Supply Business Plan (RUPTL). RUEN is stipulated as the realization of article 12, paragraph 2, and article 17, paragraph 1, of Law Number 30 of 2007 concerning Energy. RUEN has strong links with national energy and renewable energy policies as it is based on the National Energy Policy (KEN), in which one of the targets KEN intends to achieve is the energy mix, which includes renewable energy. The national energy policy targets set by the government in fulfilling renewable energy are stated in Government Regulation No.79/2014 as follows: •• Energy Elasticity smaller than 1% (one percent) in 2025, which aligns with economic growth targets. Indonesia has been conditioned to support renewable energy programs by 2050. In 2017, Presidential Regulation Number 2 of 2017, concerning the General Plan for National Energy •• A decrease in Final Energy Intensity of 1% (one percent) per year up to 2025. •• An Electrification Ratio performance of 97.5% (RUEN), was signed. in the highlight of this (ninety-seven point five percent) by 2018 and Figure 3.11 National Energy Policy (KEN) to Support Renewable Energy NATIONAL ENERGY POLICY GENERAL PLAN FOR NATIONAL ENERGY Provision of primary energies and targets • New energy & renewable energy • Crude oil • Natural gas The electrification ratio of energy elasticity decreases final energy intensity Designing and formulating national energy policies to be determined by the government with the approval of the DPR Supervising the implementation of cross-sectoral policies in the energy sector. Renewable Energy • Geothermal • Water • Hydro mini and micro Bioenergy • Solar • Wind • Sea Drafting national energy general plans based on national energy policies Indonesia Islamic Economic Masterplan 2019-2024 149 Strengthening Halal Value Chain •• ESDM Minister Regulation Number 35/2014 3
  160. almost 100 % (one hundred percent) by 2020. •• The role of New Energy and Renewable Energy (EBT) is at least 23% (twenty three percent) by 2025, and at least 31% (thirty one percent) by 2050, as long as the economy is fulfilled. •• Furthermore, the utilization of national energy resources is carried out by the Government and / or Regional Government according to the following strategies: •• Furthermore, the utilization of national energy resources is carried out by the Government and/or Regional Government according to the following strategies: •• Utilization of Renewable Energy Sources on the energy flow type turned into electricity, which includes waterfalls, Geothermal Energy, Energy movements and differences in sea layer temperature, and Wind energy; •• Utilization of Renewable Energy Sources of the solar energy type to become electricity, as well as non-electrical energy for industries, households, and transportation; •• Utilization of Renewable Energy Sources from biofuel to replace oil, especially in transportation and industry; •• Utilization of Renewable Energy Sources from biofuel while simultaneously maintaining food security; •• Utilization of Renewable Energy Sources from biomass and waste used in electricity and transportation; •• The use of petroleum is only for transportation and commercial use which cannot be replaced with Energy or other Energy Sources; •• Utilization of natural gas energy sources for industry, electricity, household and transportation, •• Utilization of New Energy Sources in the form of solids and gases for electricity; •• Use of Energy Sources in the form of liquid outside the liquified petroleum gas directed at the transportation sector; •• Utilization of Energy Sources movement and differences in the temperature of the sea layer are encouraged by building a pilot as a first step connected to the electricity network; preferably for those with the highest added value; •• Increased use of solar energy sources through •• Utilization of coal energy sources for electricity the use of solar cells in transportation, industry, and industry; commercial buildings, and households; and •• The utilization of New Energy Sources is •• Maximizing and obliging the use of solar energy liquid, namely liquified coal and hydrogen for sources is carried out on the condition that transportation; all components and systems of solar energy 150 Indonesia Islamic Economic Masterplan 2019-2024
  161. Strengthening Halal Value Chain 3 generation from upstream to downstream are produced domestically in stages . Graph ‎3.6.9 Target of Primary Energy in Indonesia Source: RUPTL 2018-2027 Given the many types of energy source options available in Indonesia, it is important for the government to consider the potential of consumption areas and production areas to effectively achieve the target of developing renewable energy. According to the 2018 PLN RUPTL Statistics, the portion of Water 7% renewable energy in Indonesia has only reached Geothermal 5% 12.5% in the energy mix. With a slow increase, the Gas 21% target of 23% of renewable energy until 2025 still BBM 4% remains seven years8. Coal 62% Import 1% 8https://ekonomi.kompas.com/read/2018/08/23/111000326/ melihat-skema-pendanaan-energi-terbarukan-indonesia-pascapiagam-paris Indonesia Islamic Economic Masterplan 2019-2024 151
  162. In terms of natural resources , Indonesia has sea water. This is a potential that can ideally be abundant natural resources. This natural resource utilized by the people of Indonesia. Indonesia itself is not only limited to one single energy, because all is still experiencing problems in optimizing clean components of renewable energy are in Indonesia. water for the local people who have limited access to Renewable energy sources including water, wind, clean water. Apart from that, optimal management solar, geothermal and biogas are available in will provide added value whereby in addition to Indonesia. It is a fact that in Indonesia the fulfillment being used to meet people’s needs for clean water, of energy needs is still dependent on fossil energy up the potential of water energy in Indonesia can be an until now. Meanwhile, the use of renewable energy alternative source for renewable energy. is not optimal, even though Indonesia has adequate natural resources to support the use of renewable energy. Geothermal heat comes from activity in the bowels of the earth. Again, Indonesia is an area that has 127 Merapi volcanoes that are still active First, Indonesia’s tropical climate will ensure and have great potential. There are threats of the provision of solar resources throughout the year. possibilities of natural disasters that we need to In fact, this will spread to all regions in Indonesia, be aware of. Besides that, this potential should be not only in one single area. The classic saying is managed properly. Use of geothermal energy is still Indonesia’s wealth spreads from Sabang to Merauke. minimal as the dominantly used renewable energy is This is not only in relation to culture but it is also still bioenergy. extended to its abundance of natural resources. If previously the use of natural resources was to revive the economy with trade activities, now it can also be utilized for renewable energy in Indonesia. Based on the ESDM Ministry reports, Indonesia has at least 6 indicators in its commitment to support new and renewable energy. Throughout 2014-2017, alternative energy such as geothermal, bioenergy, Second, Indonesia possesses water supply from PLTS and PLTM have experienced a varied increase, various sources - springs, waterfalls and even the Table 3.23 Renewable Energy Potential in Indonesia Source: IRENA Analysis from MEMR 2016 GW Reference case 2030 Potential Theoretical Potential by Renewable Energy Power Techology For On Grid On Grid Renewable Solar Large Small Bioenergy Geothermal Marine Wind Power Renewable Power PV Hydropower Hydropower Energy Capacity Capacity Power Capacity Total Indonesia 193,5 55,8 716,4 532,6 75 19,4 32,7 29,5 18 93 Sumatra 39,2 17,6 196,2 137,1 15,6 5,7 15,6 12,9 8,3 1 Jawa-Bali 119,8 19,1 71,5 38,7 4,3 2,9 9,2 10,1 2,4 3,9 Kalimantan 10,3 5,4 184,2 149 21,6 8,1 5,1 0,2 - 0,3 Sulawesi dan Nusa Tenggara 20,3 11,6 97,6 66,8 10,8 1,8 2,6 4,8 6,9 3,9 Maluku dan Papua 3,9 2,1 166,8 140,9 22,8 0,8 0,2 1,5 0,4 0,3 152 Indonesia Islamic Economic Masterplan 2019-2024
  163. Table 3 .24 Alternative Renewable Energy Statistics in Indonesia 3 Decrease in Installed Capacity Installed Capacity Installed Capacity Vegetable Fuel Co2 Emissions of Geothermal of Bioenergy PLT PLTS and PLTM / MH (Million KL) (Millions Tons Power Plant (MW) (MW) (MW) of Co2) Investment (Trillion Rupiah) 2014 1404,5 898,5 122,7 3,32 23,38 8,63 2015 1438,5 1767,1 160,4 1,62 29,64 13,96 2016 1643,5 1787,9 247,4 3,65 31,60 21,25 2017* 1808,5 – 1858,5 1812,7 – 2093 259,8 – 371,7 3,23 – 4,6 33,9 11,74 – 21,6 (Sep 2017) along with a decrease in CO2 emissions. The field. The ESDM Ministry is optimistic regarding the highest increase was obtained by installed capacity investment target for the new renewable energy of geothermal PLT, followed by Bioenergy PLT. With sector and energy conservation (EBTKE). In 2018, it is increasing investments to support new renewable targeted that the EBTKE sector investment can reach energy, the potential of Indonesia’s natural resources US $2 billion. This number has increased by 49.2% is expected maximized. compared to last year’s investment achievement of Based on RUEN, the low utilization and development of EBT in power plants occur due to various problems, among others: US $1.34 billion. The Director of Geothermal Energy at the Ministry of Energy and Mineral Resources, Ida Nuryatin Finahari said that the EBTKE investment target includes energy investment of US $ 5 million, •• No implementation of price policy and bioenergy investment of US $ 72 million. The •• Unclear EBT subsidies on the off-taker side various EBT investments amounted to US $ 718 •• Regulations that have not been able to attract million and geothermal investment US $ 1.21 billion. investment •• Lack of incentives for EBT utilization •• The lack of available financing instruments that are suitable for investment needs However, until the end of the first quarter of 2018 the realization of the EBTKE sector investment only reached US $ 294 million or 14.7% of the 2018 target9. •• The licensing process is complicated and takes a long time •• Land issues and spatial planning. In order to optimize the use of renewable energy, investment is targeted to support the renewable energy agenda. Through the EBTKE Directorate, the ESDM Ministry targets an increase in the EBT 9 kontan.com, 2018 Indonesia Islamic Economic Masterplan 2019-2024 153 Strengthening Halal Value Chain Source: Ministry of Energy and Mineral Resources Directorate General of EBTKE
  164. Development Challenges and Opportunities The renewable energy value chain , as described industrial and commercial transportation. Between by the EBTKE Directorate of the Ministry of Energy the two, there are primary industries which consist and Mineral Resources, starts from the availability of upstream (lifting from their original source) and of natural resources up to the end use of the energy downstream (processing into energy products) as itself for various sectors, including household, illustrated in the following chart. SDA P RIMA RY INDUSTRY UPSTREAM (from the earth’s core) COAL Exploration Exploration Proposed Coal Exploitation Proposed Crude Oil Exploitation Transportation /Transmission Collection /Hoarding Processing Proposed natural gas Exploitation Proposed Geothermal Exploitation Hydropower Processing Trade without Assets CF Trade with Assets Transportation /Transmission Collection /Hoarding Trade without Assets FO Trade with Assets BAHAN BAKAR GAS Renewable Energy and Energy Utilization Exploration Processing Outcome Trade with Assets FUEL OIL NATURAL GAS Exploration DOWNSTREAM (processed into mineral/ energy products) COAL FUEL CRUDE OIL GEOLOGICAL RESOURCES END USE Transportation /Transmission Collection /Hoarding Trade without Assets Transportation GF Industry Efficiency ELECTRICITY Electricity generation Transmission Electricity distribution Electricity Sale Solar Energy Trade with Assets BIOFUELS Raw Vegetables 154 Indonesia Islamic Economic Masterplan 2019-2024 Processing Household Transportation /Transmission Collection /Hoarding Trade without Assets RV Commercial
  165. Figure 3 .12 Value Chain Renewable Energy Source: Ministry of Energy and Mineral Resources, the EBTKE Directorate SDA P RI M A RY I N D USTRY UPSTREAM (from the earth’s core) COAL Exploration Exploration Proposed Coal Exploitation Proposed Crude Oil Exploitation Transportation /Transmission Collection /Hoarding Processing Proposed natural gas Exploitation Proposed Geothermal Exploitation Hydropower Processing Trade without Assets CF Trade with Assets Transportation /Transmission Collection /Hoarding Trade without Assets FO Trade with Assets BAHAN BAKAR GAS Renewable Energy and Energy Utilization Exploration Processing Outcome Trade with Assets FUEL OIL NATURAL GAS Exploration DOWNSTREAM (processed into mineral/ energy products) COAL FUEL CRUDE OIL GEOLOGICAL RESOURCES END USE Transportation /Transmission Collection /Hoarding Trade without Assets Transportation GF Industry Efficiency ELECTRICITY Electricity generation Household Transmission Electricity distribution Electricity Sale Commercial Solar Energy Trade with Assets BIOFUELS Raw Vegetables Processing Transportation /Transmission Collection /Hoarding RV Trade without Assets Indonesia Islamic Economic Masterplan 2019-2024 155 Strengthening Halal Value Chain 3
  166. There are several aspects of the renewable energy industry which represent opportunities as human resources , technology, regulation, financing and research & development (R & D). well as challenges in this industry i.e. the market, Table 3.25 Renewable Energy Value Chain Value Chain Input (funding) Product Supporter 1. Third party funding (demand deposit, savings, time deposits) 1. Individual customers 2. Financing obtained 3. Other financial institution customers 2. MSME customers 4. Commercial and corporate customers 5. APBN 6. BI, OJK, Ministry of Finance, LPS, DSN-MUI, Ministry of Religion, Bapepam LK Process 1. Liquidity instrument 1. BI 2. Interbank call money market 2. OJK 3. Hedging 3. LPS 4. Automation process 4. Digital economy 5. SDI 6. IT System 7. Digital Banking Output (financing) 1. Contract of sale: murabahah, salam, and istisna 1. Individual customers 2. Profit sharing: mudharabah and musyarakah 3. Other financial institution customers 3. Rent: ijarah and ijarah muntahiya bi tamlik 5. APBN 2. MSME customers 4. Commercial and corporate customers 6. BI, OJK, Ministry of Finance, LPS, DSN-MUI, Ministry of Religion, Bapepam LK Indonesia’s advantage in implementing renewable of renewable energy is not supported by adequate energy is that Indonesia has abundance and diverse infrastructure. There is also a lack of synergy from resources that are available locally and an umbrella stakeholders to execute the potential of developing policy at the regional and national levels. Existing renewable energy in Indonesia. technologies for the development of renewable energy are relatively easy to learn and implement. It is expected that dependence on fossil energy can be reduced and this sector has the potential to Despite these advantages, the development of absorb labor that can also reduce the unemployment renewable energy in Indonesia is not optimal as it rate in Indonesia. The development of renewable requires high investment costs and the sale price of energy has the potential to increase added value renewable energy products is not always competitive. from energy sources and opportunities for business As such, the renewable energy products still has scale expansion. Renewable energy also opens limited distribution and market access and may not up opportunities for regions to have autonomy in be produced at mass. In addition, the development sources of energy. 156 Indonesia Islamic Economic Masterplan 2019-2024
  167. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 157
  168. Another issue that must be considered is the •• Helping the companies to save on electricity costs threat in the development of renewable energy, which when basic electricity tariffs continue to increase: is the change in policies at the regional and national investing in energy efficiency / renewable energy levels. This threatens the development of renewable technologies can save electricity costs by up to energy, as does the possibility of decreasing the 30%. supply of raw materials and increasing competition in the utilization of resources owned. •• Improving machinery At present, the contribution of renewable energy in Indonesia is still around 10 percent, and according to the GSI report the biggest obstacle to the development of renewable energy in Indonesia are: •• The purchase price for renewable energy is limited and therefore unattractive to new plant developers. •• Subsidies and financial support for fossil fuels, especially coal, are contrary to the transition to renewable energy. •• PLN as the main owner of fossil fuel generating assets currently are inexperience in the field of renewable energy. the performance and supporting of industrial environmentally friendly production: old machinery and technology are generally inefficient in terms of production, operations, maintenance and labor costs. •• Implementing responsible supports environmentally practices: and socially Sustainable energy environmentally production and reduces friendly energy greenhouse gas emissions. The benefits mentioned above can be synergized with the drivers of the halal industry as one of the beneficiaries of renewable energy. Based on the factors that influence the potential and the challenges of developing renewable energy, an analysis of strengths, weaknesses, opportunities Referring to the current cluster conditions, energy and challenges can be done based on each element consumers in Indonesia are divided into two, namely of the renewable energy industry’s halal value chain, households and industries. Based on an analysis as follows. of the IRENA 2015 data, the largest consumer in the energy market in Indonesia are industries. If juxtaposed with the high cost of components to support renewable energy, it will be appropriate to choose industries as a potential customer. Encouraging industries to support renewable energy will bring some benefits to the industries too. According to the International Finance Corporation of the World Bank, the benefits for companies in implementing renewable energy are, among others: 158 Indonesia Islamic Economic Masterplan 2019-2024
  169. Table 3 .26 Renewable Energy SWOT Analysis Raw Materials 1. Available raw materials vary 2. Distribution of raw materials in various regions in Indonesia HR 1. Abundant local HR WEAKNESSES 1. High investment costs for processing raw materials 1. Community dependence on fossil-based energy 2. Public awareness of renewable energy is still lacking Industry 1. Technology is relatively easy to learn 1. Cannot be mass produced 2. The selling price of the product is not competitive. 1. Get support from national and regional Distribution, policies Commercialization, Promotion OPPORTUNITIES Raw Materials HR 1. Potential increase in added value 1. Market access is still limited THREATS 1. Decrease in raw material supply 1. Absorption of many workers 2. Increased potential buyer Industry 1. The opportunity to expand the scale of business is opened 1. Changes in policy both nationally and in the region 2. Energy self-sufficiency in each region 3. Synergy with other industries to maximize renewable energy utilization 1. Government and private cooperation Distribution, Commercialization, 2. Utilization of the digital economy Promotion 1. Public awareness of renewable energy Indonesia Islamic Economic Masterplan 2019-2024 159 Strengthening Halal Value Chain STRENGTHS 3
  170. Support for the Halal Industry To support the achievement of Indonesia ’s vision In encouraging investments in renewable energy of being independent, prosperous and civilized by in Indonesia, the government and the private becoming the center of the world’s leading Islamic sector can collaborate in developing investments finance and economics, renewable energy clusters in renewable energy in Indonesia. Renewable can be a catalyst for strengthening the halal value energy funding sources include funding through chain by contributing to the increasing economic PLN ministries and companies, then the regional independence through energy self-sufficiency. As a budget, grants and green bonds. Until 2018, funding starting point for synergy, the ecosystem of the halal for EBT is channeled through the Ministry of Energy industry with the Islamic financial sector can be one of Mineral Resources (ESDM) and PLN. Another solution to the problem of the lack of availability funding scheme is through PPP (Government and of financing instruments that are suitable for EBT Business Cooperation) with Independent Power investment needs. Through a variety of Islamic- Producers. Other investment is through the APBD based financing with various schemes, the halal scheme (Special Allocation Funds or DAK) and other industrial ecosystem can be one of the supporting Ministries. Technically, the ESDM has allocated a factors for achieving the EBT targets set for 2025 and budget for the construction of EBT generators / 2050. With optimal utilization of EBT in Indonesia, it is infrastructure at the Directorate General of New expected that the energy output can be a support for Energy, Renewable and Energy Conservation (DG cutting edge halal industries in Indonesia including EBTKE Ministry of Energy and Mineral Resources). halal tourism, halal food and beverage industry, Grant funds are also one of the non-APBN funding Muslim fashion industry, halal pharmaceuticals and sources. Other funding schemes are obtained cosmetics and halal media and recreation. Indonesia from foreign grants such as MCA-Indonesia, Green can synergize EBT production sites to become one Climate Fund, ESP3, USAID-ICED, and others. of the tourism destinations based on green tourism the purpose of which is in line with the halal tourism sector. Figure3.13 EBT Synergy with Halal Industry ISLAMIC FINANCE Shariah based financing: • Islamic banking • Islamic Capital Market • ZISWAF • MSME and Entrepreneurship 160 Indonesia Islamic Economic Masterplan 2019-2024 RENEWABLE ENERGY • KEN’s Achievement Target 2025 and 2050 • Economic independence with self-sufficient energy HALAL INDUSTRY • Synergy with halal tourism • Utilization of energy production by other halal industries, for example: halal food & beverages, Muslim fashion, halal pharmaceutical & cosmetics, halal media & recreation
  171. An ESDM study states that to reach the 23 The synergy between the renewable energy percent target , Indonesia needs funds of Rp. 1,600 sector and the Islamic finance sector has been trillion according to a report on the Accelerated carried out by BAZNAS. BAZNAS is committed in Development of New Renewable Energy (P2EBT) supporting Appropriate Mitigation Actions in the Team. Currently, Activity Budget (MAK) consists of Energy Sector (MTRE3) programs. In July 2017, Mr. goods and budget of Rp 3.22 trillion and realization Rudi Mulyana, the Director General for Renewable of Rp 2.053 trillion. Furthermore, capital expenditure Energy and Conservation under the Ministry of is with a budget of Rp. 37.258 billion and realization Energy and Mineral Resources together with of Rp. 25.463 billion (LHP BPK 2017). Zainulbahar Noor, the Deputy Commissioner of The high funding requirements for the development of renewable energy are a potential for Islamic finance to be able to contribute through Islamic financial products. One option among the Islamic financial instruments that can be utilized are sukuk or Islamic bonds. Projects related to sustainable energy that can be funded by sukuk include clean energy, mass transportation, water BAZNAS signed a symbolic submission of donations of USD350,000 from BAZNAS to support the Sustainable Development Goals (SDGs) program. In September, BAZNAS opened the Micro Hydro Power Plant (PLTMH) in Lubuk Bangkar Village, Batang Asai District, Sarolangun Regency, Jambi Province. This program provides access to electricity for 4,448 people from 803 households. conservation, forestry, and low-carbon technology. This is one of the targets that needs to be achieved In addition, synergies with the Islamic financial for the renewable energy sector, to synergize with sector can be achieved by developing a more the Islamic finance sector as an alternative source creative Islamic financial structure that can utilize of financing to support the achievement of meeting the project’s basic assets; the increasing number renewable energy targets in Indonesia. The presence of Islamic banks and conventional banks that are of experts in Islamic financial institutions and other now willing to offer Islamic financing; willingness of investors who understand the renewable energy export credit agents to work with Islamic financing industry is needed to assess risks when investing in structures and lenders; and preferences of several the renewable energy sector which has high capital private sector sponsors to obtain Islamic financing. expenditure, low margins and a long financing period. The alternative financing for renewable energy Furthermore, the production from the renewable that can be found in Islamic financial institutions energy industry can be synergized with the halal through Islamic financing schemes offered. An industry to improve the halal value chain. As example of a banking institution providing solar previously explained, one of the biggest users of panel financing is in BPRS Lantabur Tebuireng in East energy is the industrial sector, where the synergy Java. In this financing, the principle of buying and between the use of renewable energy by sectors selling (murabahah) is used in which the bank will in the halal industry ecosystem can support the buy a package of rooftop solar electricity products achievement of a long-term sustainable economic and then sell it to customer by agreeing to the sale improvement. Renewable energy can be utilized, price plus the sales margin for the customer to pay among others, by the following halal industries: in installments. Indonesia Islamic Economic Masterplan 2019-2024 161 Strengthening Halal Value Chain 3
  172. •• Halal food and beverages similar to Energiewende. The policies implemented •• Muslim fashion by these tourist sites are reduction of carbon footprint, use of solar tracker panels and biomass •• Halal tourism boilers. The advantage of Gladwinsfarm is that it •• Halal pharmaceuticals and cosmetics has complete facilities and the activities offered •• Halal media and recreation to visitors are more diverse to promote renewable As an example, several European countries such as Germany and the United Kingdom have integrated the renewable energy sector with the tourism sector or known as green tourism. Germany through the Energiewende program has implemented the integration of the renewable energy sector with tourism, where the tourism sector is one of the largest business sectors in Germany10. Although energy and green tourism which is in line with the concept of halal tourism. EBT synergies with other industries such as those carried out by Germany and the United Kingdom have yet to be done in Indonesia. One potential synergy is developing EBT with halal tourism in each region in Indonesia. there are parties who objects the Energiewende In Indonesia, Kemenpar has superior halal tourist program, the program is able to expand its function destinations. The 10 tourist destinations include Riau as a tourism location without disturbing its main Islands and Sumatra, Bandung, Jakarta, Yogyakarta, function to produce energy. Inevitably, the addition Surabaya, Bali Islands-Nusa Tenggara, Kalimantan, of functions for renewable energy, will increase Sulawesi, and the Maluku Islands and Papua. economic contribution in the country. Other models are found in the United Kingdom by the name of Gladwinsfarm which have received several awards, one of them is for the category of green tourism. This environmentally friendly tourism has a concept One leading potential in halal tourism is the Great Bali area in the West Nusa Tenggara (NTB) region, which is one of the regions with marine and solar energy potential, as the following data shows: Figure 3.14 Indonesia’s Leading Halal Travel Destinations Source: Indonesia Sharia Economic Outlook 2018, PEBS FEB UI Great Batam Great Kalimantan Great Sulawesi Great Sumatra Great Jakarta Great Bandung Great Yogyakarta 10 Great Surabaya https://www.cleanenergiwire.org/news/energi-transition-becomestourist-attraction 162 Indonesia Islamic Economic Masterplan 2019-2024 Great Bali Great Maluku Papua
  173. The potential of synergy between the marine Table 3 .27 and solar energy with sustainable tourism (halal Sea Energy Potential Per Province tourism) has been achieved by countries in Europe. 3 Source: 2015 Directorate General of EBTKE among stakeholders and parties who can execute the synergy between the EBT sector and the halal tourism sector. No Potency Region / Province Theoretical Technical Practical 1 Nusa Tenggara Barat 138308 34577 8644 2 Kepulauan Riau 96432 24108 6027 3 Jawa Barat - Lampung 36367 9092 2273 4 Papua Barat 6261 1565 391 5 Nusa Tenggara Timur 5335 1334 333 6 Bali 5119 1280 320 287882 71955 17989 TOTAL Table 3.28 Solar Power Potential Per Province Source: 2015 Directorate General of EBTKE No Region / Province Potency No Region / Province Potency 1 Kalimantan Barat 20113 18 Sumatera Barat 5898 2 Sulawesi Selatan 17233 19 Kalimantan Utara 4643 3 Kalimantan Timur 13479 20 Sulawesi Tenggara 3917 4 Sumatera Utara 11851 21 Bengkulu 3475 5 Jawa Timur 10335 22 Maluku Utara 3036 6 Nusa Tenggara Barat 9931 23 Bangka Belitung 2810 7 Jawa Barat 9099 24 Banten 2461 8 Jambi 8847 25 Lampung 2238 9 Jawa Tengah 8753 26 Sulawesi Utara 2113 10 Kalimantan Tengah 8459 27 Papua 2035 11 Aceh 7881 28 Maluku 2020 12 Kepulauan Riau 7763 29 Sulawesi Barat 1677 13 Sulawesi Selatan 7588 30 Bali 1254 14 Nusa Tenggara Timur 7272 31 Gorontalo 1218 15 Papua Barat 6307 32 D.I Yogyakarta 996 16 Sulawesi Tengah 6187 33 Riau 753 17 Kalimantan Selatan 6031 34 DKI Jakarta 225 Total 207898 Indonesia Islamic Economic Masterplan 2019-2024 163 Strengthening Halal Value Chain Collaborative research and collaboration is needed
  174. Special Strategy for Renewable Energy Cluster No Strategies / Programs / Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 1: The occurrence of sustainable relationships in the value chain of the renewable energy industry to produce sustainable energy 1 Increased optimization of domestic raw material production. a. Mapping the potential of renewable energy sources based on energy types b. Mapping potential renewable energy sources based on distribution areas •• Mapping of supply and demand for renewable energy and industry incentives c. Mapping potential consumers of renewable energy 2 Optimizing the supply chain chain of the •• Mapping of renewable energy industry by strengthening supply and the energy industry partnership. demand for renewable a. Mapping the scale of the renewable energy and energy supply chain industry incentives for b. Mapping priorities for renewable energy renewable supply chain development energy industry partners c. Incentives for renewable energy industry partners to achieve the target of achieving sustainable energy. Ministry of Energy and Mineral Resources, BUMN Energy, Renewable Energy NGO, Regional Government. Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government. Strategy 2: Achieving an increase in the number and competence of HR throughout the value chain of the renewable energy industry by maximizing the role of universities, businesses and associations 1 Increasing the number and competence and productivity of human resources for renewable energy production and other related industry human resources that understand the renewable energy industry. •• With the existence of a competency curriculum in the field of renewable a. Organizing an innovative renewable energy and energy competition to attract new talent. related industries, it b. Organizing an International conference is hoped that of Renewable Energy to understand it will bring national and global trends. forth insightful c. Business meeting and coaching and capable clinic with universities, industries and individuals to renewable energy developers in the world. increase the use of renewable d. Establishment of Vocational Training energy Institutions and HR competencies in the renewable energy industry. 164 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Energy and Mineral Resources, Kemenristekdikti, Ministry of Education and Culture, BUMN Energy, Renewable Energy NGO, Association.
  175. No Strategies / Programs / Activities Target Indicator 2 Increasing the number and quality of the campus with renewable energy curriculum, standardization of curriculum, teaching human resources in accordance with the needs of the renewable energy industry. Year 2019 2020 2021 2022 2023 2024 Stakeholders Ministry of Energy and Mineral Resources, Kemenristekdikti, Ministry of Education and Culture, Energy BUMN, Renewable Energy NGOs, Associations, Educational Institutions, Academics and Practitioners. a. Encouraging the development of quality higher education institutions and collaboration / collaboration with wellknown energy schools. b. Alignment of curriculum and graduate competencies in accordance with the needs of the renewable energy industry. c. Increased competence and certification of lecturers/lecturers Strategy 3: The creation of a national renewable energy industry which hosts its own country and capabilities in product innovation and diversification 1 Increasing the attractiveness of the renewable energy industry so that it becomes an attractive place for a career and investing. •• There is more attention to the renewable energy industry both in the form a. Providing incentives to industries that of investment participate in supporting renewable energy. and qualified b. Regulate market distribution regulations experts. and tariff regulations to become attractive and competitive morning producers and consumers. Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government. c. Increasing market appreciation towards those that will increase market potential. 2 Increased efficiency and productivity of the renewable energy industry to increase competitive advantage. a. Encouraging increased industrial productivity through investment in machinery/equipment. b. Encourage increasing HR productivity through technical guidance on production technology. c. Facilitate and cheapen access to renewable energy. •• Increased productivity of renewable energy and its reach. The Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGOs, Associations, Local Governments, Islamic Financial Institutions. Indonesia Islamic Economic Masterplan 2019-2024 165 Strengthening Halal Value Chain 3
  176. No Strategies / Programs / Activities 3 Increased production of renewable energy products to increase market share and through collaboration with other industries to achieve industry achievement targets. a. Market research and benchmarking for collaboration between renewable energy and halal industry with halal tourism priorities. b. The use of renewable energy as an energy source for halal industries in Indonesia. c. Building mutually beneficial business collaboration through integration between halal tourism and renewable energy. d. Building a digital platform that connects halal tourism and renewable energy. 4 Increased international recognition of the contribution of renewable energy from Indonesia towards achieving regional and SDGs renewable energy targets. a. Providing support to the community to participate in international level events both domestically and abroad. b. Build an Indonesian database and promote actively at home and abroad. c. Facilitating networking and partnerships between Indonesia and foreign countries for knowledge sharing. 166 Indonesia Islamic Economic Masterplan 2019-2024 Target Indicator •• The results of research on renewable energy potential as spot tourism for halal tourism •• Increased market share of renewable energy •• Increased supply of energy using renewable energy •• Business cooperation between renewable energy and halal tourism actors. •• Increased international recognition of renewable energy in Indonesia through comparative studies •• The existence of a renewable energy database in Indonesia Year 2019 2020 2021 2022 2023 2024 Stakeholders Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government, Ministry of Tourism, Other Ministries related to halal industry Ministry of Energy and Mineral Resources, BUMN Energy, Renewable Energy NGO, Association.
  177. Strategies / Programs / Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 4: Establishment of a business ecosystem and ecosystem of consumer needs through co-branding with the halal industry, increased awareness and guarantee of ease of access and information to renewable energy 1 Distribution and commercialization cooperation through state-owned enterprises and the private sector. a. Facilitating cooperation in distribution and commercialization between SOEs and the private sector. b. Prioritizing technology support bases on the distribution of commercialization especially those related to information and communication technology. 2 Implement co-branding with other halal industrial products, especially halal tourism. a. Benchmarking synergy between renewable energy sources and other halal industries, especially halal tourism. b. Synergize the branding target of the renewable energy industry with other halal industries, especially halal tourism. 3 Encouraging the use of digital economy for commercialization and promotion a. Encouraging the use of digital economy for commercialization and promotion. b. Business collaboration through comarketing collaboration with other halal industries c. The use of digital platforms to campaign for the benefits of renewable energy 4 Increased awareness and use of national renewable energy products. a. Campaign for the benefits of renewable energy to achieve national energy selfsufficiency. b. The government’s alignments in the procurement of industrial and household needs based on renewable energy. ESDM Ministry, Energy BUMN, Renewable Energy NGO, Association, Ministry of Communication and Information. The Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGOs, Associations, Kemenpar and other Ministry of Religion related to the halal industry. Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, Ministry of Communication and Information, Ministry of Tourism, other Ministries related to halal industry ESDM Ministry, Energy BUMN, Renewable Energy NGO, Association, Ministry of Communication and Information. Indonesia Islamic Economic Masterplan 2019-2024 167 3 Strengthening Halal Value Chain No
  178. No Strategies / Programs / Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 5: Creation of innovation in the production process for industrial development and collaboration with other industries Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, Kemenristekdikti, LIPI, Universities and Academics. 1 Increased research and publications on renewable energy and potential collaboration with other industries in the halal value chain. a. Encourage research and publications on renewable energy and the potential for collaboration with other industries in a halal value chain that can be applied in Indonesia. b. Providing research and innovation incentives in scientific journal publications and articles related to renewable energy potential collaboration with other industries in a halal value chain that can be applied in Indonesia. 2 Establish an integrated R&D center and renewable energy innovation. •• There is mapping regarding expert resources a. Mapping expert resources and coordinating related parties in the field of •• Increased amount of renewable energy research. research on b. Establishment of an international renewable quality, renewable innovation renewable energy energy R&D center.. Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, Kemenristekdikti, LIPI, Universities and Academics. Strategy 6: Creation of ease of access and financing from bank and non-bank financial institutions and ease of investment 1 The creation of easy access and attractive financing schemes to support renewable energy. a. Encouraging the creation of financing schemes for the renewable energy industry, both from the government and the private sector. b. Facilities to increase the competence of business management management and financial administration of the renewable energy industry for small scale. c. Making the renewable energy industry one of the priorities for financing for investors and financial institutions in Indonesia. 168 Indonesia Islamic Economic Masterplan 2019-2024 •• The existence of new financing schemes for the renewable energy industry from both the private and government parties. The Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGOs, Associations, Local Governments, Islamic Financial Institutions.
  179. Strategies / Programs / Activities 2 Encourage collaboration with Islamic finance through Islamic finance. a. Strengthening policies that support financing for the development of renewable energy. Target Indicator •• There are policies that support financing for the development of renewable energy. b. Making alternative product schemes for Islamic finance that can be •• The existence of an alternative used for the development of renewable Islamic product energy and collaboration with other halal scheme for the industries. development of renewable energy. Year 2019 2020 2021 2022 2023 2024 Stakeholders The Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGOs, Associations, Local Governments, Islamic Financial Institutions. Strategy 7: Implementation of technology for the production of renewable energy and for distribution, commercialization and promotion 1 Establishment of supporting technology bases for the acceleration of the renewable energy industry. •• He has technology that is adequate to support the renewable energy industry The Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, LIPI. 2 Utilization of information technology (digital •• Coverage of a lot economy) to optimize the distribution, of information commercialization and promotion of the about renewable renewable energy industry. energy Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, Kemenkoinfo. 3 Increased production efficiency through the use of technology to obtain competitive prices. The Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGO, Association, LIPI. 4 Encouraging collaboration on the use of renewable energy technologies with other halal industries. The Ministry of Energy and Mineral Resources, Energy BUMN, Renewable Energy NGOs, Associations, Kemenpar, other Ministries related to the halal industry Indonesia Islamic Economic Masterplan 2019-2024 169 3 Strengthening Halal Value Chain No
  180. No Strategies / Programs / Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 8: Availability of regulations that support the development of renewable energy business ecosystems 1 National mapping and regional policies and making action plans to achieve the targets of the PP on National Energy Policy. •• Mapping and coordinating policies between the center a. Mapping national policies and regional and regions policies in the field of renewable energy regarding to achieve the target of achieving renewable renewable energy. energy so as not b. Analyze national policy gaps and regional to overlap and be policies in the field of renewable energy efficient. to achieve the target of achieving renewable energy. Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government. c. Action plans fill national policy gaps and regional policies in the renewable energy sector to achieve achievement targets 2 Assessment and policy making of incentives for producers and consumers to attract renewable energy industry players. a. Analysis of the urgency of providing incentives for producers and consumers to achieve the target of achieving renewable energy. b. Energy between stakeholders to formulate incentives for producers and consumers to attract renewable energy industry players. c. Periodic monitoring and analysis of the effectiveness of providing incentives against targets for achieving renewable energy. 170 Indonesia Islamic Economic Masterplan 2019-2024 •• There is a study of sufficient incentives to motivate the renewable energy industry •• Periodic monitoring system regarding the effectiveness of these incentives for productivity. Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government.
  181. Strengthening Halal Value Chain 3 Indonesia Islamic Economic Masterplan 2019-2024 171
  182. Renewable Energy Quick Wins 1 . Campaign for the benefits of renewable energy to achieve national energy self-sufficiency One of the problems in the renewable energy sector is the lack of awareness or support and concern 2. The creation of easy access and attractive financing schemes to support renewable energy. In addition to the issue of public awareness, of the community towards renewable energy and is another problem faced by the renewable energy still very dependent on fossil energy. 94% of energy sector is the difficulty of the renewable energy needs are still dependent on fossil energy, and all sector to obtain investment and financing for its energy needs that have not been efficiently occupied development projects that require substantial funds. by fossil energy are subsidized. To overcome This is related to the perception and understanding this problem is by campaigning or socializing the of the community on renewable energy itself which advantages of using renewable energy compared to is still low. The perception of the people who do fossil energy, as well as increasing public awareness not care and are not aware of the environment on the potential of renewable energy in achieving together with the community’s low understanding energy self-sufficiency in Indonesia. This is also in of renewable energy causes people to think that line with the main quick wins namely national halal renewable energy is an unprofitable business, lifestyle campaign. therefore it is difficult for renewable energy projects For example, the Ministry of Energy and Mineral Resources, through the Directorate General of New and Renewable Energy and Energy Conservation, has begun socializing energy conservation with the tagline “Cut 10 percent” as a form of a campaign to save energy use in 2015 at an elementary school in Denpasar. In accordance with its audience, the series of socialization events included competitions and entertainment with the theme of energy conservation. This is also very important for renewable energy to create awareness to children as well. In addition, socialization of renewable energy has also been carried out regarding the use of new and renewable energy at a university. The campaign and socialization must be intensified even more. 172 Indonesia Islamic Economic Masterplan 2019-2024 to obtain financing. In addition, the renewable energy sector can also synergize with Islamic finance, where Islamic finance can be an option for financing renewable energy projects. Many Islamic financial instruments have the potential to support renewable energy, from Islamic financing, Islamic capital markets to ZISWAF instruments. This is also in line with the main quick wins, namely encouraging the establishment of national halal funds. That is why an attractive financing scheme and government support is needed in the form of incentives to support renewable energy projects financially.
  183. 3 . Conduct research and publications on renewable energy and potential collaboration with other industries in the halal Value Chain that can be applied in Indonesia, especially in halal tourism the contribution economically in the country. This is also possible in Indonesia, so that in addition to renewable energy it is used as an energy source to support other halal industries. This is also in line with the main quick wins, namely the establishment of Research and innovation are needed in the halal hubs to strengthen the domestic halal industry. renewable energy sector, where energy are sourced Renewable energy can also collaborate with other from various sources. For example, there are power sectors to provide additional value to the economy plants originating from garbage and animal waste as a whole. in the United States. This is very useful on the one hand to reduce waste and as an energy source. In Indonesia, there have also been several studies on renewable energy sources from cocoa shells. Apart from research on renewable energy itself, research is also needed on the potential for collaboration between the renewable energy sector and other sectors. For example, in various European countries such as Germany and the United Kingdom, they have integrated the renewable energy sector better known as green tourism. Germany through the Energiewende program (although there are objections to the program) and the United Kingdom through its Gladwinsfarm, the addition functions from the renewable energy sources will increase Indonesia Islamic Economic Masterplan 2019-2024 173 Strengthening Halal Value Chain 3
  184. 4 Strengthening Islamic Finance
  185. Millenial generation and productivity are investors with big potentials in Islamic capital retail market in Indonesia ((IFN Indonesia Report, 2018). Most of them are technology literate, when developing the Islamic capital market sector they will not forego the role of technology.
  186. Contex Islamic Economics is the study of human In its development , Islamic financial industry behavior in meeting their need to maximize the possesses special characteristics. The conception purpose of their lives by worshipping Allah SWT. is not similar to Islamic finance in Malaysia or the This study examines how to maintain all economic Middle East that are more focused on investment resources or factors of production, the smooth flow banking or distribution (wealth and income distribution), to Indonesia has a complexity that encompasses reach all humans, until the economic difficulties that many types of financial services industry and is hinder humans to worship Allah SWT are removed. more oriented towards the retail segment. This is important, because the economy is basically only a tool for humans to carry out their main purpose in life, namely to worship Allah SWT. and Operationally Islamic involving financial the instruments. largest Islamic financial services and Islamic financial services institutions in a single jurisdiction, in addition to the Moderately, the distribution of natural resources development of certain matters that displays the in an economy occurs in buying and selling activities characteristics of typical Islamic finance such as in the market or the real sector. Nevertheless, for the Bank Pembiayaan Rakyat Syariah (BPRS) and those who have funds and intends to make profit but informal Islamic microfinance institutions. BPRS is do not have the time for real business, they can take a financial institution that has presence in various advantage of the financial sector including those regions. The district community, especially the rural that are Shariah based. areas, utilizes its services. Indonesia is a country that is developing the said In such condition, Islamic financial institutions sector. Islamic finance in this country has developed will contribute greatly in optimizing the effectiveness since the introduction of Bank Muamalat Indonesia. of monetary policy transmission in order to achieve This is the first Islamic bank in Indonesia. The bank its targets. Indonesian Islamic financial institutions is more than two decades old. are now competing not only with conventional banks, The development of Islamic finance has attained several satisfactory achievements from but also conventional financial institutions and Islamic financial institutions from other countries. the increasing number of products and services to ASEAN. Of course, this is not easy to deal with. the developing infrastructure in supporting Islamic Nor is it something that may not be overcome. finance. In fact, at the global level Indonesia is Cooperation from all parties is needed, starting from included in the ten big countries that has the biggest the practitioners, academicians, government, and Islamic indices in the world. scholars in improving the performance and market The community benefits from Islamic financial services as much as possible. They view that services such as Islamic banking should be developed further because of the higher trust placed for it particularly in share of Islamic financial institutions. Thus, a large economic scale will be achieved where Islamic financial institutions can become more efficient in its business activities. depositing funds or Islamic credit facilities. Services The explanation in chapter IV will cover several based on Islamic traditions such as Alquran, hadith aspects. The first is Islamic banking. Muslim scholars and ijtihad comforts them conveniently. in this country are groups that are initiated by 176 Indonesia Islamic Economic Masterplan 2019-2024
  187. Islamic banks . Through their ijtihad, Bank Muamalat If there are influx of wealth, one can also give it was established and became the first Islamic away. Muslims have carried out the latter tradition bank in Indonesia. After that, conventional banks from various ages and regions. The Kingdom of established its own Islamic business units where Saudi Arabia has a number of waqf assets. In fact, they were increasingly accepted by Muslims both one of them was the waqf of the Acehnese alim, from Indonesia and other countries. In this section, Habib Bugag al-Asyi. The assets are in the form the Masterplan will explain the future projection of of several hotels occupied by pilgrims for Hajj and Islamic banking and the steps to be taken to advance Umrah. Every year pilgrims from Aceh receive the the sector. benefits of this productive endowment. The second is the Islamic capital market. This Large-scale endowments, the benefits of which industry includes the issuance of Islamic shares, were felt by this nation also took place in the 20th sukuk, and Islamic mutual funds. The Islamic capital century. An example is the Darussalam Gontor market is a fundamental element of the Islamic Modern Cottage in Ponorogo, East Java. The waqf financial system. In its journey, this industry is based assets from the original form of cottage land in on Shariah principles so that it is in line with the Gontor Village have now expanded to a number concept of equity and prosperity in Islam. of regions in Indonesia. Further description of the Third is social security. The sub-sector provides a guarantee for public safety despite occurrences projections of the four parts of Islamic finance will be discussed below. of disaster. This guarantee protects and maintains a person’s standard of living and economy when experiencing a disaster or a loss event. Islam views this as a very basic form of guarantee, as it is a part of safeguarding oneself, offspring, and wealth. The fourth is zakat, infaq, almsgiving, and endowments. This is a characteristic of Islamic finance. When there are excess of wealth, Muslims are required to set aside a portion of it to channel to the poor and needy. Distribution must be done through zakat. If it is insufficient, Muslims can supplement by donating some of their wealth. Indonesia Islamic Economic Masterplan 2019-2024 177 Strengthening Islamic Finance 4
  188. Islamic Banking Islamic banking is a sub-sector in the Islamic finance industry that functions to raise funds , channel funds, and provide banking services to its customers. In its implementation, the Islamic banking industry refers to Shariah principles, which are regulated and supervised by several institutions and teams including the National Shariah Council of the Indonesian Ulama Council, the Financial Services Authority (OJK), and the Shariah Supervisory Board. Islamic Banking cluster in the Indonesia Islamic Economic Masterplan 2019-2024 will begin with a discussion of the conditions and development of Islamic banking at the global and national levels. Then it will proceed with the presentation of opportunities and challenges of Islamic banking, explanation of Value Chain and SWOT analysis, as well as analysis of Islamic banking support for the halal industry. While the last section will discuss the strategies, programs, activities, and quick wins of Islamic banking in the 2019-2024 period along with the narrative. Indonesia Islamic Economic Masterplan 2019-2024 179
  189. Global and National Conditions of Islamic Banking Based on the data from the State of the Global On the other hand , the Islamic economic Islamic Economy from 2017-2018, global Islamic development began to shift globally to encourage finance in 2016 was recorded as earning USD 2.202 growth in the Islamic finance industry and in the real billion and it was projected to increase to USD sector by applying Shariah principles. Therefore, the 3.782 billion in 2022. Meanwhile, the commercial concept of halal economics began to echo globally. Islamic banking sector received revenues of USD In reference, various halal productswere ready to 1,599 billion in 2016 and is projected to increase to be developed. The Halal Industry Development USD 2,439 billion by 2022. In addition, the Muslim Corporation (HDC) states that halal products are market share for expenditure in the global Islamic currently the main value of the supply chain in economic market reached 11.9% in 2016, and is various industrial sectors. Halal products have the projected to increase from USD 2,006 billion in 2016 potential to develop the financial sector both globally to USD 3,081 billion in 2022. In general, the global and domestically in the real sector. Globally, Islamic Islamic finance from 2014 to 2018 is still dominated economic development will follow its nature, which by the same countries, including Malaysia, the UAE is to unite the financial sector and the real sector. and Bahrain. Gambar 4.1 Top Islamic Finance Markets in Assets Sumber: Global Islamic Economy Report (2018) 180 Indonesia Islamic Economic Masterplan 2019-2024
  190. Meanwhile , the Indonesian Islamic finance Nevertheless, when viewed from the number of industry in the 2018/2019 Global Islamic Economy assets, capital adequacy ratio (CAR), potential return Index (GIEI) ranked 8th in the world, climbing by two (ROA), and a decrease in non-performing loans (NPF points whilst in the previous year Indonesia ranked Net), Islamic banking data in 2014 to 2018 shows a 10th. In this presentation, the Islamic financial positive trend. As of July 2018, Islamic banking assets industry in question covers Islamic banking and the have reached IDR 431.4 trillion with CAR of 20.41%, Islamic capital market, both in terms of sovereign ROA of 1.35%, and NPF Net of 3.92%. Meanwhile, if sukuk and corporate sukuk. viewed through the total assets of Islamic banking, If viewed based on the order of Islamic financial assets globally, as disclosed by ICD Thomson Reuters in 2018, Indonesian Islamic financial assets increased from USD 47.6 billion in 2016 to USD 81.8 according to the Ministry of Finance’s data until April 2018, the total assets of Indonesian Islamic banking reached IDR 435 trillion or 5.79% of the total assets of the national banking industry. billion in 2017, or increased from the 9th rank to 7th in the world in that period. The entry of Indonesia into the top 10 biggest Islamic financial asset owners into the world is a sign that Indonesia is increasingly competent to participate in legitimizing the development of Islamic finance in the world. The Islamic banking sector is one of the highlights in the development of the Islamic finance industry. Graph 4.1.1 Conditions of Islamic Bank Performance (2014-2018) Source: Financial Services Authority (2018) Nilai Aset (Rp Miliar) 500000 431427 20.41 424181 400000 300000 356,504 296,262 15.74 17.91 16.63 15.02 0 20 15 200000 100000 25 10 4.95 4.84 Total Aset 2015 CAR (%) 4.76 0.63 0.63 0.49 0.41 2014 4.42 2016 2017 ROA (%) 3.92 1.35 Juli 2018 5 0 NPF Net (%) Indonesia Islamic Economic Masterplan 2019-2024 181 Strengthening Islamic Finance 4
  191. Indonesia ’s Islamic banking market share for the past 20 years is still at 5%, although various efforts have been made by stakeholders through policies to increase. The problems faced in Islamic banking in Indonesia, among others, include: First, market potential is not accompanied by a large growth in market share, given that the majority of Indonesia’s population are Muslims. Second, the condition of Islamic banking human resources, whether in terms of quantity and quality as well as information technology, have not been able to support the product and services development (Islamic Banking Roadmap 2018-2019). Third, based on Indonesian banking data and statistics for the period of December 2014 to May 2017, in comparing the performance of Islamic banks with conventional banks, using various performance assessment measures in the banking industry, namely CAR, ROA, BOPO, LDR/FDR, NIM/ NOM, NPL/NPF it is below the performance of conventional banks. Fourth, efforts to improve regulation have not been maximised where it has to harmonise with the operations of Islamic banks in variaous conditions on a macro basis. Fifth, aspects of research and development still needs to be developed in order to ascertain the opportunities, challenges, advantages and disadvantages. Finally, education and socialization that are not inclusive. 182 Indonesia Islamic Economic Masterplan 2019-2024
  192. Strengthening Islamic Finance 4 Indonesia Islamic Economic Masterplan 2019-2024 183
  193. Opportunities and Challenges for the Development of Islamic Banking As one of the leading sectors in the Islamic of human resources , regulation and governance, finance industry, Islamic banking has several research and development, literacy, data and opportunities and challenges. These opportunities technology. and challenges are identified from the aspects Table 4.1 Opportunities and Threats of Islamic Banking based on Ecosystem Aspects HR Opportunities Population and growth of the Indonesian Muslim community. Threat Lack of specific workforce to dominate the Islamic banking industry. Islamic economics study programs have been introduced in State Universities or private universities and can supply the needs of Islamic banks for qualified human resources. Regulations & Governance There is regulatory support / masterplan from regulators Various government policies / master plans and related authorities have not such as OJK, Bank Indonesia, Bappenas, Ministry of been integrated and synergized well. Finance, Ministry of Religion, etc. There is no alignment of the vision and The government and regulatory elements have their respective visions in the Islamic economic development. mission of the regulations contained in each master plan / blue print made by Regulations related to the halal industry and social Islamic finance are opportunities for Islamic banks to be departments or regulators. able to improve funding aspects and expand financing segments / allocations. Government programs. Research & Development The increasing number of study programs related to Islamic banking at the university level. Lack of academic staff for the Islamic banking industry. There are various research / training institutions that are concerned with Islamic economic development. The emergence of research results from PTS / PTN that led to the introduction of Islamic study program Literacy Regulatory support to improve Islamic financial inclusion, especially banking, for example with smart behavior programs. Financial literacy carried out in various segments of society. Literacy can be used as a tool to further enhance people’s understanding of Islamic banking in an effort to enlarge the market size of Islamic banking. 184 Indonesia Islamic Economic Masterplan 2019-2024 Penetration of the Islamic banking sector is still low. Public awareness to use Islamic bank products is still low
  194. Data & Technology UUS can utilize the technology owned by the parent bank. BUS has the quality of technology under technology in conventional banks. 2. The development of financial technology (fintech) as a The development of financial technology (fintech) if it is not properly utilized it will means of developing the Islamic banking industry. threaten the development of the Islamic banking industry. Islamic banking has a value chain flow starting commercialization to mudharib according to Islamic from the funding process, the management process contracts and principles. The value chain is expected to the financing process. In general, Islamic banking to provide benefits for the development of the halal value chain consists of third party funds and financing industry in Indonesia. as input, followed by Islamic banking financial instruments, policies and services as management process, and ends with a financing process and Figure 4.2 Islamic Banking Value Chain RESEARCH & DEVELOPMENT Raw Materials 1. Chemical raw materials 2. Natural raw materials Industry ISLAMIC FINANCING Human Resources 1. Upstream chemical industry 2. Downstream chemical industry Distribution & Commercialization 1. Logistics 2. Channel (media server, streaming, broadcasting, production house) Promotion 1. Media 2. Exhibition 3. Collaboration 4. Zoning TECHNOLOGY 1. Halal auditor 2. Educational institution 3. Association REGULATION Indonesia Islamic Economic Masterplan 2019-2024 185 Strengthening Islamic Finance 4
  195. In the technical implementation , the Islamic banking value chain is translated from the products and stakeholders involved in each of the chain as explained in the table below. Table 4.2 Value Chain of Islamic Banking in Indonesia Value Chain Input (funding) Product Supporter Third party funds (savings account, term deposit) Individual customers Financing received Other financial institution customers MSME customers Commercial and corporate customers APBN BI, OJK, Ministry of Finance, LPS, DSN-MUI, Ministry of Religion, Bapepam LK Process Liquidity instruments BI Interbank call money market OJK Hedging LPS Process automation Digital economy SDI IT System Digital Banking Output (financing) Sale and purchase agreement: murabahah, salam, and istisna Individual customers Revenue sharing: mudharabah and musyarakah Other financial institution customers Rent: ijarah and ijarah muntahiya bi tamlik APBN MSME customers Commercial and corporate customers BI, OJK, Ministry of Finance, LPS, DSN-MUI, Ministry of Religion, Bapepam LK An analysis on the strengths, weaknesses, of the existing Value Chain. The SWOT analysis in opportunities, and challenges are needed to Islamic banking is divided into value chains including maximize opportunities and address the challenges funding, management processes, and financing. of Islamic banking for HR, regulation, governance, R & D, literacy, and data & technology and the scope 186 Indonesia Islamic Economic Masterplan 2019-2024
  196. Table 4 .3. Islamic Banking SWOT Analysis Input (Funding) Strengths The course of funding comes from either Muslim communities who are shariah loyalists or non-Muslims who believe in the Islamic system or from business institutions with shariah operational principles. Weaknesses Funding is still dominated by the form of high-cost deposits (Term Deposits), and short-term, so it is not suitable if allocated for long-term financing. Source of funds from BPKH. Process Regulations in various bank operational activities are clear from BI, OJK and other related institutions. SDI in either quantity or quality is still not as expected/ inadequate. The effect of the spin-off policy is that there are BUS which are still constrained by UUS can utilize all the facilities of the parent bank in its operations thus reducing capital and business expansion because operational costs and raising the potential they require high investment. for increased profits. BUS performance (ROA, BOPO, NPF, NOM) UUS performance (ROA, BOPO, NPF, NOM) is not up to par with UUS. is better than BUS. There is still a small number of experts possessed by Islamic Banks with sufficient UUS can utilize experts from the Parent experience. Bank. Output (Financing) The main accessors of Islamic financing are shariah loyalists. Companies with shariah operational principles. SDI quality in financing risk management and financing analysis is still less experienced compared to Conventional Banks. Optimal allocation of funding is still limited because of constrained capital and the CAR rules. Sources of funds with a high cost and short-term funding lead to a mismatch when Islamic banks must allocate funding over a long period of time, besides that the Cost of Fund is expensive, the yield/margin determined for financing becomes relatively expensive. Capital The abundance of Hajj funds is quite large. The spin-off regulation has resulted in banks that will change into BUSs experiencing capital insufficiency. Indonesia Islamic Economic Masterplan 2019-2024 187 Strengthening Islamic Finance Aspect 4
  197. Aspect Input (Funding) Opportunities The development of the halal industry. The development of MSMEs. The potential of people who have yet to own an Islamic bank account is still high. Threats The existential strength of conventional banks to attract large-scale consumers. The quality and quantity of human resources who understand shariah is still low. The market share is still low so there is a large potential of funding that has not been Raising capital is becoming increasingly difficult. realised. Government support for Islamic economic Economies of scale that are still low. development has begun to be seen with policies on BKPH funds. The development of ZISWAF fund management and the development of sukuk instruments. Process There are several liquidity instruments that Islamic banks can use to regulate their liquidity whilst generating profits, such as short-term securities with shariah principles. Process automation could be utilised by Islamic banks to facilitate their operations/ business processes. SDIs that understand shariah and economics at the same time are still lacking. The information technology system that is owned is still not as sophisticated as a Conventional Bank. Islamic banking education and literacy is still low. Digital banking can be utilised by Islamic banks in facilitating services to customers/ communities. Output (Financing) The development of the halal industry. The development of MSMEs. The existential strength of conventional banks to attract large-scale consumers. The digital economy can be a threat to Islamic banks in an effort to increase the retail financing segment. Capital 188 Indonesia Islamic Economic Masterplan 2019-2024 Other social funds that have not been fully managed through Islamic banks.
  198. Islamic finance has great potential to contribute The following is an example of support provided to the economy through two main aspects , namely by Islamic banking for the halal food and beverage higher and inclusive economic growth, and better and halal media and recreation industries in the economic and financial stability (Ministry of Finance, form of financing and the comparisons with credit 2018). One example is the principle of profit sharing facilities provided by conventional banking. and risk in Islamic finance, which is seen to be suitable in real sector financing especially to MSMEs. This can support inclusive and quality economic growth. While the principle of profit sharing and risk and asset-based financing applied in Islamic finance will encourage better risk management and avoidcrisis caused by credit booms. Therefore, this could be an importance for Islamic banks in supporting the halal industry. Generally, the main support that Islamic banking can provide is financing. However, to maximise financing potential, banks experience asymmetrical information problems. Therefore, an information technology system and the synergy of the digital economy are needed in reaching out to the wider community. The second form of support that can be 1.Support for Halal Food and Beverage Cluster The halal food and beverage sector is supported by two business sectors, namely: (1) Agriculture, Hunting and Forestry and (2) Provision of Accommodation and Provision of Food and Beverages. Both of these business sectors receive significant funding from conventional banks. Islamic banks, on the other hand, do provide financing in the same sector albeit in a modest amount. This small distribution is a precise indication of the opportunities available for Islamic banks in both sectors. This of course also aims to develop the halal food and beverage industry in Indonesia. provided is the introduction of new banking products that are suitable for every halal industries, where problems in each halal industry can be resolved through the financial system (banking). The third form of support that can be provided is by positioning banks as an intermediary between domestic and global halal investors who are interested in investing in Indonesia’s halal industry. Therefore, a database of industry players as well as potential investors are needed in each sector, for collaboration and transactions through mudharabah muqayyadah contract (project-based investment). Thse support are important because banking is a financial system that still dominates Indonesia. The fourth form of support that can be provided is by increasing facilities and ease of access from Islamic banking to the halal industry. This is important for Islamic banking to possess a distinctive appeal factor other than just bearing Shariah names. Indonesia Islamic Economic Masterplan 2019-2024 189 Strengthening Islamic Finance 4 Islamic Banking Support for the Halal Industry
  199. Graph 4 .1.2 Comparison of Financing to Business Field Sectors (2014 - 2018) Source: Financial Services Authority (2018) 400,000 300,000 200,000 254,954 317,373 283,827 339,258 100,000 80,000 73,583 212,386 93,390 85,861 97,886 97,756 60,000 40,000 100,000 0 20,000 4,965 2014 8,531 7,950 2015 2016 Bank Konven (Rp Miliar) 10,419 2017 11,866 2018 0 Compared to the halal food and beverage sector, 2014 2015 3,613 4,211 2016 Bank Konven (Rp Miliar) Bank Syariah (Rp Miliar) 2.Support towards Halal Media and Recreation Clusters 3,043 2,101 1,555 Bank Syariah (Rp Miliar) plenty of opportunities for Islamic banks to target these business sectors as a sign of their support in developing the halal industry. the media and recreation sector does not yet have a separate halal category. The amount of funding can Graph 4.1.3 be seen in the business sector, which includes social Financing to the Social Services, Socio-Cultural, Entertainment and Other Individual Services Sectors services, social culture, entertainment and other interests in the entertainment subsector. Source: Financial Services Authority (2018) From the graph above, it can be seen that the funding channelled by the bank towards these business sectors experienced a slight decline from 2014 to 2016. Nonethelesss, the bank increased its financing from 2017. In 2018, the proportion of 80,000 74,184 72,365 67,744 58,707 57,989 60,000 Islamic bank financing reached 8.4% compared to conventional bank financing. Therefore, there are still 40,000 20,000 6,757 0 2014 4,600 2015 Bank Konven (Rp Miliar) 4,617 2016 4,973 2017 6,290 2018 Bank Syariah (Rp Miliar) The following is the explanation of the table on Islamic banking support for the main halal industries, which are divided into halal food, halal tourism, modern fashion, halal media & recreation, halal pharmaceutical & cosmetics and renewable energy. 190 Indonesia Islamic Economic Masterplan 2019-2024
  200. Table 4 .4 Islamic Banking Support to Main Halal Industries Halal food and beverages Form of Strategic Support 1. Encourage banks to provide financing schemes specifically for the agricultural sector. 2. Encourage banks to provide financing for the food and beverage-processing sector. 3. Encourage banks to provide financing for the food and beverage packaging sector. Halal tourism 1. Encourage banks to provide special financing schemes for the halal tourism industry, such as hotel businesses, halal restaurant businesses, transportation, tour and travel, tour guides, etc. 2. Encourage banks to provide financing for the development of halal tourism objects. 3. Encourage banks to provide financing to MSMEs (providers of food and beverage services, handicrafts, halal spas) located around tourist attractions. Muslim fashion 1. Encourage banks to provide financing for the development of the Muslim fashion industry, whether in relation to companies involved in: a. Procurement of raw materials d. Distributor b. Designers e. Retailer c. Production Halal media and recreation 1. Encourage banks to provide financing for the development of halal media and recreation industries, whether in relation to companies involved in: a. Film production houses d. Games and application providers b. TV and Radio e. The music and art industry. c. Production Halal pharmaceuticals 1. Encourage banks to provide financing for the development of halal pharmaceutical and cosmetics industries, as follows: and cosmetics 2. The halal pharmaceutical sector, both involving raw material providers, manufacturers, distributors and retailers. 3. Halal cosmetics sector, both for companies providing raw materials, manufacturing, packaging services, distributors and retailers. Renewable energy 1. Encourage banks to provide financing for the development of the renewable energy industry. Next, is an explanation on the Islamic banking support for the halal industry, which is divided into MSMEs and the Digital Economy. Table 4.5 Islamic Banking Support to the Supporters of the Halal Industry Sector Sector Form of Strategic Support MSMEs and the Digital Economy 1. Encourage banks to provide financing to MSMEs on a start up basis that is available in the following sectors: 1. Agriculture 4. Tourism 2. Education 5. Logistics 3. Health 6. Other developing sectors Indonesia Islamic Economic Masterplan 2019-2024 191 Strengthening Islamic Finance Sector 4
  201. Specific Islamic Banking Strategy No . Programme/Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy I: Strengthening Islamic Banking Funding 1 Diversification of Islamic Banking Products and •• Increased Services number of Islamic a. Conduct market research in relation to the banking needs of society and industry of Islamic products and banking financial products and services. services. b. Introduce new Islamic banking products and services that suits market needs (Product Development).                                                   f. Improve the fund structure to support the expansion of the financing sector.             Inter-Sector Integration •• Increased number of a. Integration with other financial sectors cooperation (capital markets, microfinance, takaful and programmes Islamic pension funds). between b. Utilisation of the digital economy through Islamic banks the creation and use of platforms for funding and various needs. (government and private) c. Utilisation of the digital economy through institutions. the creation and use of platforms for funding needs.   c. Islamic banks to develop platforms for mudharabah muqayyadah. d. Encourage the use of wadiah bil wakalah as savings (giro, funds and deposits) e. Develop investment management products according to the customer’s life cycle. 2 192                                     d. Optimisation of management of Hajj funds.             e. Encourage the involvement of Islamic banks in managing central/regional government funds and BUMN/BUMD funds.             f. Encourage BUS on the formation of Islamic custodian banks so that the placement of Islamic bonds can be placed in Islamic banks.             g. Optimising ZISWAF funds whilst simultaneously increasing the integration of social functions in Islamic bank business activities by deducting zakat from the customer’s account through a fair system.*             Indonesia Islamic Economic Masterplan 2019-2024 Islamic Banks, Financial Services Authority (OJK), Bank Indonesia (BI), and National Sharia Council Indonesian Ulama Council (DSN-MUI), Coordinating Ministry for Economic Affairs BI, OJK, DSNMUI, Ministry of BUMN, Ministry of Finance, Indonesian Waqf Agency (BWI)
  202. 3 Increased Incentives for Islamic Banks a . Islamic bank spin-off. b. Mergers and acquisitions of Islamic banks c. Establish an Islamic-Owned State Bank (Option for merger of BUS owned by BUMN or conversion of State-Owned Conventional Banks)* •• Increased assets and Third Party Funds of Islamic Banks from each activity carried out.                                       Strengthening Islamic Finance 4 Bank Indonesia, OJK and BUMN Ministry. d. Establish Islamic investment bank.** e. Encourage the development of leverage models of Islamic banks (maximizing parent facilities) f. Become an intermediary institution for domestic and foreign investments that enter Indonesia to finance industries, especially the halal industry. 4 Establish National Halal Fund (*) (**) a. Consolidation and planning for the establishment of the National Halal Fund in coordination with Islamic banks and other LKS. (*) (**) Bappenas, Ministry of Finance, Bank Indonesia, OJK, LPS, DSN-MUI, Islamic Banks, BUMN, ZISWAF Institutions •• The establishment of Halal National Fund b. Formulation of the policy of establishing the National Halal Fund. (*) (**) c. Operational strengthening of the National Halal Fund. (*) (**) d. Infrastructure development for the operational mechanism of the National Halal Fund. (*) (**) e. Socialization with stakeholders, inauguration, and implementation of the National Halal Fund. (*) (**) 5             Islamic Banks Value Enhancement •• Increased customer a. Enhancing customer experience. satisfaction b. Enhancing service quality. levels with Islamic banks c. Campaigning for savings in Islamic banks. Increased d. Socialisation, education and increase public number of literacy levels towards Islamic banks. Islamic bank customers against conventional banks.                                                 BI, OJK, DSNMUI Indonesia Islamic Economic Masterplan 2019-2024 193
  203. Strategy II : Strengthening the Islamic Banking Management Process 1 Perform service excellence activities and product customisation in line with the development of consumer preferences.                         c. Perform customisation of services according to these changes.             d. Establish contingency plan guide, recovery plan and resolution plan for Islamic banks.                                                 a. Optimising existing and potential resources (R&D, SDI and IT) to periodically update changes in consumer preferences and service needs. •• Increased operational performance of Islamic Banks (Balance Score Card) OJK and Bank Indonesia b. Develop real sector index concept.* e. Develop standard stress test platform for Islamic banks. f. Evaluate the adoption of IFSB’s standards for Islamic banking industry. g. Improve the quantity and quality of HR and IT and other infrastructure. 2 194 Optimising the role of Conventional •• Increased Commercial Banks (BUK) in developing Islamic Shariah banking services. Business Unit services a. Ease of access to conventional customers in through obtaining financing from the relevant Islamic Conventional Business Unit of the bank. Commercial b. Integration of facilities and services of Banks Conventional Commercial Banks to related Shariah Business Units. Indonesia Islamic Economic Masterplan 2019-2024 OJK and Bank Indonesia
  204. 1 2 Provide stimulus towards Islamic BUMN / BUMD. •• Increased   amount of Islamic Bank a. Create a BUMN/BUMD financing database,   financing to especially those related to the halal industry. BUMN/BUMD b. Provide financing to BUMN/BUMD in relation   to the halal industry and in line with the financing programmes of the upstreamdownstream sector of related Islamic banks at the national and regional levels.                               Encourage BUS, UUS and BPRS to register as KUR shariah distribution agency.** •• Increase the   number of BUSs that are   KUR shariah distribution agencies.                                             Expansion of productive Islamic financing in the •• Increased   corporate sector and long term (infrastructure). amount of Islamic bank a. Formulate an incentive framework for   financing in the expansion of productive financing the corporate in the corporate sector and long term sector and (infrastructure). long term b. Mapping the corporate sector and long (infrastructure).   term (infrastructure) that are in line with the development of the halal industry.                               c. Expanding the stage of implementation of productive financing of Islamic banks in the corporate sector and long term (infrastructure).           a. Equip and ensure the readiness of central and regional facilities that are required to become KUR shariah distribution banks.** b. Submission stage of Islamic Commercial Banks as KUR shariah distribution agencies.** c. Provide financing for MSMEs that are in line with strengthening national and regional halal industries.** Ministry of BUMN, BI, OJK, DSNMUI Ministry of Finance, BI, OJK, DSNMUI d. BUS, UUS, and BPRS that have fulfilled the requirements as KUR Islamic distributors to be able to contribute in increasing the distribution of Islamic KUR and become the main option for financing the halal MSME industry. ** 3   Ministry of Finance, BI, OJK, DSNMUI Note: * is the main program and ** is included in the Quick Win Indonesia Islamic Economic Masterplan 2019-2024 195 4 Strengthening Islamic Finance Strategy III: Strengthening Islamic Banking Financing
  205. Quick Wins for Islamic Banking 1 .Establishing National Halal Fund National Halal Fund (NHF) is a fund that aims to specifically support the development of halal 3.Increasing the number of Islamic Commercial Banks registered as Shariah KUR Channel Providers. industry in Indonesia. The fund does not provide To convert Islamic Commercial Banks into direct funding, but uses a financing level subsidy Shariah KUR channeling institutions, firstly is to mechanism similar to the practice in KUR. This ensure that the facilities and services offered by subsidy is given to Islamic banks’ customers who Islamic banks at the central and regional levels are are developing the halal industry and fulfill the in accordance with the requirements. Each Islamic terms of the provision of financing. In the initial bank in the short term can focus on improving stage, funds are to be distributed to the prioritized its performance, facilities and services needed halal sector. NHF funding will come from two main to become Shariah KUR channeling institutions. sources, namely the Ministry of Finance (from the Meanwhile, the Coordinating Ministry for Economic Government Expenditure Fund) and crowdfunding. Affairs, OJK, and Bank Indonesia also plays a role in The purpose of crowdfunding is to attract waqf, encouraging Islamic Commercial Banks to register zakat, infaq, donations, and funds that contain themselves as Shariah KUR channel providers. This non-halal elements (tainted funds). Funds from is important because Shariah KUR potentially can crowdfunding will be used to increase the capacity support MSME-based financing in the halal industry, of clients who satisfies the financing requirements. especially with the availability of regulations. Thus, BUS needs to take advantage of the existing 2.Establishing Islamic Investment Banks The establishment of Islamic investment banks is a solution to the problems of Islamic banking which were too focused on the retail segment causing the development in the corporate segment to become insignificant. Limited capacity, capability and lack of contribution in corporate transactions necessitates such development even is there are currently corporate investment services in the national Islamic banking industry. These shortcomings are to be overcomed with the presence of Islamic investment banks that are expected to offer technical and financial capabilities needed for largescale financing, especially infrastructure projects and government projects. 196 Indonesia Islamic Economic Masterplan 2019-2024 regulations and opportunities. In addition, Islamic banks have the potential to raise the level of Shariah KUR’s distribution funds which are still far below the conventional KUR. This quick wins point will become the priority of the Islamic banking cluster in the establishment of national halal funds in the masterplan.
  206. Strengthening Islamic Finance 4 Indonesia Islamic Economic Masterplan 2019-2024 197
  207. Islamic Capital Market The Islamic capital market is one of the sub-sectors in the Islamic finance industry . Global development is rapid. Globally, Islamic capital markets include the issuance of Islamic shares, Islamic bonds or sukuk, and Islamic mutual funds (Omar et al., 2013). The Islamic capital market, like conventional capital markets, is an important component in an overall financial system. In practice, the Islamic capital market industry refers to Shariah principles where its operations are generally in line with the concept of equity and increasing prosperity in Islam. Indonesia Islamic Economic Masterplan 2019-2024 199
  208. Global and National Conditions of the Islamic Capital Markets 1 .Global Cluster Position In the last decade, the Islamic capital market was the second largest contributor to the global Islamic financial industry assets after the banking sector. The report released by Thompson Reuters in the large. Furthermore, globally 70% of Islamic mutual fund funds are under US $ 25 million and many of it are valued ​​below US $ 1 million. 2.Cluster Development in Indonesia 2018 Islamic Finance Development Report reports The Islamic capital market in Indonesia itself has that the total assets of the Islamic finance industry been developing for the past two decades since the in 2017 reached US $ 2.4 trillion, of which 17% came inaugural launch of Islamic mutual fund products from sukuk (around US $ 426 billion) and 4% of them in 1997. This development was followed by the came from mutual funds ( around US $ 110 billion). emergence of the Jakarta Islamic Index (JII) in 2000 Sukuk still dominates the market share in the world. Of all sukuk issuers, 63% of them came from corporate issuers, followed by the government sector (31%), and other parties such as agencies (6%). Until 2017, 19 countries had issued sukuk with a total valuation of US $ 85 billion. Sovereign sukuk is also in demand by countries such as Morocco, Kazakhstan and the United Kingdom. Morocco and the issuance of Islamic mudharabah bonds in 2002. In order to provide legal certainty, BapepamLK as the capital market regulator issued a package of Islamic capital market regulations in 2006 and a list of Islamic securities (DES) in 2007. In 2008, the government for the first time issued the Sovereign Shariah Securities (SBSN) (Islamic Capital Market Roadmap 2015 – 2019). has issued its first sovereign sukuk in October The initial law on this point is Law Number 8 of 2018, while Kazakhstan and the UK are preparing 1995 relating to Capital Markets and its implementing for its sovereign sukuk issuance in the near future. regulations (Bapepam-LK Regulations, Government Indonesia has a strong position as the largest global Regulations, Stock Regulations and others). It is sovereign sukuk issuer in 2017. then followed by the National Shariah Council of the Islamic asset management, on the other hand, is also thriving with total assets under management (assets under management) of US $ 110 billion in 2017. The sector is still concentrated in some countries, such as Iran, Malaysia and Saudi Arabia. All three accounted for a total of 87% of all global Islamic mutual fund assets. However, in terms of the number of issuance, only Malaysia was in the top three in the world with 41 mutual fund issuances. The next position is held by Pakistan with 32 publications and Indonesia with 31 publications. Nevertheless, Pakistan and Indonesia are not yet included in the list of the top five countries with the largest Islamic mutual fund assets in the world, even though the Muslim population in both countries are 200 Indonesia Islamic Economic Masterplan 2019-2024 Indonesian Ulema Council (DSN-MUI) who issued a fatwa for the Islamic capital market, namely Fatwa Number 20 / DSN-MUI / IV / 2001 concerning Investment Implementation Guidelines for Shariah Mutual Funds. These developments arises from the MoU between Bapepam and DSN-MUI on 14 March 2003. The MoU shows an understanding between Bapepam and DSN-MUI to develop a Shariah-based capital market in Indonesia. To date, Islamic securities that are issued in the Indonesian capital market include Shariah shares, sukuk and Participation Units of Islamic Mutual Funds.
  209. Bapepam-LK (prior to OJK) as the capital market 7.22 billion or 17.5% in 2015 (IFSI, 2018). However, regulator in Indonesia, had also issued several in terms of issuing corporate sukuk, Indonesia still specific regulations related to the Islamic capital occupies the 7th position in the world. Malaysia market. The legal framework among others, is is the first country to be followed, followed by the contained in Rule Number II.K.1 in relation to the United Arab Emirates, Turkey, Qatar, Kuwait and Criteria and Issuance of Shariah Securities List, Saudi (IFSI, 2018). The issuance of corporate sukuk Rule Number IX.A.13 concerning Shariah Securities from these countries are influenced by a number of Issuance, and Rule Number IX.A.14 / OJK Regulation factors, including higher issuance costs, complexed NUMBER 53 / POJK. 04/2015 concerning contracts legal structures, lack of standardized sukuk, and lack used in the issuance of Shariah Securities. Some of assets suitability. In addition, other countries also other regulations relevant to the development of the provide fiscal incentive factors for sukuk market Islamic capital market are POJK No.15 / POJK.04 players but not to the players in the bond market. / 2015 concerning the Application of Shariah Principles in the Capital Market, which includes provisions on the contracts to be used, activities and types of business that are in conflict with Shariah principles in the Islamic capital market. Unlike the sukuk and Islamic stocks, the IFSB report (2017) states that the number of assets managed by Islamic mutual funds increased by 19% to USD 67 billion. Of the total mutual fund market in the world, Saudi Arabia dominates 37% of the market The government then began to increase its focus while Malaysia is ranked second with a portion of towards developing HR by issuing POJK Number 16 32% of the market. The majority of managed funds / POJK.04 / 2015 on Islamic Capital Market Experts are invested in equity instruments (42%), money (ASPM). Those who receive the certification will act markets (26%), and commodity markets (14%). Until as qualified Shariah advisors and / or supervisors the now, active funds have grown up to USD 80 million. company’s business activities including providing relevant opinions on Shariah principles for Islamic products / services in the capital market. In practice ASPM can be carried out by individuals or business entities who are qualified to becomes members of the Shariah Supervisory Board (DPS) and / or the Shariah Expert Team (TAS) in issuing Shariah securities. With the existence of ASPM, it is hoped Currently, investors with great potentials in the retail Islamic capital market in Indonesia are the millennials and productive generations (IFN Indonesia Report, 2018). Almost the entire generation are technology literate, the role of technology should come together with the development of the Islamic capital market sector. that it will increase the market’s and community’s confidence towards Islamic products in the capital market. In the international ranking, Indonesia is the third largest country to issue sovereign sukuk after Malaysia and Saudi Arabia. In 2017, the number of sovereign sukuk increased by USD 5.1 billion or 6.66% of the total issuance, while in 2016 there was a growth of USD 8.75 billion or 14.7% and USD Indonesia Islamic Economic Masterplan 2019-2024 201 Strengthening Islamic Finance 4
  210. 3 .Islamic Shares agriculture 11 companies, mining 31 companies, basic and chemical industries 56 companies, Islamic Shares are shares with Shariah compliant various industries 28 companies, consumer goods characteristics and exhibits proof of ownership of a industry 34 companies, property, real estate and company in the form of a limited liability company building construction 55 companies, infrastructure, (PT). The legal foundation on the issuance and utilities and transportation 45 companies, finance requirements of Islamic securities in the form 5 companies, trade, services and investment 72 of shares by Islamic issuers or Shariah public companies, public companies 4, and 9 companies companies, is found in POJK No.17 / POJK.04 / that are not listed. 2015. Islamic securities that will enter the Jakarta Islamic Index (JII) (2002) or the Indonesian shariah In conjunction with the halal industry sector, stock index (ISSI) must go through a selection sectoral Islamic securities have a role in the halal process (screening). There are two qualitative and standards that will be issued to companies for quantitative selection processes performed on the the selection process. Islamic securities issued Islamic securities. Qualitative selection includes the by the business sector should also go through a substance of the company’s business processes qualitative selection process by the Halal Assurance while quantitative selection calculates debt to asset Management ratio and the company’s non-permissible income technicality does not have legal clarity. On the other contribution. hand, the number of Islamic securities ought to Agency (BPJPH). However, this increase by encouraging companies to engage in the The number of Islamic shares from year to year halal sector to increase their capital. has experienced a positive upward trend as shown in the graph. The decline only occurred in period 2 of 2012 and period 1 of 2016. In May 2018, OJK issued a list of sectoral Islamic securities namely Graph ‎4.2.1 Development Amount of Islamic Securities Source: OJK, 2018 450 400 350 300 250 200 150 100 202 I II 2007 I II 2008 Indonesia Islamic Economic Masterplan 2019-2024 I II 2009 I II 2010 I II 2011 I II 2012 I II 2013 I II 2014 I II 2015 I II 2016 I II I 2017 2018
  211. 4 .Sukuk levels. Some sukuk that have been issued in the market includes retail sukuk, international sovereign Sukuk is a new term that was introduced to replace the plural form of the word “sakk” in Arabic, which The rapid development of innovative instruments means certificate or proof of ownership. Sukuk also occurred in the sovereign sukuk issuance after gained recognition in 2002 in Indonesia with the 2010. In 2012, the government conducted regular issuance of corporate sukuk by Indosat with a value auction of PBS and SPN-S series of sovereign of IDR 300 billion using mudharabah contracts. In sukuk, greenshoe option, and SNI with Islamic its development, the market share of Islamic bonds, GMTN format. In 2013, the government for the first especially corporate sukuk, still covers about 4 time started issuing project-based sukuk under the percent of the total issuance of the corporate bond name Project Based Sukuk (PBS). One year later, market (OJK, 2017). In addition, the sukuk market the government issued the fifth and sixth global share is still far behind conventional bonds in terms sukuk issued in the 2014-2015 period. In 2016, the of value and the number of issuance. SR-008 retail sovereign sukuk was issued by the government and continued with the issuance of SR- The sukuk market grew rapidly after the 009 retail Sukuk in 2017. In 2018, the government inauguration of Law Number 19 of 2008 on Sovereign issued green sukuk for the first time to the SDGs. Islamic Securities which was followed by the initial sovereign sukuk issuance (IFR series) in the domestic An indication of the strengthened role of the market with a total issuance value of IDR4.67 trillion Sovereign Sukuk in financing the State Budget (Directorate of Islamic Financing, 2018). Subsequent can be seen from the increase in the number of to this, the Indonesian government through the sovereign sukuk issuances from year to year. Based Ministry of Finance continued to issue sovereign on the data from the Directorate of Islamic Financing sukuk to finance infrastructures. For ten years since at the Directorate General of Financing and Risk its debut, the government has routinely issued sovereign sukuk at both the national and international Graph ‎4.2.2 Total Issuance of Sovereign Sukuk as per 25 October 2018 Source: Ministry of Finance’s DJPPR, 2018 20 40 60 80 100 120 140 160 180 200 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 IFR 0 0 0 0 0 0 0.4 4.61 6.15 1.28 4.7 PBS 94.32 91.8 91.89 46.25 9.45 9.32 16.71 0 0 0 0 SDHI 0 2 1 4.5 12.86 0 15.34 11 12.78 2.69 0 SNI 41.38 39.97 33.41 26.42 17.75 17.24 9.64 9.04 0 7.03 0 SPNS 46.38 44.69 16.99 14.3 16.17 11.65 1.38 1.32 0 0 0 0 0 2.54 5.08 0 0 0 0 0 0 0 SR 8.44 14.04 31.5 21.97 19.32 14.97 13.61 7.34 8.03 5.56 0 ST 0 0 2.59 0 0 0 0 0 0 0 0 1.5 0 0 0 0 0 0 0 0 0 0 SPNSNT PBSNT Indonesia Islamic Economic Masterplan 2019-2024 203 Strengthening Islamic Finance sukuk (SNI) and hajj fund sukuk. the term Islamic bonds. Sukuk as a terminology is 0 4
  212. Management (DGTPR), sovereign sukuk issuance experienced a significant increase from its first issuance in 2008 which amounted to IDR4.7 trillion until 2018 where issuance reached IDR192.49 trillion. After the issuance of the green sukuk on 22 February 2018 with a five-year tenure valued at USD1.75 billion and registered on the Singapore Exchange and NASDAQ Dubai, the total accumulation of sovereign sukuk issuance from 2008-2018 reached IDR950.26 trillion. Unfortunately, the performance of the sovereign sukuk has not been replicated by the corporate industry. The government is more focused on the issuance of sovereign sukuk than corporate sukuk. Whereas when both issuances have equal support, Indonesian sukuk can collectively outperform other countries. For example in 2015, the volume of sukuk in circulation was positioned at fourth place and the volume of sukuk issuance was placed second in the top 10 (Islamic Commercial Report, 2017). There are at least five main problems in the development of corporate sukuk , namely tax uncertainty (regulation), lack of understanding, lack of competent HR (market participants), liquidity in the secondary market and lack of socialization. Another problem is the lack of literacy for corporate sukuk products compared to other Islamic financial instruments (OJK’s National Indonesian Financial Literacy Strategy, 2013). Therefore, government support is needed to encourage companies to issue sukuk at a lower cost, provide tax incentives, provide linkage with companies engaged in the halal sector, increase the number of sukuk issuances in the world, and compete with existing corporate sukuk in the world. The joint commitment of policy makers in supporting and encouraging efforts to develop financial instruments, especially corporate sukuk, as an alternative source of funding, is certainly needed. 204 Indonesia Islamic Economic Masterplan 2019-2024 This commitment can be realised, among others by encouraging companies to engage in the halal sector to issue corporate sukuk with incentives so that it can stimulate growth. The OJK now has set a lower registration fees for the issuance of corporate sukuk, but apparently, it is still not sufficient to increase the issuance of corporate sukuk in the market.
  213. Strengthening Islamic Finance 4 Another solution is the importance of socialisation of corporate sukuk not only to investors , but also to prospective sukuk issuers. Graph‎4.2.3 Development of Corporate Sukuk and Sovereign Sukuk Source: Ministry of Finance’s DJPPR, 2018 200 179.9 150 118.5 100 50 0 5.6 5 53 192.5 138.9 75.5 2013 2014 2015 2016 2017 Juni 2018 Volume Penerbitan (IDR triliun) Volume Penerbitan (IDR triliun) 250 4 3.9 3.2 3 2 1 0 2.2 1.6 0.9 2013 2014 2015 2016 2017 Juni 2018 Indonesia Islamic Economic Masterplan 2019-2024 205
  214. 5 .Islamic Mutual Funds Despite its slow growth, Islamic mutual funds Graph ‎4.2.4. shows an increasing trend. The legal basis for Development of Islamic Mutual Funds issuing Islamic mutual funds in Indonesia is the Law Source: OJK, 2018 of the Republic of Indonesia No.8 of 1995 on Capital Markets, which was firstly used in 1997 pioneered by PT Danareksa Investment Management (DIM) with the issuance of Danareksa Shariah. According to fatwa number 20/DSN-MUI/VI/2001, Islamic mutual funds are defined as mutual funds that operate according to Shariah provisions and principles, either in the form of contracts between investors and property owners (Shahib al-mal/rabb al-mal) with investment managers as representatives of Miliar Rp 40,000 35,000 217 20,000 15,000 10,000 5,000 0 200 182 30,000 25,000 9,432 93 74 50 11,019 2015 Jumlah Reksadana Syariah 150 100 14,914 11,158 2013 2014 33,361 28,312 136 65 Jumlah 250 2016 2017 2018 0 NAB Reksadana Syariah Shahib al-mal, or between Shahib al-mal investment managers with investment users. Mechanisms for issuance and mutual funds can be found in POJK Number 19/POJK.04/2015 on Issuance Requirements of Islamic Mutual. The constraints on developing Islamic mutual funds are largely influenced by the lack understanding of the community on Islamic investments. People are under the impression that investments through Based on the statistical data of Islamic mutual Islamic mutual funds are meant for Muslims only. funds from the OJK, the growth of Islamic mutual But now, in the digital era, people are aware of funds net asset value (NAV) reached 38.25 percent Islamic mutual funds as several market places (ytd) in August 2017 compared with the position in now offer Islamic mutual funds. Currently, mutual December 2016. In addition, the number of Islamic funds products are not only focused on commercial mutual fund products also recorded an increase from orientation as some asset management institutions 136 products in December 2016 to 160 products have also issued endowments or waqf. The Dompet as of August 2017. When compared to 2010, the Dhuafa Republika Foundation and PT BNI Asset number of Islamic mutual fund products was only Management collaborated in raising productive waqf 48 products, and the total NAV was IDR5.22 trillion. funds through investments in Islamic mutual funds. 206 Indonesia Islamic Economic Masterplan 2019-2024
  215. As one of the leading sectors in the Islamic finance opportunities and challenges are identified from the industry , the Islamic capital market has several point of view of regulation, capital, technology, and opportunities and challenges in the field. These research and development. Table 4.6 Islamic Capital Market’s Opportunities and Threats based on Ecosystem Oppurtunities Ecosystem (Regulation, Capital, Technology, Research & Development) Threats Strong infrastructure and legal framework The regulatory framework is strong and complex, that encourages the Islamic capital market but sometimes it is not fully enforced because of lack of sanctions for non-compliance, where some industry of the benefits of the regulation are lost. Government support for the Halal Value Chain industry through state sukuk instruments The integration of ASEAN with the MEA creates opportunities for Indonesia Islamic capital market industry players for expansion or cooperation in ASEAN. Financial technology (fintech) provides convenience for the Islamic capital market industry to conduct market penetration to all levels of society The government has not been optimal in seeking the potential for infrastructure development and facilities in the halal industry sector in each region of Indonesia which is the potential entry of capital markets in the financing sector through sukuk The pace of fintech’s development will be a threat to the Islamic capital market industry if it does not adapt to the pace of its current development in the 4.0 industrial revolution. The integration of ASEAN with the MEA - poses a threat to the Islamic capital market’s articles industry in Indonesia if the foundation and infrastructure of Islamic finance are not strongly built by shareholders and related stakeholders. The Islamic capital market has a Value Chain flow followed by markets and product distribution and starting from the process of raising funds to its commercialization. In the last stage, the value chain distribution. In general, the Islamic capital market is expected to provide benefits for the development Value Chain consists of Capital and HR as inputs, of the halal industry in Indonesia. Indonesia Islamic Economic Masterplan 2019-2024 207 Strengthening Islamic Finance 4 Challenges and Opportunities for Islamic Capital Market Development
  216. Figure 4 .2 Islamic Capital Market Value Chain RESEARCH & DEVELOPMENT Collection Distribution /Channel Processing AWARENESS 1. Waqf 2. Muzakki 3. Donors 1. Zakat 2. Waqf 3. Infaq & donations 4. social funds for other religion Social Sector: Social Humanity, Education, Health, Da'wah & Economy Benefits Real Sector: Halal Industry HUMAN RESOURCES REGULATION & GOVERNANCE The capital raised are from corporate institutions from competent human resources both in the and the government. These institutions can access technical foundation of capital market and Islamic the capital market through several instruments, finance. Furthermore, the products will be distributed for example Islamic stocks, sukuk, mutual funds, through other Islamic financial sectors such as Islamic Asset Backed Securities, DINFRA Shariah, Islamic banks, Islamic insurance, pension funds and and Shariah DIRE. This process requires support other Islamic finance industries. 208 Indonesia Islamic Economic Masterplan 2019-2024
  217. Table 4 .7 Islamic Capital Market Value Chain Capital Main Industry Supporting •• Corporate Strengthening Islamic Finance Value Chain •• Regulation •• Government Human Resource •• Shariah Economic Education Institution •• Research and Development Industry •• Capital Market Certification •• Association Market/Exchange •• Islamic Shares •• Sukuk •• Mutual funds •• EBA Shariah •• DINFRA Shariah •• DIRE Shariah Distribution & Commercialization •• Islamic Banks •• Islamic Insurance •• Fintech •• Islamic Pension funds •• Other financial industries Benefit •• Halal industry In terms of capital, at this moment the awareness as Islamic Investment Banks, Islamic BUMN Banks, to participate in the Islamic capital market is still and Investment Managers specifically operating in low. From the issuer’s perspective, the process of the Islamic capital market. issuing Islamic capital market instruments is more complicated because of additional legal documents. The opportunity cost of issuing sukuk, for example, is also greater than issuance of bonds. This must be resolved through studies and implementation of appropriate policies. From the market’s point of view, Indonesia has experienced growth. Currently there are several 4 Furthermore, in terms of product utilization, instruments in the Islamic capital market are in in line with national development goals. The state sukuk has now funded infrastructure projects ranging from highways to railroads. This potential needs to be utilized more by state-owned companies and the private sector so that they can receive alternative financing to meet the needs of the people. Islamic stock indices, including Indonesia Shariah Stock Index (ISSI), Jakarta Islamic Index (JII), and Jakarta Islamic Index 70 (JII70). However, the development of this market needs to be supported also by full fledged Islamic financial institutions such Indonesia Islamic Economic Masterplan 2019-2024 209
  218. Table 4 .8 SWOT Analysis of Indonesian Islamic Capital Market STRENGTHS WEAKNESSESS Capital •• There are several sukuk issuances which •• The awareness of companies to participate in experienced oversubscription, both sovereign sukuk the Islamic capital market is still low, thereby and corporate sukuk. reducing the realization of capital absorption. Market Players •• Educational Institutions and a growing Islamic Economic Institute that are able to provide reliable and professional human resources. •• Government support for corporate sukuk in relation to issuance registration fees and fiscal incentives is not yet optimal. •• Good amount of Human Resources. •• The majority of base market participants are still rational compared to Shariah loyalists. •• The public literacy of the Islamic capital market is still very low compared to other financial industries. Market/ Exchange •• Indonesia has an ISSI Index, JII and JII70 as performance parameters of Shariah shares. •• Lack of sound branding relating to Islamic Exchanges for all levels of society. •• There isn’t a full fledged Islamic custodian bank. Distribution Utilisation •• Integration of Islamic finance in the distribution and •• Less optimal use of technology in the commercialisation chain of Islamic capital market distribution of Islamic capital market products. products. •• Proceeds from the issuance of Islamic capital market instruments that are directly utilised in real sector projects. OPPORTUNITIES Capital •• The development of halal industry in Indonesia provides strength for the advancement of the Islamic capital market as a Islamic financial institution that provides a place for raising capital for companies or governments in the form of Islamic stocks or sukuk •• The absence of a tracing system from the proceeds of funds obtained from the sale of Islamic capital market instruments. THREATS •• The issuer’s perspective that the process of issuing Islamic capital market instruments is more complicated because of additional legal documents related to the contract. •• The opportunity cost for issuing Islamic bonds is lesser than sukuk issuance. •• Investment opportunities that are still widely open in Indonesia. Market Players •• Demographic bonuses from the millennials •• Failure to attract the interest of the majority and highly educated generation provide great of rational residents. If the direction does not opportunities for the growing Islamic capital market change in terms of increasing the range of industry in order to build a loyal, progressive and products to be more inclusive, making price financially strong customer base. structures more competitive, making service levels equal to conventional capital market •• Economic and ready-to-use/ disposable income service levels, and not focusing on socialisation that continues to grow – from the Indonesian and differentiation to support value-based population, most of whom are Muslims who propositions, the Islamic capital market practice their religious teachings, creating a natural industry will fail in attracting the interest of the attraction for Islamic capital market services and community it needs to support further growth. products. •• BUMN participation in the Islamic capital market is still low. 210 Indonesia Islamic Economic Masterplan 2019-2024
  219. Market / Exchange Distribution Utilisation •• There are many benchmarks for developing foreign •• There is no stock exchange initiative to conduct exchanges. screening and Shariah pronouncements on companies listed on the stock exchange. All this while the screening process was carried out at the initiative of the company itself. •• There are many Islamic financial institutions that are ready to support the capital market whether from the purchase and sale of instruments, the Islamic insurance industry, Islamic mutual funds and Islamic pension funds. •• The rapid development of the conventional capital market industry and supported by strong Islamic financial institutions in the process of distribution of funds. •• National economic development projects – Indonesia now has many projects, including infrastructure development, as part of the national economic development plan. Because the structure of Islamic financial instruments usually uses underlying assets, development projects and infrastructure are basically considered ideal by Islamic investors, both domestic and foreign. These projects are useful in issuing capital market instruments for domestic and global investors. Whether in the form of sukuk or other Islamic instruments. •• The similarity of the company’s treasury system to accommodate the proceeds of capital market instruments and the Islamic capital market so that it is difficult to track the real use of sukuk funds or Shariah compliant stocks. Indonesia Islamic Economic Masterplan 2019-2024 211 Strengthening Islamic Finance 4
  220. Islamic Capital Market Support towards the Halal Industry Sovereign Sukuk is one of the alternative forms has been issued by OJK in 2017 . Regional Sukuk can of financing for the development of halal industries be utilized by each of the leading regions to develop besides the banking sector. In this case, projects that halal industrial zones, which can become their are under the supervision of the central K / L and comparative advantage, for example halal tourism included in the APBN have the potential to be funded areas in West Nusa Tenggara. by sovereign sukuk. Nonetheless, until now there have been no specific halal industry development projects targeted by sovereign sukuk. Ministries related to halal industries, such as the Ministry of Industry and the Ministry of Tourism, have tremendous opportunity to showcase their projects as the government’s main program so that it can be financed by sukuk. Furthermore, the agricultural and marine sectors also have yet to utilize government sukuk to fund its infrastructure and facilities, even though both have important input roles in the halal food and beverage subsector. Some K / L that have received funding from sovereign sukuk are the Ministry of Religion, Ministry of Transportation, Ministry of PUPR, Ministry of Research and Technology, Indonesian Institute of Sciences (LIPI), and National Certification Body (BSN). Greater funding potential is also available for corporate sukuk and regional sukuk instruments. Unlike sovereign sukuk, both corporate and regional sukuk have broad financing potentials because they do not have to go through a submission process to the State Budget. Corporate sukuk currently only has a market share of around 5%, so there is still a lot of room for issuance that has not been fully utilized. Regional Sukuk has not yet been issued in Indonesia even though the regulatory framework 212 Indonesia Islamic Economic Masterplan 2019-2024 In addition to sukuk, other instruments in the Islamic capital market such as Islamic shares, and Islamic mutual funds can be used as alternatives for companies engaged in the halal industry that require additional funding from the public, as long as the company complies with the stipulated regulations and conditions. Unlike sukuk, the funds obtained from these two instruments do not directly affect the development of the halal industry, but participates in supporting the Islamic economy in Indonesia.
  221. No Programmes /Activities Year Output Stakeholders 2019 2020 2021 2022 2023 2024 Strategy I: Strengthening integration with financial insitutions and other institutions 1 Integrating financial technlogy a. Optimizing fintech’s role as market products agent b. Optimizing fintech’s role as online trading platform 2 Intergrating Halal Value Chain financing (sovereign sukuk sub-programme) a. Identification of halal industrial projects that can be prioritized in the RPJMN b. Identification of halal industrial projects that can be funded by the government through sovereign sukuk •• Increasing   fintech   products for Islamic capital   market •• Sovereign sukuk to finance projects in the Halal industry c. Issue sovereign sukuk with special proceeds on halal industrial projects 3 Integration with Halal Value Chain Financing (Corporate sukuk subprogramme)                                                                       b. Encouraging corporate issuers (BUMN and Private) to issue sukuk for the development of the halal industry             Integration with Educational Institutions   a. Identification of issuers who have core business in developing halal industries (BUMN and Private) 4 •• Corporate sukuk to finance projects in the halal industry   •• Issuance of social capital a. Conduct studies related to opportunities market for educational institutions and instruments Islamic boarding schools to increase (eg sukuk) for funding using Islamic capital market educational instruments institutions b. Advocacy of educational institutions and Islamic and boarding schools that require the boarding issuance of capital market instruments schools                         OJK, Islamic Banking industry, Fintech industry Bappenas, Ministry of Finance, OJK, Ministry of Industry Ministry of Finance, BUMN Ministry, OJK, Ministry of Industry, BUMN Ministry Higher education institutions and pesantren, Ministry of Religion, Ministry of Finance Indonesia Islamic Economic Masterplan 2019-2024 213 Strengthening Islamic Finance 4 Specific Strategies of the Islamic Capital Market
  222. 5 6 Integration of ZISWAF , Microfinance and Islamic Capital Markets * •• Product integration   a. Design model and feasibility study of integration of ZISWAF, Microfinance and Capital Markets             b. Policy compilation and integration model settings             c. Launch of ZISWAF integration instruments, Microfinance and Islamic Capital Markets             d. Promotion and socialization             Integration with Commercial Banks and Islamic Custodian Banks a. Issue a full fledged Islamic custodian bank operating license b. Provide special quota to Islamic banks as agents for selling sovereign sukuk •• There is an Islamic custodian bank and a portion of Islamic banks in the sale of state sukuk                           Coordinating Ministry for Economic Affairs, Ministry of Education & UKM, OJK, BI, Indonesia Stock Exchange, BAZNAZ, BWI MUI, Association OJK, Ministry of Finance, Islamic banking industry Strategy II: Diversification of products in the Islamic capital market 1 Waqf-linked sukuk** and sukuk-linked wakaf •• Issuance of   national sukuk waqf-linked   and sukuklinked waqf           c. Dissemination of sukuk-linked waqf schemes to corporations and BUMN as potential issuers             d. Issuing waqf sukuk as a pilot project             e. Conduct studies related to ratings for social fund-based sukuk instruments (sukuk-linked waqf)             a. Dissemination of sovereign sukuk waqf-linked schemes to philanthropic institutions that become nazir b. Issuance of waqf-linked sukuk by the government through the Ministry of Finance 2 Issuance of sukuk for microfinance with blockchain               b. Conducted a study on risk mitigation in the issuance of sukuk microfinance with blockchain             c. Issuance of sukuk microfinance with blockchain             a. Conducting studies related to the scheme and technical issue of sukuk issuance for microfinance with blockchain 214 •• Sukuk issuance for microfinance with blockchain Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Finance, Ministry of Tourism, Ministry of Industry, Islamic Banking Industry, BWI, OJK BI, OJK, Kemenkumham, Ministry of Communication and Information, SRO, Islamic Banking Industry, Fintech Industry
  223. Issuing blue sukuk       b. Identify projects that can be funded by blue sukuk     c. Issuance of blue sukuk     a. Conduct studies on schemes and technical issues of blue sukuk 4 Development of waqf mutual funds * •• Improved products and waqf mutual fund investors                                     b. Dissemination of waqf mutual fund schemes to asset management (AM) companies             c. Dissemination of waqf mutual fund schemes to higher education institutions             d. Dissemination of waqf mutual fund schemes to boarding schools             a. Conduct a study of the obstacles and problems of developing waqf mutual fund instruments 5 •• Issuing blue sukuk Ministry of Finance, OJK, BI   OJK, asset management industry, higher education institutions DSN-MUI, Higher Education Institution, OJK, Islamic Capital Market Industry Introducing the Sukuk Musharakah •• Launching Mutanaqisah (equity investment Sukuk partnership) for infrastructure development Musharakah Mutanaqisah a. The arrangement of Sukuk Musharakah Mutanaqisah scheme b. Socialization of the Musharakah Mutanaqisah Sukuk scheme Strategy III: Providing Incentives to Encourage the Halal Industry 1 Incentives for corporations issuing sukuk •• Incentives for the issuance of corporate sukuk               b. Conduct a study of the impact of incentives and potential sukuk issuance on the implementation of these incentives             c. Technical identification of incentives             d. Dissemination of incentive schemes             a. Identification of schemes and types of incentives in the form of taxes and nontaxes that can be given 4 Ministry of Finance, Islamic Capital Market Industry Indonesia Islamic Economic Masterplan 2019-2024 215 Strengthening Islamic Finance 3
  224. 2 Pemberian insentif bagi Pemda yang menerbitkan sukuk                           c. Technical identification of incentives             d. Dissemination of incentive schemes with priority to leading regions in Islamic finance             a. Identification of schemes and types of incentives that can be given in the form of taxes and non-taxes b. Conduct a study of the impact of incentives and potential sukuk issuance on the implementation of these incentives 3 •• Regional Government sukuk issuance incentives Implementation Laws and Regulations In The Framework To Promote Regional Sukuk Issuance ** a. Coordination between regulators to identify draft Draft Laws and implementing regulations b. The period of submission and discussion of the draft bill to the DPR •• Issuance of Regional Government sukuk Ministry of Home Affairs, Ministry of Finance, Regional Government, Kemenkumham, Islamic Capital Market Industry The Ministry of Finance, the Ministry of Home Affairs, the Regional Government that is Halal Hub, Kemenkumham, OJK •• Existing Laws and Regulations In The Framework to Encourage Regional Sukuk Issuance c. Legal confirmation 4 OJK Provision of greenlane / fast track Issuance •• There is a of Corporate Sukuk ** greenlane for bureaucracy a. Establishment of a special division for of corporate the bureaucracy of corporate sukuk sukuk (greenlane) issuance issuance b. Greenlane sukuk corporation trial c. Full implementation of greenlane Corporate Sukuk Strategy IV: Value Enhancement to the Islamic capital market 1 Strengthening through the role of religious leaders a. Incorporate Islamic capital market content in the Friday sermon book b. Incorporating Islamic capital market content in the Talim Council’s book 2 Strengthening through media a. Cooperation with media influencer b. Increase infographics related to the concept and technical investment in the Islamic capital market c. Increase advertisements regarding the Islamic capital market through easily accessible media such as MacroAds on KRL 216 Indonesia Islamic Economic Masterplan 2019-2024 •• Content of the Islamic capital market in community religious activities                           •• Content of the   Islamic capital   market in popular media                                   OJK, Ministry of Religion, MUI, Religious Organizations OJK, Halal Media Industry, Ministry of Communication and Information
  225. 1 Encourage short-term Islamic Sukuk and Securities (3 months) by the Government / BI a. Short-term sukuk structural review by government / BI •• Islamic Shares or short term Islamic Securities issuance Bank Indonesia, Ministry of Finance, OJK, Islamic Banking Industry •• Increasing the market share of corporate sukuk to the sukuk market and the national securities market Ministry of BUMN, OJK, Ministry of Finance b. Short-term sukuk issuance by government / BI c. Harmonization of short-term sukuk instruments with other Islamic financial products 2 Enlarge the portion of corporate sukuk (including by BUMN) a. Identification of problems faced by issuers of corporate sukuk (including BUMN) b. New policy formulation c. Policy implementation 3 Encourage short-term securitization of Islamic finance •• There are short-term Islamic a. Identification of short-term Islamic financing financing securitization schemes securitization b. Issuance of short-term Islamic financing products securitization Bank Indonesia, OJK, Indonesia Stock Exchange, DSN-MUI, Islamic Banking Industry c. Harmonization of securitization instruments with other similar products 4 Encourage the availability of credit enhancement for Sukuk issuance (including guarantee of investment for infrastructure based on shariah) a. Identification of needs and availability of credit enhacers in the sukuk market, including investment guarantees •• Increase the availability of credit enhancement for sukuk issuance Bank Indonesia, OJK, Islamic Banking Industry, Islamic Capital Market Industry b. Improve the capabilities of existing credit enhancers c. Add a base for credit enhancer institutions to enter the sukuk market Indonesia Islamic Economic Masterplan 2019-2024 217 4 Strengthening Islamic Finance Strategy V: Deepening Financial Market
  226. 5 The structuring of sukuk or other securities •• There are models is tradable for financing the halal models of industry and other real sectors sukuk or other securities for a. Identification of sukuk or other financing the securities that have the potential halal industry to finance the real sector, and have and other real tradable characteristics sectors b. Model implementation OJK, Ministry of Industry, Ministry of Tourism, Ministry of Finance, Islamic Capital Market Industry, DSNMUI c. Harmonization with other similar instruments 6 Encourage the conversion of management •• Establishment assets to shariah of a fullfledged a. Identify barriers to conversion to asset Islamic asset management institutions institution b. Compilation of strategies to encourage conversions according to market needs Asset management industry, OJK, DSN-MUI 7 Compilation of Sukuk Accounting Standardization IAI Indonesia, DSN-MUI, OJK, Sukuk Industry a. Audience to sukuk industry stakeholders b. Improve existing standards and add new standards as needed 218 Indonesia Islamic Economic Masterplan 2019-2024 •• Sukuk Accounting Standards
  227. 1 .Issuance of SBSN Waqf – Linked Sukuk At this moment, waqf-linked sukuk has a framework for issuance based on the initiative of the Indonesian Waqf Agency and the Ministry of Finance. The Indonesian Waqf Agency (BWI) as the coordinator has the role to collect temporary waqf funds from philanthropic institutions across opportunities for regions that wishes to develop their halal industries (eg halal tourism areas) or supporting infrastructure (eg airports, ports and toll roads). 3.Greenlane/Fast Track Corporate Sukuk issuance Indonesia. BWI then requested the issuance of Licensing bureaucracy for corporate sukuk sovereign sukuk through a special placement issuance is currently integrated with corporate (private placement) to the Ministry of Finance after bonds. This process mandatorily require sukuk the funds collected reach the minimum limit of sukuk issuers to follow the issuance line together with issuance. Before being issued, BWI and the Ministry corporate bonds and other corporate sukuk issuers. of Finance agreed on the returns and other matters Under these conditions, it is necessary to involve the relating to the issuance of sovereign sukuk. Post- OJK’s technical department to provide a dedicated issuance, periodic returns will be submitted directly greenlane or fast track only for corporate sukuk to BWI to be distributed to maukuf alaih through issuers. The existence of greenlane or the separation philanthropic institutions. All temporary waqf funds of special counters for corporate sukuk bureaucracy collected at the beginning of the issuance will be is one of the administrative incentives that can be returned to the wakif when the sukuk is due. This implemented in the short term to encourage the concept is expected to be realized in the short term issuance of sukuk. so that there will be aninitial issuance of waqf-linked in the short term. 2.Availability of Laws and Regulations in the Framework to Encourage Regional Sukuk Issuance The rules regarding Regional Sukuk have now been issued through OJK Regulation (POJK) in 2017, namely POJK 61 / POJK.04 / 2017, POJK 62 / POJK.04 / 2017, and POJK 63 / POJK.04 / 2017. Nevertheless, the POJK needs to be supported by a stronger legal framework from the government, such as the drafting of the Law (UU) and the Regulation of the Implementation of Regional Sukuk issuance. This legal framework can play a role in providing Indonesia Islamic Economic Masterplan 2019-2024 219 Strengthening Islamic Finance 4 Quick Wins for Islamic Capital Markets
  228. Social Security Security as defined by the International Social Security Association (ISSA) is a social protection program that is endorsed through a legislative process, or other mandatory regulations, which provides individuals with a degree of income security when dealing with contingencies such as old age, survivorship, incapacity, disability, unemployment or rearing children. In other words, social security is defined in Law No. 40 of 2004 on Social Security as a form of social protection to guarantee all citizens their basic needs for a decent life. In the ISSA definition, social security can include social insurance programs (social security), social assistance programs, universal programs, mutual benefit schemes, national provident funds, and other forms adapted to the developments in each country. The development of social security in other countries in the world can be seen from 3 aspects namely, comprehensive social security coverage, programs with social and economic impact, and effective and efficient administration management. In Europe, these 3 matters further develops as a response to the external environment from the increasing public pressure. Increased public pressure derives from the aging demographic, an increase in chronic diseases, and the influence of the 2008/2009 financial and economic crisis. In Indonesia, social security is defined in Law No. 40 of 2004 concerning Social Security as a form of social protection to guarantee people fulfilment of their basic needs for a decent life. In the context of a just and prosperous Indonesian society, access to social security is the right of every citizen. Under the same law, social security programs in Indonesia includes health insurance, work accident insurance, old age insurance, pension benefits, and life insurance. Indonesia Islamic Economic Masterplan 2019-2024 221
  229. Global and National Condition Despite significant advances in the practices or by the private sector . Social security by the of social protection in the world, reports from the government is carried out through institutions 2017-19 World Social Protection Report released such as the Health Social Security Organising by the International Labor Organization (ILO) state Agency (BPJS) and Employment Social Insurance that currently the majority of the world’s population Administration Organisation (BPJS Employment). Up still do not have adequate social security protection. until June 2018, the Employment Social Insurance According to the release, social protection only Adminsitration Organisation had managed workers’ covers 45% of the global population. The remaining funds as much as IDR327 trillion. Private companies 55% or around 4 billion people are still recorded as have also provided social insurance services through having no access to social security products. In 138 insurance institutions and 232 pension fund addition, only 29% of the global population receives institutions (OJK, 2018). The insurance sector’s total full social security coverage. While the other 71% assets as of August 2018 were as much as IDR676.15 only receives partial coverage or do not even receive trillion or around 31.7% of Indonesia’s GDP in the third coverage at all. quarter. The insurance assets consists of general Social security in many Muslim countries, especially developed countries, is comprehensive, massive, and integrated. The practice covers all segments ranging from the upper group to the insurance, life insurance and reinsurance assets. On the other hand, the total assets of the pension fund sector have also reached IDR 236 trillion or around 7.16% of Indonesia’s GDP. lowest group with effective programs and reflects Apart from that, one of the rapid developments in the process of wealth distribution by minimizing the implementation of social security in Indonesia is the occurrence of moral hazard. One of them is related to the development of the participation of the supported by the existence of infrastructure in Indonesia National Health Insurance Card (JKN-KIS) the form of social security numbers. On the one which have reached around 201 million Indonesian hand, this is also used as a tool to mobilize state people as of August 2018. Until November 23, 2018, revenues for taxpayers and on the other hand as a there were 206,070. 624 Indonesian citizens are means of channeling social insurance programs. Through this mechanism, budget management and program effectiveness will be obtained and is easier to monitor via a comprehensive system in terms of Graph ‎4.3.1 JKN Total Participants as at 1 November 2018 Source: BPJS, 2018 supervision and evaluation. Another development that needs to be considered is the paradigm shift on 100 social rewards and punishments. Hence, the scope 80 limits on quality of life standards (health, education, housing, and welfare of the elderly), and (iii ) income redistribution and equity. The management of social security in Indonesia has been carried out effectively by the government 222 Indonesia Islamic Economic Masterplan 2019-2024 (Volume Juta) of social security becomes broader to include (i) certainty of obtaining decent incomes, (ii) managing 92,3 60 40 31,6 28,4 30,4 17,1 20 5,1 0 PBI APBN PBI APBD PPU - PN PPU - BU PPU - BU PEPU Pekerja Mandiri
  230. registered as JKN-KIS participants . This figure is the principles. In contrast to the development of the foundation for achieving universal coverage in 2019. insurance sector, the new Islamic pension fund sector In addition to social security organized by the government, there are also private companies offering social security programs, including those that offer began to develop in 2016 through the establishment of the Bank Muamalat Financial Institution Pension Fund (DPLK). Shariah-based social security products. Shariah- The development of Islamic insurance in based social security formally operates in the form Indonesia in the past five years shows an increasing of Islamic insurance schemes and Shariah-based trend in terms of assets despite a growth slowdown. pension funds. Islamic insurance itself has been Data reported by the OJK in the Shariah IKNB developing since 1994 through the establishment Statistics show that until August 2018, Islamic of PT Syarikat Takaful Indonesia by the Formation insurance’,total assets are at IDR 41.68 trillion with Team of Takaful Indonesia Insurance (TEPATI). details of IDR 34.35 trillion in general insurance, IDR Nevertheless, regulations specifically regulating 5.48 trillion in life insurance, and IDR 1.85 trillion in insurance business with new Shariah principles were reinsurance. The slowdown in growth itself began in formalized 16 years later through PMK Number 18 / 2017 with asset growth of 21.89% from the previous PMK.010 / 2010 concerning the Implementation of year. This figure is lower than the growth in 2016 that Basic Principles for the Implementation of Insurance was recorded at 25.36%. Businesses and Reinsurance Businesses with Shariah Principles. This Regulation by the Minister of Finance was issued to fulfill Shariah principles and legal certainty in the implementation of insurance business and reinsurance business with Shariah Graph ‎4.3.2 JKN’s Total Health Facilities Source: BPJS Kesehatan, 2018 9.909 5.292 In line with the growth in Islamic insurance assets, the sector’s contribution to G is constantly increasing from 2014 to 2018. In 2014 to 2017, Islamic insurance contributions were still below 1%, but that figure increased in 2018 which surpassed 1.13%. These contributions are still relatively small when compared to conventional industrial contributions. As a result, the Islamic insurance sector still has an enormous potential to grow and develop further. Identification on the challenges and opportunities must be done in order to accelerate growth and increase its contribution to Indonesia’s 6.466 GDP. 1219 24 2.218 238 653 1.086 0 2000 4000 6000 8000 10000 Indonesia Islamic Economic Masterplan 2019-2024 223 Strengthening Islamic Finance 4
  231. The pension fund sector , on the other hand, only began to develop in 2017 through the emergence of the Bank Muamalat Financial Institution Pension Fund (DPLK). The initial assets held by the Shariah DPLK at the beginning of its establishment were recorded at IDR 75.55 trillion and increased to IDR 79.88 trillion as of August 2018. Nevertheless, stagnation still occurs in terms of the number of Shariah-based pension fund industry players in Indonesia. The small amount of assets are directly proportional to the weak contribution of the Shariah DPLK to Indonesia’s GDP. The contribution of this sector in 2017 only reached 0.01% and increased to 0.08% in August 2018. This figure is still considered to be small, compared to the conventional industry and other sectors in the Indonesian Islamic finance industry. The market share of the Islamic insurance sector compared with the conventional insurance sector for the period of 2014 to 2018 has always been consistently above 5%. The slowdown in growth had occurred in 2015 with growth of 5.13%, down 44 bps from the previous year. Furthermore, in 2018, the market share increased to 6.16% and was considered as the highest market share since the emergence of Islamic Insurance. On the other hand, the market share of the Islamic pension fund sector towards the grow through identification of problem factors and optimisation of sector development opportunities. conventional pension fund sector is still far below Based on the 2014-2018 Shariah Financial other sectors at 1.16% as of August 2018. Even so, Architecture Master Plan (Bappenas RI), generally this is an increasefrom the previous year which only Graph ‎4.3.3 reached 0.5%. This figure also has the potential to Islamic Insurance Asset Data Source: Financial Services Authority & Central Bureau of Statistics, 2018 1,00% 0,80% 0,60% 0,40% 0,20% 0,00% 224 0,21% 2014 0,23% 2015 0,27% 2016 Indonesia Islamic Economic Masterplan 2019-2024 0,30% 2017 2018 45 40 35 30 25 25% 22,37 26,52 19% 33,24 40,52 41,68 25% 22% 20% 15% 20 10% 15 10 5 - 30% 3% Jumlah Aset Total Assest 5% 0% Pertumbuhan Growth Pertumbuhan (%) Kontribusi (%) Kontribution (%) Total JumlAssets ah Aset (Trillion (Rp TriliuRp) n) 1,13% 1,20%
  232. Strengthening Islamic Finance 4 the challenge and recommendation of takaful counterparts . The recommendation offered is to operators and Islamic pension funds is that they are offer officers with the option to choose takaful not provided with the opportunity to be included in protection and Islamic pension schemes. the government insurance and pension portfolios offered as benefits to civil servants, thereby creating an unfair competition with its conventional Graph ‎4.3.4 DLPK Shariah Asset Data Source: Financial Services Authority & Central Bureau of Statistics, 2018 Kontribution Kontribusi(%) (%) 0,100% Indonesia (2017 - 2018) 0,083% 0,080% 0,060% 0,040% 0,020% 0,000% 0,010% Jumlah Aset DPLK Syariah Jumla h Aset(Trillion (Rp triliRp) un) Total Assets Kontribusi Aset DPLK Syariah terhadap PDB 3,50 2,50 2,00 1,50 2018 1,30 1,00 0,50 - 2017 3,07 3,00 2017 2018 Indonesia Islamic Economic Masterplan 2019-2024 225
  233. Total J u m lAssets a h A s e (Trillion t ( Rp TRp) r iliu n ) Graph 4.3.5 Third, Mispricing and mismanagement. BPJS Insurance Asset Data in Indonesia Health deficit still occurs due to the mismatch Source: Insurance Statistics and Financial Services Authority, 2018 between income, participant contributions and the 800 700 600 500 400 7% 701,10 5,28% 516,85 5,13% 401,18 594,84 5,59% 5,78% 676,15 6,16% 3% 2% 200 - 22,37 26,52 2014 2015 Conventional Konvensional 33,24 2016 Syariah Syariah 40,52 2017 41,68 deficit could be attributed to the management of BPJS Health. 5% 4% 300 100 6% number of benefit claims. One of the causes of the 1% 0% 2018 Market Pasar Share Pangsa (Insurance data included is life insurance, general insurance, and reinsurance. Excludes mandatory insurance and social insurance) The existing condition of the social security cluster was identified as facing the following challenges: First, the current social security program is partial, Fourth, mispricing causing moral hazard and resulting in insurance effect. Cases of hospitals not accepting BPJS Health patients proves that not all can afford hospital services. There are also issues of costs or services not covered by BPJS Health. This incident provides an opportunity for moral hazard. Fifth, top down approach. The government possesses a strong hold in determining what programs must the citizens follow in order to have social security. In the case of the SJSN Law, the government desires to provide universal social security. However, there are no public awareness on the importance of social security in dealing with the uncertainties in the future. This cause loss not integrated within any programs and institutions. to recipients, when after becoming a member of Realistically, Law No. 40 of 2004 concerning the BPJS and they experience illness or problems with National Social Security System (SJSN) was payments, it will contribute to the BPJS’ deficit. prepared to synchronize the implementation of various forms of social security in order to reach a wider membership and to provide greater benefits for its participants. Second, literacy issues. Social security in Indonesia is dominated by state institutions. This is because of weak literacy and low awareness on insurance. In fact, the government targets the financial literacy rate in Indonesia to reach 75% by Grafik ‎4.3.6 2019. Based on the records of the (OJK per 2017, the Total Pension Fund Asset Comparison in Indonesia (2014-2018)) insurance literacy index in Indonesia has only reached 15.76%. This figure dropped from the 2013 survey at not differ far from the 2013 survey at 11.81%. This means that from 100 people in Indonesia, only 15 to 16 people are aware about insurance. While only 12 people have used or are using insurance. Total JumAssets lah Ase(Trillion t (Rp TRp) riliun) 17.84%. While the utility level reached 12.08%, it did Source : Financial Services Authority 2018 300,00 250,00 263,60 260,96 1,16% 200,00 150,00 100,00 50,00 - Indonesia Islamic Economic Masterplan 2019-2024 1,20% 1,00% 0,80% 0,60% 0,40% 0,50% 3,07 1,30 2017 Conventional Konvensional 226 1,40% Syariah Syariah 2018 0,20% 0,00% MarketPasar Share Pangsa
  234. The concepts and practices of Shariah-based simple analysis . The opportunities and challenges of social security in Indonesia have long been the social security cluster in Indonesia are identified developing. Therefore, it is necessary to conduct a as follows: Table 4.9 Social Security Value Chain No. 1. Issues Literacy Opportunities Threats •• Development of the Muslim Middle Class (MCM) in Indonesia •• The Shariah Insurance Literacy Index for 2017 is 2.5% and the inclusion index is 1.9% •• Indonesia has a majority Muslim population in the world •• Extensive geographical distribution with varying levels of knowledge regarding the concept of insurance and shariah 2. Human resource •• From the perspective of policy •• Lack of management commitment to develop makers, the government has made Islamic insurance (Global Takaful Report, 2017) a SJSN roadmap, but the growth of insurance institutions and pension funds has not made many innovations 3. Technology •• Integration of payment of insurance contributions with the marketplace •• The initial cost for technology investment is high •• Marketing through efficient media Regulation 4. •• Institutional infrastructure received attention from the government to supplement the SJSN Law •• There is no regulatory obligation for national social security institutions to develop Islamic schemes in their products •• Regulatory efforts •• Low political support for the development of Islamic insurance, compared to Malaysia. (Global Takaful Report, 2017) •• The development of a strong and harmonious set of rules among institutions •• Support through the Financial Services Authority Regulation on Shariah-based Islamic Insurance and Pension Funds Indonesia Islamic Economic Masterplan 2019-2024 227 Strengthening Islamic Finance 4 Development Challenges and Opportunities
  235. Table 4 .10 Social Security Value Chain Value Chain Main Provider Supporting Human Resource 1. Higher Education Institutions 1. Research and development facility Service Provider Institution 1. Health BPJS 1. Regulation 2. Employment BPJS 3. Islamic insurance 4. Pension fund Market 1. Health BPJS 1. Technology 2. Employment BPJS 2. Literacy 3. Islamic Insurance 4. Pension fund Distribution and Commercialization 1. Import-Export Insurance Products 8. Regulation 2. Travel Insurance Products 1. Technology 3. Health Insurance Products 2. Human resource 4. Work Accident Products 3. Literacy 5. Old Age Guarantee Products 6. Pension Guarantee Products 7. Death Assurance Products Utilization 1. Halal industry 1. Literacy In practice, social security Value Chain can is then developed for product distribution and be described in the form of providing human commercialization so that it can be enjoyed by the resources services, social security participants. Furthermore, this flow is product distribution, product commercialization, expected to be beneficial for the development of the and industrial use. From the product side, social halal industry as a whole. and institutions providing security in Indonesia can be given to working and not working individuals. Protection offered are based on Law No. 40 of 2004 concerning the National Social Security System (SJSN) such as health insurance, work accident insurance, old age insurance, pension insurance, and life insurance. According to Government Regulation Number 44 of 2015 concerning the Implementation of Work Accident and Death Insurance Programs. Value Chain flow in the Shariah-based social security industry are illustrated in the figure below. HR and institutions providing social security services together forms an input for the market. The market 228 Indonesia Islamic Economic Masterplan 2019-2024 In terms of human resources, Shariah-based social security has considerable room to improve when looking at the growing trend in the number of Shariah-based Islamic insurance and tertiary institutions currently in existence. However, HR is needed to specialize in the fields of Shariah-based social security. This HR is expected to be able to act as an innovator of social security products that are in compliance with Islamic principles.
  236. Figure 4 .3 HUMAN RESOURCES Institutions Distribution & Commercialization Market LITERACY 1. BPJS-K & BPJS-TK 2. Islamic insurance 3. Pension Funds Human Resources 1. Society 2. Experts 3. Policy Maker 1. Universal coverage 2. Increase market share 3. Reducing risks Utilization Halal Industry TECHNOLOGY REGULATION From provider In the process of product utilization, the Islamic institutions and market players, government-owned insurance sector has the support of the government companies have advantages over the private through the development of the halal industry. sector. These advantages are accepted in the form The industry in the future requires Shariah-based of guaranteed customers, where BPJS Health and insurance services that can only be offered by BPJS Employment operate under the Law which Islamic insurance companies. Furthermore, both obliges people to participate in both institutions. BPJS Health and BPJS Employment are currently in Nevertheless, there are operational obstacles in its the process of developing Shariah-based products implementation such as the existence of a budget to be able to meet the needs of Muslim communities deficit and managerial conflicts within the institution. in Indonesia. The the viewpoint distribution and of service commercialization 4 Strengthening Islamic Finance Social Security Value Chain of products are hampered by community illiteracy related to the concept of social security, insurance, and the pension fund itself. In addition, Indonesia’s geographical conditions are also a major inhibiting factor in the distribution of services. Indonesia Islamic Economic Masterplan 2019-2024 229
  237. Table 4 .11 Social Security SWOT Analysis STRENGTHS Human Resource 1. Growth in the number of Islamic insurance institutions WEAKNESSES 1. Limited human resources with knowledge in a Shariabased social security system 2. Growth in the number of universities that teaches the concept of Shariahbased social security as future industrial input Service Provider Institution 1. The growth potential of Islamic insurance and pension funds is very large due to low penetration 1. The market share of Islamic insurance and Shariahbased pension funds is low BPJS Health BPJS Health 2. Islamic insurance is more developed in the form of a Shariah Business Unit 2. The need to separate the spin-off unit in the 10-year period becomes more 3. The absence of Islamic insurance providers and than 50% from all insurance (Global pension funds from state-owned enterprises Takaful Report 2017) 4. The absence of Islamic schemes in BPJS Health products and BPJS Employment as mandatory social security institutions Market 1. Required through government 1. BPJS Deficit; affect health facilities by reducing costs regulations. If someone participates 2. The uneven distribution of health facilities and health in private insurance, then the human resources participant is also required to register BPJS Employment for BPJS Health 1. The protection of Indonesian Workers (TKI) is not in BPJS Employment accordance with the mandate of the SJSN Law 1. Compulsory; rights for all workers; 2. There is an injustice in imposing sanctions on through the SJSN Law employers who are in arrears with penalties for employers who do not register their employees as BPJS-TK participants. BPJS Health Distribution and Commercialization 1. Fees are still low 2. The registration process is easy; without medical check-ups and no exceptions 3. Add benefits compared to when becoming health insurance BPJS Employment 1. There are 4 guarantee schemes for employment according to labor requirements 2. 2017 financial performance exceeds the target BPJS Health 1. Still too bureaucratic; a tiered method in submitting claims that have not yet reduced becomes an obstacle 2. There are still too many queues in the service 3. The facilities provided are not up to standard facilities, but tend to be given class III facilities; class differentiation 4. Patients still have to spend their own money, especially in purchasing drugs 5. The BPJS policy that makes the Population Identification Number (NIK) a necessity is an obstacle to expanding participants BPJS Employment 1. Regulations regarding the necessity of NIK is an obstacle to expand coverage 230 Indonesia Islamic Economic Masterplan 2019-2024
  238. Utilization 1 . Government support to develop halal 1. Capacity of Islamic insurance companies in Indonesia industries as consumers of Islamic in providing products according to the needs of the insurance products and pension halal industry funds OPPORTUNITIES THREAT Human Resource 1. Demographic bonuses that tend to 1. A more well-established conventional social security be projected as assets rather than industry more likely to attract workers expenses, because of the dominance of the young working class Service Provider Institution 1. The principle of the public sector should emphasize mutual benefits rather than merely seeking profit, thus encouraging Islamic insurance to make a wider contribution that can help to improve the government’s performance in the provision of social security Market BPJS Health 1. Investment funds are projected to reach IDR 2,000 Trillion by 2030 1. Increased Universal Coverage Distribution and through guarantees starting from Commercialization birth; Changes in regulation PP 101/2012 become PP 76/2015 where babies automatically included in BPJS. Utilization BPJS Employment 1. Potential conflicts of interest of the Supervisory Board in supervising the BPJS-TK Board of Directors 2. Regulations that emerge from the spirit of “as much as possible for the benefit of participants”; regulatory inconsistencies 3. Weak commitment from states 4. Multiple interpretations of regulations 1. Return rates are lower than conventional insurance products (Global Takaful Report, 2017) 1. Changes in epidemiological patterns of disease (from infectious diseases to non-communicable diseases; Rp. 13.6 trillion in 2015 were spent on catastrophic diseases (heart, kidney failure, cancer, stroke, and thalassemia). 2. The challenges of product distribution given the geographical distribution in Indonesia is very broad (Global Takaful Report, 2017) 1. 1. The existence of a conventional 1. Potential for irregularities (eg capitation funds); insurance industry collaboration based on the review of the Corruption Eradication program with the tourism sector, Commission where this program has the potential to be implemented also in the Islamic industry Indonesia Islamic Economic Masterplan 2019-2024 231 Strengthening Islamic Finance 4
  239. Social Security Support for the Halal Industry The development of the halal industry that days . The premiums offered also vary in the range continues to increase and slowly become part of of IDR 10,000 to IDR 100,000 according to the the lifestyle of Muslim communities is a potential duration. Product consortium and synergy needs to captive market that can be supported by social be immediately initiated between the halal industry security institutions. In general, the support that can and Islamic insurance considering the potential of be provided by social security is the protection of halal tourism in Indonesia is also large. Even so, labor, products, and business processes that exists currently several halal tourism agencies have now in the halal industry chain network. begun to integrate Islamic travel insurance and Protection of worker’s safety can be done by government institutions, Employment BPJS, as well as private institutions namely Islamic insurance Islamic incident personal products in their services. However, the movement is still sporadic and not yet integrated. and Islamic pension funds. In addition to these In the context of business processes, social institutions, protection for health-related workers security institutions can support the halal industry can also be supported by BPJS Health. through national and international trade insurance. In terms of products, the halal industry that needs social security services is the halal tourism sector. From the general tourism sector, in September 2018 the OJK, the Ministry of Tourism, and eight conventional insurance companies organized a consortium and launched a universal tourism protection product called “Jaga Wisata.” The product was specifically designed to offer protection for This concept has not been widely studied and implemented. However, in practice, a trade insurance scheme needs to be immediately drawn up in the implementation plan. These products in the long term are needed to meet the business needs of the halal industry sub-sectors such as Muslim fashion, halal food and beverages, pharmaceuticals, and halal cosmetics. tourists with a protection period of 3 days to 30 Table 4.12 Social Security Supporting Institutions towards Halal Industry Social Security Institution Islamic Insurance Islamic Pension Funds Form of Strategic Support •• Islamic insurance schemes to support export and import activities of halal food, halal fashion as well as halal pharmaceuticals and cosmetics. •• Development of Islamic insurance schemes for commercial tourism •• Development of Islamic insurance schemes for Hajj and Umrah BPJS-Health •• Protection of the halal industry workforce •• Development of options for payment of contributions to Islamic banks BPJS-Employment •• Protection of the halal industry workforce •• Development of options for payment of contributions to Islamic banks 232 Indonesia Islamic Economic Masterplan 2019-2024
  240. 4 No Programmes /Activities Output Year 2019 2020 2021 2022 2023 2024 Strengthening Islamic Finance Speficic Strategies for Social Security Stakeholders Strategy I: Synergy with Financial Institutions, Educational Institutions, and Regulators 1 Integration of Islamic Financial •• Increased role Industry with Social Security of Islamic banks Institutions in state-owned social security a. Add integration of payment institutions systems for BPJS Health participants and BPJS Employment through Islamic banks Improvement of Islamic DPLK products a. Educating Islamic financial institutions to provide Islamic DPLK products     OJK, BPJS-K, BPJS-TK, Islamic Banking Industry           OJK, Islamic Banking Industry •• Improvements of Islamic DPLK products b. Encouraging an increase in the existing Islamic DPLK 2 3 Linkage of halal financing Value Chain through the Mudharabah Muqayyadah platform •• Synergy with mudharabah muqayyadah scheme   OJK, Islamic Insurance Industry, Islamic Banking Industry a. Conducted studies on the role of social security institutions in mudharabah muqayyadah schemes             b. Study implementation             Increasing Literacy Program •• Increasing   literacy in Islamic   social security           b. Conductin “goes to pesantren” activity             c. Conducting “goes to society” activity                         a. Conducting “goes to campus” activity Higher Education Institutions, Islamic Boarding Schools, Community Organizations d. Conducting “goes to corporate” activity e. Include the context of Islamic social security in Friday sermons and Majelis Ta’lim Indonesia Islamic Economic Masterplan 2019-2024 233
  241. No 4 Programmes /Activities Integration among regulators a. Review spin-offs, conversions, or the formation of new BUMNs in the Islamic insurance sector Output •• BUMN Islamic insurance sector b. Reviewing social security regulations both at the central and regional levels Year Stakeholders 2019 2020 2021 2022 2023 2024                           BUMN Ministry, OJK, Islamic Insurance Industry Strategy II: Developing Islamic Insurance for the Community at large 1 2 Optimizing the use of Islamic micro insurance for MSMEs •• Increasing Islamic microinsurance a. Educating Islamic insurance products companies to develop Islamic microinsurance programs               b. Develop governance related to Islamic micro insurance for MSMEs             Optimizing the use of Islamic insurance for halal industry businesses •• Increased use of   Islamic insurance for the halal industry             b. Promotion on the urgency of using Islamic insurance in the development of the halal industry             c. The identification of specific Islamic insurance schemes is used for the halal industry sub-sector             a. Identifying potential halal industry sub-sectors to collaborate with Islamic insurance (except halal tourism) d. Increasing Islamic insurance companies that have halal industry insurance products 234 Indonesia Islamic Economic Masterplan 2019-2024 OJK, Ministry of Finance, Ministry of Cooperatives and MSMEs, Islamic Insurance Industry OJK, Halal industry entrepreneurs
  242. 3 Programmes /Activities Optimizing the use of Islamic insurance for halal tourism a. Conduct market research and mapping providers of halal tourism services in Indonesia 4 Output Year 2019 2020 2021 2022 2023 2024 •• Increased use of   Islamic insurance for the halal   tourism sector           b. Identification of the ideal Islamic insurance scheme for the Islamic travel industry             c. The consortium and the implementation of the ideal Islamic insurance scheme for the halal tourism industry             Development of communitybased business models for Islamic insurance •• There is an Islamic insurance business model with community a. Identification of communitybased based Islamic insurance business models 4 Stakeholders OJK, Ministry of Tourism, Ministry of Religion, Ministry of Health, Islamic Insurance Industry OJK, DSN-MUI, Islamic insurance industry b. Presentation and discussion of business model designs to stakeholders c. Implementation of community-based business models 5 Extensification of Islamicbased products to BPJS Employment ** •• Islamic-based products in BPJS Employment DJSN, BPJS Employment, DSN-MUI a. Audience of government social security stakeholders b. Preparation of Islamicbased product schemes in BPJS Employment c. Product implementation Indonesia Islamic Economic Masterplan 2019-2024 235 Strengthening Islamic Finance No
  243. No Programmes /Activities Output Year Stakeholders 2019 2020 2021 2022 2023 2024 Strategy III: Product Diversification and Deepening Islamic Social Security Market 1 Risk-based screening for Islamic investments for BPJS, Islamic insurance, and sharia pension funds 3 OJK, Ministry of Finance, Islamic Banking Industry           b. Implementation of the results of research studies on the method of screening investment portfolios             Making low-risk structured •• Low-risk products as Islamic investment structured instruments for BPJS, Islamic products insurance, and Islamic pension as Islamic funds investment instruments a. Research on the need for a new risk investment instrument that is low in risk               b. Study of the preparation of a low risk Islamic investment instrument scheme             c. Study implementation             Assist the development of the •• Development of Islamic Pension Fund business an existing Sharia model Pension Fund business model a. Market analysis of the Islamic Pension Fund business model that is already underway b. Development of a Islamic Pension Fund business model from which it has been running or the establishment of a new business model 236     a. Research to develop a screening method for investment portfolios for BPJS, Islamic insurance, and Islamic pension funds 2 •• Risk-based screening scheme for Islamic investments Indonesia Islamic Economic Masterplan 2019-2024 OJK, Islamic insurance industry Islamic Pension fund industry, DSN-MUI, OJK
  244. 4 Programmes /Activities Publishing collaborative products with the social finance sector * •• Products of Islamic social security players collaborate with BWI & Baznas Year 2019 2020 2021 2022 2023 2024             b. Prepare the infrastructure of ZISWAF as an alternative source of government social security funding at a low cost             c. Published social security products together with BWI and Baznas             Developing a ZISWAF-based disaster insurance business model * a. Reviewing the ZISWAFbased disaster insurance business model 4 Stakeholders OJK, BWI, Baznas, DSNMUI, DJSN   a. Reviewing Islamic social security funding schemes with BWI and Baznas 5 Output Strengthening Islamic Finance No •• ZISWAFbased disaster insurance business model OJK, BAZNAS, BWI, DSNMUI, Islamic insurance industry •• Conversion of insurance companies to Islamic insurance Islamic Insurance Industry, OJK, DSN-MUI b. Prepare the infrastructure of ZISWAF as an alternative source of government social security funding at a low cost c. Published social security products together with BWI and Baznas 6 Encourage the conversion of insurance companies into Islamic insurance companies a. Audience to stakeholders regarding constraints to conversion b. Compilation of strategies to encourage conversion c. Strategy implementation Description: (*) is the main program, (**) is a quick wins Indonesia Islamic Economic Masterplan 2019-2024 237
  245. Quick Wins for Social Security 1 .Extension of Islamic based products to BJPS Employment 2.Increasing Shariah based DPLK Products Islamic-based products in social security Regulations related to the establishment of Islamic institutions are derived from similar products Financial Institution Pension Funds (DPLK) have implemented Malaysian been inaugurated in 2016 through POJK Number 33 government itself through the institution of the / POJK.05 / 2016 concerning the Implementation of Employee Provident Fund (EPF) has inaugurated Pension Programs based on Shariah Principles. After a new product with the name Shariah Savings the enactment of the POJK, the first DPLK Shariah in 2016. This product provides an option for product only appeared two years later under Bank customers to convert their initial social security Muamalat, as the arranger. Until the end of 2018, accounts to be managed according to Shariah. the market share of the new Bank Muamalat Syariah After being implemented, the conversion option DPLK reached 3.07% of its conventional industry. creates a domino effect for other Islamic finance This indicates that there is a wider development industries large space, especially if there are other Islamic banks that investments. These investments, based on reports enter as arrangers. Therefore, the government needs from Euromoney, are expected to reach an average to encourage Islamic financial institutions that have of RM 25 billion each year and allocate a minimum capabilities so that DPLK Shariah products increase of 45% of their assets into investment instruments in Indonesia, both from the number of institutions that are in accordance with Shariah. Therefore, and assets and market share. in because Malaysia. the EPF The requires the Islamic finance industry can maximize the fund movement’s potential in Indonesia through Employment BPJS. 238 Indonesia Islamic Economic Masterplan 2019-2024
  246. Strengthening Islamic Finance 4 Indonesia Islamic Economic Masterplan 2019-2024 239
  247. Zakat and Waqf Linguistically , islamic social finance are Islamic funds which are given voluntarily with the intention of tabarru (kindness/affection), with no expectation of material yields and their use is intended to improve the social welfare of the community. The Islamic social finance sector extensively covers Islamic philanthropic-based and cooperation-based institutions. Philanthropic-based institutions include, among others, zakat, infaq, charity (sadaqah) and waqf. Whereas cooperationbased institutions include qard (loan-based cooperation), kafalah (collateral-based collaboration) as well as contemporary Islamic microfinance institutions (Islamic Social Finance Report, 2015). In the Indonesian context, the Islamic social finance sector is synonymous with zakat and waqf institutions. This is influenced by the explanation of two regulations in Indonesia related to Islamic social finance, namely Law No. 23 of 2011 on Management of Zakat and Law No. 41 of 2004 on Endowments. Nonetheless, this regulation also mentions other Islamic social funds such as infaq, sadaqah and DSKL (Other Social Security Funds) as falling within the scope of Law 23 of 2011.10 10 In Law No. 23/2011, it is also stated that Islamic social funds managed by the Amil Zakat Institution (LAZ) include zakat, infaq, charity (sadaqah), and other social-religious funds (such as treasure, trust or deposit, inheritance without heirs, sacrifices, expiation, fidyah, grants, and confiscated property and administrative costs of justice in religious courts). However, the focus of the Act is the management of zakat. While in Law No. 41/2004 indeed regulates waqf (property waqf) which is a social fund managed by Nazir Wakaf. Indonesia Islamic Economic Masterplan 2019-2024 241
  248. Global and National Conditions of Zakat and Waqf 1 .Zakat Zakat comes from the word “zakkaa - yuzakkii tazkiyatan - zakaatan” which literally means growth, and therefore the management of zakat or Islamic social funds globally can be very different and not uniformed. increase or purify. For the individual context, zakat Presently in Indonesia, the management of zakat means to improve or to make better. Zakat is also has become the authority of the state as stipulated interpreted as blessing, growth, cleanliness, praise in Law No. 23/2011. This law consists of 11 chapters and improvement. From fiqh’s perspective, Qardawi and 47 articles, where Chapter 1 contains definitions (2000) explains that zakat refers to the specific of some terminology related to zakat management, part of the wealth given to people who are entitled principles and objectives of zakat management, to receive zakat (mustahiq) as determined by Allah types of zakat, and principles regarding the terms SWT. and procedures for calculating zakat, Chapter 2 In the global order, zakat is the main instrument mentioned in the pillars of Islam which has an important contribution to the strong role of Islamic social finance. This is because the characteristic is ijbary (mandatory) and applies to all Muslims who have fulfilled the requirements. Throughout the history of the Islamic Caliphate, for example, zakat has proven to be the main fiscal instrument used to support the country’s economy, especially in terms of public welfare. contains management of zakat institutions, Chapter 3 contains provisions on the collection, distribution, utilisation and reporting of zakat, Chapter 4 contains the provisions of financing for BAZ and LAZ, Chapter 5 contains guidance and supervision by the Minister of Religion, Governor and Regent. Mayor, Chapter 6 contains community participation in the form of guidance and supervision of BAZNAS and LAZ, Chapter 7 contains administrative sanctions for zakat management institutions that commit violations, Chapter 8 contains a prohibition for zakat In its history, zakat is one of the main fiscal managers on misuse of funds, Chapter 9 contains instruments used to finance various states’ needs. criminal provisions for misuse and misappropriation However, in the economies of contemporary Islamic of zakat distribution while Chapter 10 and Chapter countries including Indonesia, zakat is still seen as a 11 are transitional provisions and closing conditions social financial instrument whose distribution is only (Hakim, 2015). for certain groups and is not empowered for state finances, regardless of its large collection potential. In terms of institutions, management of zakat in Indonesia can only be managed by government- In contemporary economics, globally the zakat owned Zakat Management Organizations (OPZ), infrastructure is still not supported by the regulatory in this case BAZNAS, and private-owned Zakat environment, especially for predominantly non- Management Organizations (OPZs) that are allowed Muslim countries, so that zakat management by the government, in this case LAZ. As of 2018, organizations generally only operate as foundations total OPZ in Indonesia has reached 604 institutions. whose regulations and governance still follow the Consisting of 1 Central BAZNAS, 34 provincial laws of secular foundations in general (IRTI, 2017). level BAZNAS, 514 Regency / City BAZNAS. Thus, Islamic social fund institutions such as zakat and the realization of the collection and distribution of waqf currently do not have regulators and supervisors zakat funds in Indonesia is strongly influenced by globally such as the Islamic Financial Services Board the performance of the zakat institution. Therefore, 242 Indonesia Islamic Economic Masterplan 2019-2024
  249. it is important to make a mapping of the OPZ for Judging from the trend , the collection of zakat the highest realisation of zakat collection and good in Indonesia continues to show an increase every performance. year. BAZNAS data shows that in the last 10 years The 2017 National Zakat Statistics shows that the highest collection of zakat funds was carried out by the OPZ groups from BAZNAS at the Regency / City level, which is 77% of total collection, followed by LAZ groups of 16%, then Provincial BAZNAS groups as much as 10% and central BAZNAS as much as 3%. Whereas for the charity (sadaqah) infaq category, the highest collection was carried out by the OPZ group from LAZ that managed to collect 53% of the total donation infaq funds, followed by Regency (2008-2017), zakat funds have grown by 576% from IDR 920 Billion in 2008 to IDR 6.22 trillion in 2017 or an average growth of 57.6% per year. However, this growth rate tends to fluctuate. This is because the realization of the collection each year is dependent on events that occur in certain years. For example in 2005 and 2007 where the growth of collections could reach up to 96.90% and 98.30% respectively due to the tsunami disaster in Aceh and the Yogya earthquake. / City BAZNAS groups as much as 43%, followed When associated with its potential, the realisation by the Provincial BAZNAS group as much as 3%, of the zakat collection amounting to IDR 6.22 trillion and central BAZNAS as much as 1%. For the Other seems still relatively small. Firdaus, Beik, et al (2012) Religious Social Funds category (DSKL), the highest stated that the potential of zakat in Indonesia in 2012 collection was carried out by OPZ groups from LAZ reached IDR 217 trillion per year or 3.4% of GDP. This with a collection of 74%, followed by Regency / City means that the realisation of zakat collection is still BAZNAS as much as 23%, and Provincial BAZNAS by at 2.86%. Some of the factors that might influence 2%. This shows a broad distribution by the muzakki the low realisation of zakat collection include the low in channeling Islamic social funds. Whereas for the awareness of compulsory zakat (muzakki), the low zakat category, more attention is paid to the district incentives for obligatory zakat when paying zakat, / city BAZNAS in their respective regions throughout there is still public distrust of zakat institutions, and Indonesia. As for infaq funds, charity (sadaqah) and the impact of zakat distribution which is still not other socio-religious funds, more donors’ attention is optimal (BAZNAS, 2018). focused on LAZ. Table 4.13 Collection of Islamic Social Funds by Type of OPZ in 2017 (in IDR) Source: BAZNAS (2018) OPZ type Zakat Infaq and Charity (Sadaqah) DSKL BAZNAS 137.537.774.909 16.004.328.496 0 Provincial BAZNAS 408.061.394.587 34.021.693.886 6.088.100.785 Regency/City BAZNAS 2.893.580.429.402 471.386.165.525 61.722.842.692 LAZ 754.962.835.480 1.243.471.009.086 197.534.694.624 Indonesia Islamic Economic Masterplan 2019-2024 243 Strengthening Islamic Finance 4
  250. Graph 4 .41 Realisation of Collection and Growth of ZIS 2008 - 2017 Funds Collection Source: BAZNAS, 2018 7000 37.46 6000 30.43 5000 24.32 25.05 4000 19.3 15.27 3000 2212 2000 1000 0 5017 27.94 25 920 2008 1200 2009 1500 2010 6224 2639 1729 2011 24.06 3650 3300 10.61 2012 ZIS 2013 2014 2015 2016 2017 Pertumbuhan Growth From its distribution, in the past three years Development (economics), as well as the BAZNAS more than 65% of zakat funds in Indonesia have Muslim Centre and BAZNAS Strategic Study Centre consistently been distributed to needy and the poor. (Da’wah sector). Similar programmes are also This indicates that 65% of zakat funds in Indonesia carried out by other OPZs. have been distributed to support the handling of the poor in Indonesia in accordance with the mandate of zakat management as stated in Law No. 23/2011, namely to alleviate poverty. The highest distribution after the asfaf Fakir Miskin is Fi Sabilillah mustahik. The next recipient of the distribution of zakat funds is asnaf Amil Zakat, wherein the zakat funds are used to pay wages of the amil zakat, which are also channeled to operational costs. The recipients of the distribution of other zakat funds, namely Muallaf, Riqab, Gharimin and Ibnu Sabil each have a 2.Waqf Waqf comes from the Arabic root waqafa-yaqifu which means “hold back / stop”. In terms, according to the Kamus Besar Bahasa Indonesia, waqf means movable or immovable objects provided for public use (Islam) as sincere gifts. Waqf is one of the Islamic financial institutions which historically contributions significantly towards the development of a country, especially on the infrastructure development. proportion of no more than 2% of the total recipients of zakat funds. Graph ‎4.1.2 While viewed from the sector of distribution, the largest distribution was given to the social Zakat Distribution Based on Sectors 20162017 humanitarian sector of 25.89%, followed by the Source: BAZNAS, 2018 sector of da’wah by 22.56%, the education sector by 21.69%, the economic sector by 20.33% and 0 the health sector by 9, 52%. For example, there are Economy several sectors of BAZNAS distribution programmes Education such as BAZNAS Disaster and Active Services (social humanitarian sectors), BAZNAS Scholarship Institutions (education sectors), BAZNAS Health Houses (health sectors), Mustahik Economic Empowerment Institutions, BAZNAS Microfinance Village, Sacrifice Centres, and Zakat Community 244 Indonesia Islamic Economic Masterplan 2019-2024 5 10 15 20 25 30 35 18.3 20.33 31.28 21.69 15.53 Da’wah 22.56 8.39 9.52 Health 26.51 25.89 Social Humanity 2016 2017
  251. realization of waqf funds is still relatively low . Based of the Muslim community to provide waqf are two on the Indonesian Waqf Agency (BWI) records, the important factors that supports the success of waqf realisation of waqf fund collection up to 2017 is still in various sectors of the economy. However, in the at IDR 199 billion, this amount consists of collection economies of contemporary Islamic countries, the contributions from BWI centre, regional BWI and significant role of waqf in the development of the collection from other waqf fund management state is still not optimal. institutions. The biggest collection is obtained from Waqf management in Indonesia is regulated by several regulations including Law No. 41 of 2004 on Waqf. Law No. 41 of 2004 on Waqf consists of 11 chapters and 71 articles. Chapter 1 contains general provisions in the form of explanations and definitions, Chapter 2 contains the basic concepts of waqf, including the validity and cancellation of waqf, goals and functions of waqf, elements of waqf, wakif, Nazir, waqf property, waqf pledges, allotment of waqf property, endowments with wills and waqf in the form of money. While chapter 3 contains the rules for registration and announcement of waqf property, Chapter 4 contains the rules for changing the status institutions in the form of foundations, where most of the foundations also manage other Islamic social funds such as zakat, infaq and charity (sadaqah). The realisation of the collection of immovable waqf objects however is currently quite high. As of 2016, waqf land in Indonesia reached 435,768 land plots with an area of ​​4.2 million hectares, of which around 66% had waqf certificates. However, the Indonesian Waqf Agency (BWI) stated that Indonesia’s waqf potential actually reached Rp.180 trillion. Meanwhile, according to some experts, the potential for money waqf in Indonesia can also reach IDR 3 trillion per year Nasution (2005). of waqf property, Chapter 5 contains the rules for The distribution a nd utilisation of waqf can be managing and developing waqf property, Chapter seen in graph 4.4.3 above. In 2016, as much as 75% 6 contains the rules of the Indonesian Waqf Board, of waqf assets were still used for the construction Chapter 7 contains the rules for resolving disputes, of mosques / mush o lla, 14% for education, 5% for Chapter 8 contains guidance and supervision, funerals and 6% for other uses. Basically, the use of Chapter 9 contains rules on criminal provisions and waqf assets is concentrated in the less productive administrative sanctions for misuse of waqf funds, sector. and chapters 10 and 11 contain the transitional provisions and closing provisions. From an institutional standpoint, currently there are 192 institutions that have obtained BWI permits to manage money waqf funds along with 15 Islamic Graph ‎4.4.3 Use of Indonesian Waqf Land Sumber: BWI, 2018 Money Waqf Management Institutions (LKS-PWU). In addition to the nazir in the form of institutions, 75% there are 66% of nazir individuals, while the other 16% Mosque are Nazir organisations and the remaining 18% are 14% legal nazirs. Among these nazirs, only 16% of nazirs worked full time. Moreover, from an institutional perspective BWI as a regulator also still carries out a dual role, namely being a waqf fund management organisation. Although Indonesia is listed as a country with the most Muslim population in the world, the Education USE OF INDONESIAN WAQF LAND 5% Funeral 6% Others Indonesia Islamic Economic Masterplan 2019-2024 245 4 Strengthening Islamic Finance Professional management of waqf and awareness
  252. Challenges and Opportunities for the Development of Zakat and Waqf Opportunities and challenges of zakat and waqf to be considered , especially on laws and technical can be seen based on the ecosystem, namely regulations from regulators of each institution such awareness, R & D and technology, regulation and as BAZNAS and BWI. As for the HR side, in general institutions, and HR. In terms of awareness, the there is still a need to improve both technical and community is basically considered to have a fairly managerial competencies for Amil and zakat and good understanding of zakat, although public waqf managers. knowledge regarding terminology on contemporary waqf such as waqf money is still limited. As for the R & D and technology, zakat and waqf institutions are still in the stage of developing research and use of technology for collection and management, although in general in terms of R & D and zakat technology it is more developed than waqf. In terms of regulations and institutions, there are still many areas that needs Table 4.14 Opportunities and Threats for Waqf and Zakat based on Ecosystem Aspect Awareness Opportunities Zakat: Threats Waqf: 1. Knowledge and awareness of the community are 1. The limited knowledge and awareness of the good enough about zakat community regarding waqf, especially on endowments of money and endowments with Waqf: money. 1. The community is quite familiar with the concept of immovable property waqf R&D and Technology Zakat: Zakat: 1. There is already a Strategic Study Center by BAZNAS (Baznas Puskas) 1. The lack of optimal use of technology in zakat, especially at BAZNAS and LAZ at the regional level 2. In general, there are many BAZNAS and LAZ at the national level that use digital platforms to facilitate collection Waqf: 1. Already started initiation of waqf activities that utilize digital platforms (such as waqf tubes and kitawakaf.com) 246 Indonesia Islamic Economic Masterplan 2019-2024 Waqf: 1. The absence of the BWI Strategic Study Center 2. Utilization of technologies such as multipayment services on LKS and e-commerce and online waqf services has not been carried out optimally
  253. Regulasi dan Zakat : Hospitality 1. There is already a Zakat Management Law No. 23 of 2011. 2. There are already supporting regulations, such as zakat management standards, for example the Zakat Core Principle. Strengthening Islamic Finance 4 Zakat: 1. There is still lack of technical rules for implementing regulations related to zakat, such as the technical rules for auditing zakat institutions. 2. Lack of synergy between various institutions related to zakat. 3. There are already various supporting institutions, such as the Association of Zakat Managers 3. The need for various improvements to the Law on (Zakat Forums) and other similar organizations. Endowments No. 41 of 2004 Waqf: 1. There is already a Law on Waqf No. 41 of 2004. 2. Already the Waqf Core Principles (WCP) as a guide for management of waqf. HR 4. Limited role and support for the Indonesian Waqf Agency (BWI) 5. Still limited institutional support, including synergy and harmonization between various institutions related to waqf. Zakat: 1. Still low quality (competence and professionalism) and quantity of human resources, except in some large OPZ. Waqf: 1. Still low quality (competence and professionalism) and quantity of human resources, except in several large waqf fund management institutions. 2. There are still a large number of individual nazirs Figure 4.4 below shows the Value Chain and can be channeled to support the real sector, especially ecosystem in the ZISWAF sector. In general, ZISWAF the halal industry. While management activities has three main Value Chains, namely the collection, include management and distribution of ZISWAF funds. The financial collection activities include all activities related to evaluation. The main ecosystems that affect Value ZISWAF fundraising from muzakki and wakif, from Chain in the ZISWAF sector consist of aspects on socialization / marketing to the storage of collected human resources (HR), public awareness (demand ZISWAF funds. Distribution activities cover all side), regulation and institutions, as well as aspects activities related to the distribution of ZISWAF funds of research and development (R & D) and technology. planning activities, management and HR management, monitoring and from muzakki and wakif to mustahik and mauquf aih alaih, especially programs in the social sector such as social humanitarian programs, education, health, da’wah and the economy. Moreover, as one of the action plans to include zakat and waqf funds as part of Islamic finance and to support the halal industry in the Value Chain, distribution of zakat and waqf funds Indonesia Islamic Economic Masterplan 2019-2024 247
  254. Figure 4 .4 Zakat and Wakaf Value Chain (Islamic Social Fund) RESEARCH & DEVELOPMENT Collection Distribution /Channel Processing AWARENESS 1. Waqf 2. Muzakki 3. Donors Social Sector: Social Humanity, Education, Health, Da'wah & Economy Benefits 1. Zakat 2. Waqf 3. Infaq & donations 4. social funds for other religion Real Sector: Halal Industry HUMAN RESOURCES REGULATION & GOVERNANCE Table 4.15. Value Chain of Zakat and Waqf Value Chain Collection Fund Management Aspect Main Supporters Wakif Awareness Muzakki Regulation and Governance Donors R&D and Technology Management of Zakat Funds Regulation and Governance Management of Waqf Funds R&D and Technology Management of Infaq and Charity (Sadaqah) Funds HR Management of Other Religious Social Funds Distribution Social Sector: Social Humanity, Education, Health, Da’wah and Economy HR Regulation and Governance Real Sector: Halal Industry Furthermore, the following tables summarises The conditions of zakat and waqf in Indonesia the SWOT analysis and the short / medium term are still facing various advantages, opportunities, goals of the ZISWAF sector. These aspects were weaknesses and challenges, management and identified primarily based on the results of the FGDs distribution of collection. Both zakat and waqf have and In-Depth Interviews that were conducted with its own opportunities and challenges. various ZISWAF stakeholders in Indonesia. 248 Indonesia Islamic Economic Masterplan 2019-2024
  255. regulations on the management of zakat and waqf , began to develop, especially in the industrial era 4.0, it is hoped that it can support the improvement and where the collection of zakat and waqf began to use the performance of zakat and waqf management. digital technology to facilitate collection. However, Whereas in terms of distribution, the two social the lack of public awareness to pay zakat and waqf fund management institutions are still developing is still a major challenge for the collection of zakat shared databases, especially beneficiaries. The and waqf in Indonesia. development of this database is very important to In terms of management, HR issues are still a major concern in the management of zakat, especially for endowments. However, with the avoid overlapping beneficiaries and evaluating the performance of the charity and waqf management institutions themselves. integration of zakat and waqf management with commercial funds and the enactment of various Table 4.16. SWOT Analysis of Zakat and Waqf ASPECT Collection STRENGTHS WEAKNESSES Zakat: Zakat: 1. There are a number of amil zakat institutions that are well-established and trusted by the community 1. The Zakat Obligatory Number (NPWZ) is not yet coercive in nature and centralised so it is quite difficult in muzzaki mapping. 2. The spread of the Zakat Management Organisation (OPZ), consisting of the National Zakat Amil Agency (BAZNAS) and the Amil Zakat Institution (LAZ) which are active at the National, Provincial and District/City levels Waqf: 3. In terms of regulation, in addition to the collection of zakat, the Zakat Management Organisation (OPZ) is permitted to collect Infaq Funds, Charity (Sadaqah) and Other Religious Social Funds (DSKL) so that it has a stronger and more diversified funding base and collection portfolio Waqf: 1. There have been several hybrid waqf instruments launched and connected with the commercial finance and halal industry. 1. Lack of public literacy about productive waqf and public awareness to engage in waqf 2. Dominant public perception towards traditional waqf 3. There are still many people who channel their waqf through individual Nazirs so much so they are not recorded Joint Weaknesses: 1. Lack of development in the digitalisation of zakat/ waqf collection that is user-friendly 2. Lack of development of instruments that integrate zakat/waqf with merchant products that can attract muzzaki/wakif from various groups Joint Strengths: 1. Strengthening the role of government in integrating patterns of coordination between Zakat Management Organisations and Waqf Institutions such as the availability of integrated zakat and waqf database bases 2. Zakat management organisations and wellestablished Waqf Institutions have now begun to develop digitalisation of zakat / waqf, this has provided a fundraising stimulus Indonesia Islamic Economic Masterplan 2019-2024 249 4 Strengthening Islamic Finance Overall, the management of zakat and waqf
  256. Management Zakat : 1. Already applied the Zakat Core Principles (ZCP) 2. Already applied Amil Zakat Certification 3. There is already a division of monitoring and evaluation from the regulator (BAZNAS) to monitor and control the governance of the National Zakat Agency (BAZNAS) and the Amil Zakat Institution (LAZ) at the national provincial or regency / city level Waqf: Zakat: 1. Most zakat institutions do not have a vision and mission to contribute in encouraging the development of the halal sector in Indonesia. 2. Not all zakat institutions have a good planning function. 3. The pattern of integration and coordination among OPZs is not optimal in terms of management of zakat, infaq, charity (sadaqah) or DSKL, so that zakat management institutions now seem to compete and lack synergy. 1. Inauguration of the Core Principle Waqf (WCP) Waqf: 1. The implementation of certification and Joint Strengths: competency standards for Nazir waqf has not 1. There is a scheme that integrates social funds been done with commercial funds (i.e. BMT) that can facilitate the management of social funds in a 2. There are still a large number of unregistered individual Nazirs professional manner 3. There are still a large number of Nazirs who do not work full-time Joint Weaknesses: 1. Regulators (BAZNAS and BWI) still play a dual role as operators 2. There is still a lack of coordination and integration between sectors Distribution Zakat: Zakat: 1. Distribution of zakat both according to the 1. Distribution is still focused on poverty alleviation Asnaf and the current programme in general is with a consumptive scheme on target Waqf: 2. There are already various instruments 1. Distribution of most waqf funds is still less to evaluate the impact of zakat funds productive distribution/ utilization on recipients 2. There are no specific indicators that can evaluate Waqf: the effectiveness of waqf funds for beneficiaries 1. Distribution and utilisation of waqf funds is Joint Weaknesses: generally more flexible than zakat 1. The absence of a scheme that can make Zakat Joint Strengths: and Waqf complementary, especially in terms of use/utilisation 1. Zakat/Waqf Management Organisation is under the same coordination so that it can facilitate access to the beneficiary database 250 Indonesia Islamic Economic Masterplan 2019-2024
  257. Collection Zakat : 4 THREATS Zakat: 1. Availability of zakat services based on 1. There is still a lack of awareness among industrial revolution 4.0, such as mobile-based Indonesian people to pay zakat income regularly zakat services, crowdfunding or internet 2. There is still a lack of knowledge among banking in various Islamic financial institutions Indonesian people about nishab and haul Waqf: Waqf: 1. There are already a number of Islamic Financial Institutions that are money waqf nazirs (LKS-PWU), thus expanding inclusiveness and making it easier to reach wakif who are Islamic banking customers Joint Opportunities: 1. Increased diversity of multipayment services in various leading e-commerce sites 1. There is still a lack of awareness among Indonesian people to engage in money waqf 2. The mindset of the Indonesian people towards waqf that is still attached to immovable property Joint Threats: 1. The Islamic economic movement in the midst of society is still partial and still focuses on commercial finance 2. The large number of Muslims in the upper 2. It is difficult to ensure that the assets of zakat/ middle class in Indonesia as potential muzakki waqf given by muzakki/wakif come from halal 3. The intention to donate among the Indonesian sources people is high (Indonesia is ranked number 1 in the World Giving Index in 2018) Zakat: Management Zakat: 1. There is already interest and mapping together 1. Distribution and collection are very dependent on with international institutions (e.g. UNDP) to economic and social conditions at certain times, maximise the use of zakat in achieving SDGs so much so both collection and distribution can be targets in Indonesia very volatile Waqf: Waqf: 1. Indonesia has many Islamic boarding schools built from waqf land, so Islamic boarding schools have great potential to become productive waqf management laboratories in Indonesia 1. The increasing needs of stakeholders for professional waqf management, especially because of the existence of hybrid waqf schemes that require high commercial returns Joint Threats: Joint Opportunities: 1. Branding of Zakat/Waqf Management Institutions as Philantrophic Institutions is still less 1. The increasing number of universities that competitive than other Financial Institutions specifically teach Islamic economics, so that it has the potential to provide HR for Zakat/Waqf 2. The absence of regulations that integrate zakat Management Institutions with waqf 3. The establishment of a quality and integrated Zakat Information System and Waqf Information System has yet to materialise 4. The absence of architecture and joint blueprint for Zakat and Waqf which is also integrated with the Master Plan outside the scope of Islamic economics Indonesia Islamic Economic Masterplan 2019-2024 251 Strengthening Islamic Finance OPPORTUNITIES
  258. Distribution Zakat : Zakat: 1. There is already a database available from the government, especially the Ministry of Social Affairs and TNP2K, related to families / households that need financial assistance that can be utilised by Zakat Management Organizations to avoid double-counting in distribution 1. The mustahik database that is currently available has not been integrated with the Zakat Management Agency so that the possibility of double-counting is high (the same mustahik can receive from several institutions when there are several mustahik who do not receive zakat at all) Waqf: 1. Increased need for funding government infrastructure projecets that can be funded by waqf funds Joint Opportunities: 1. Development of Indonesia’s halal industry which will require financial support from Islamic finance (commercial and social) both in terms of demands or supply 252 Indonesia Islamic Economic Masterplan 2019-2024 Waqf: 1. There are no regulations that regulate the distribution and utilisation of waqf by individual Nazirs, so that their use becomes less productive Joint Threats: 1. There has been no joint movement from the Management Institution and stakeholders for the distribution of zakat and waqf in supporting the real sector, especially the halal industry
  259. Strengthening Islamic Finance 4 Indonesia Islamic Economic Masterplan 2019-2024 253
  260. Zakat and Waqf Support towards the Halal Industry Conceptually , zakat and waqf have tremendous In macro terms, zakat has a positive impact on potentials to encourage and support the aggregate consumption, aggregate investment and development of halal industry in Indonesia. This is economic growth. Various theoretical and empirical influenced by the nature of zakat and waqf as an studies have shown that the transfer of zakat from Islamic institution that mainly aims to encourage the rich to the poor included in the ashnaf zakat the creation of justice and economic welfare category will enable an increase in aggregate of the people. In addition, with the generous consumption. For the poor, increased consumption characteristics of Indonesians as affirmed by the will also encourage increased productivity and CAF World Giving Index which sets Indonesia as household welfare. Zakat also has the potential to the most generous country in the world in 2018, 11 have a positive impact on investment by way of Islamic social finance has potential to encourage ‘penalising’ the accumulation of unemployed funds the development of the halal industry in the country. or resources and unproductive assets. This also As one of the pillars in Islam, zakat is expressly enables the occurrence of investment-switching ordered to be given to eight community groups that are directly or indirectly involved in the halal industry value chain. The priority of zakat distribution to the poor represents a significant potential to empower micro, medium and small enterprises (MSMEs) which are very large in number in Indonesia. Most of these MSMEs are engaged in sectors that can be categorised as part of the halal industry and do not have halal certification.12 In fact, halal certification will become obligatory for businesses starting 2019. The lack of knowledge, awareness and financing aspects (the high cost of certification) is suspected to be the cause of low participation in obtaining halal certification. For MSMEs whose owners belong to the poor category, these matters can be assisted with zakat funds. from investment in assets that are not/less productive towards investment in the real sector which involves productive assets. Examples of these investments are investments in the food and energy (renewable) sectors. In turn, increased consumption and investment will drive economic growth. Not only that, other multiplier effects that might occur are the increase in productive labor (or a decrease in unemployment), a reduction in poverty, a decrease in income inequality and an increase in people’s welfare. In addition to zakat, waqf also has the potential to support the development of halal industry in Indonesia. In fact, with the characteristics of waqf that are relatively flexible, its potential can be greater than the potential of zakat even though presently its collection is still relatively low compared to its potential. Some important issues that arises in the 11 12 Indonesia as a country with the most Muslim population in the world per year 2018 is designated as number 1 on the CAF World Giving Index’s Giving Index with a score of 59%. Among the three CAF World Giving Index Indicators, Indonesia got the highest score on the Donating Money indicator, where Indonesia scored 78 which means 78% of Indonesians donated money in the past month. This position is in second place after Myanmar scored 88%. According to information from LPPOM MUI, the number of MSMEs in Indonesia currently can reach more than 54 million business units, however, only 3000 of them have halal certification. This means that only 0.0056% of all MSMEs throughout Indonesia have halal certification. 254 Indonesia Islamic Economic Masterplan 2019-2024 halal industry in Indonesia are the lack of competitive halal products in Indonesia in the global market, one of which can be caused by the high production cost. Waqf can be empowered to reduce production costs, because waqf are financial assets that require very little or even zero financial costs. Thus, waqf has a great opportunity to be explored by the mass
  261. production process , especially for export-oriented Thus, it can be concluded that the ZISWAF sector ones, for MSMEs which in general still do not have has great potential to encourage the development of the ability to carry out mass production at low cost. halal industry in Indonesia. However, this potential Other unique characteristics of zakat and waqf (ZISWAF) are the magnitude of their potential integration with various commercial financial sectors. Several studies have identified ZISWAF integration models with the commercial financial sector. For example the integration of ZISWAF with the Islamic microfinance sector (commercial) certainly will only be realized if there are supporting ecosystems and policies. For this reason, before developing strategic policies and encouraging the creation of the necessary ecosystems, the strengths and challenges that exists need to be well identified. This will further be discussed in the strategy section on zakat and waqf development. through Baitul Maal wa Tamwil (BMT). The use of ZISWAF funds on BMTs will be more targeted, given that BMT itself has customers who are important players for the halal industry, namely MSMEs. In this case, ZISWAF funds can be used for social programs and assistance for BMT customers. This has the potential to support the development of Indonesia’s halal industry, given that most BMT customers are MSMEs and the issue of awareness and outreach is still a major challenge for the halal industry. Indonesia Islamic Economic Masterplan 2019-2024 255 Strengthening Islamic Finance 4
  262. Zakat and Waqf Specific Cluster Strategies 1 .Zakat Development Plan No Output 2019 Programme/Activities Year Stakeholders 2020 2021 2022 2023 2024 2025 Strategy I: Increased Awareness of Muzakki, Society and Stakeholders about Zakat 1 Increase awareness of muzakki in paying zakat whether compulsorily or voluntarily 1.1 Conduct intensive socialisation and joint movements  a. Include the material on zakat in the Friday sermon module which must be delivered by Khotib Jum’at at each mosque b. Using the mosque as a centre for socialisation at the community level by encouraging mosques to actively broadcast the topic of zakat 1.2 Intensifying the promotion of zakat through various media a. Conduct a mass campaign of the obligatory zakat movement through advertising media that targets the millennial generation b. Utilisation of Halal Media and Recreation as a promotion tool •• Matters on the obligation and economic benefits of waqf are conveyed during Friday sermons and lectures at each mosque     •• Increased number of zakat   advertisements through digital media such as applications,   television, internet and macro-ad   •• Increased realisation of zakat collection, especially the   collection of                                         Ministry of Religion, BAZNAS, LAZ, Ministry of Communication and Information, Digital Startup Businesses, Majelis Ulama Indonesia, Islamic Community Organisations (Muhammadiyah, Nahdlatul Ulama), Mosque Prosperity Council zakat income from the millennial generation  Strategy II: Strengthening of Zakat Ecosystems 1 The establishment of a technologybased research and development ecosystem for zakat management •• Increased number of BAZNAS and LAZ, especially at the regional 1.1 Developing digitalisation of zakat level, which have in accordance with the development a user-friendly of user-friendly technology to provide website and have convenience for users** online donation a. Optimising the use of website-based features digital technology in BAZNAS at the regional level 256 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Religion, BAZNAS, LKS, Puskasbaznas, Digital Startup Businesses
  263. No Programme /Activities Output 2019 b. Optimising the use of website-based •• Increased number digital technology in all Amil Zakat of BAZNAS Institutions on a regional scale and LAZ whose services can be c. Optimising the use of digital accessed through technology based crowdfunding and multipayment e-commerce in BAZNAS and LAZ on banking (ATM a regional scale and internet banking/mobile d. Utilisation of multipayment services banking), at the BPD for zakat payments to e-commerce, BAZNAS and LAZ on a regional scale and financial 1.2 Formulation of technology-based technology key performance indicators and certain performance indicators to standardize •• Formulation of KPIs to evaluate the impact assessment of BAZNAS and BAZNAS and LAZ LAZ •• The process a. Formulation of key performance of monitoring, indicators to standardize evaluating and assessments and evaluations auditing BAZNAS of social impact performance of and LAZ is carried BAZNAS and LAZ out based on KPI b. Implementation of standardised KPIset by BAZNAS based BAZNAS and LAZ evaluations and Ministry of Religion 1.3 Develop a shared database that is accessible by the entire Zakat Management Organisation through the Zakat Information System (SIZ)** a. Optimising the use of Simba BAZNAS for all BAZNAS on a regional scale b. Enforcement of the Zakat Information System (SIZ) for LAZ that do not operate under BAZNAS Year 2020 2021 2022 2023 2024 2025                                                                                              Stakeholders     •• Increased number of BAZs and LAZs that use Simba actively   •• The establishment of a Zakat   Information System (SIZ) that can be accessed by the public Indonesia Islamic Economic Masterplan 2019-2024 257 Strengthening Islamic Finance 4
  264. No Programme /Activities 2 Quality Improvement of Amil Human Resources that are professional and competent 2.1 Supporting the accelerated implementation of Baznas Regulation No.2 of 2018 on Amil Zakat Certification** a. Formulation of curriculum to standardize competencies of amil zakat b. Increase the number of amil zakat training institutions that have standardised curriculum which could simultaneously provide Amil Zakat Certification c. Encourage BAZNAS and LAZ to increase the number of human resources that have obtained Amil Zakat Certification Output 2019 •• Establishment of Pusdiklat Amil Zakat •• Increased number of amil that are certified from each BAZNAS and LAZ Indonesia Islamic Economic Masterplan 2019-2024 2020 2021 2022 2023 2024 2025 •• Formulation of   curriculum to standardize amil competency   standards consisting of at least material related to zakat fiqh, programme   management, financial reporting and   management, and philantrophic institutions accounting records   standards •• The establishment of several amil training institutions that have a standardised curriculum that can provide Amil Zakat Certification 258 Year Stakeholders Ministry of Religion, BAZNAS, LAZ, Puskasbaznas                              
  265. No Programme /Activities Output 2019 Year 2020 2021 2022 2023 2024 2025 Stakeholders 4 Strategy III: Strengthening Institutional Integration of Zakat Institutions 1.1 Support the acceleration of the implementation of the BAZNAS Regulation on zakat governance nationally a. Accelerate the implementation of zakat governance in accordance with ZCP Ministry of Religion, BAZNAS, LAZ, Puskasbaznas •• Implementation of the national zakat management in accordance with ZCP                                 b. Optimization of the implementation of monitoring and evaluation of the implementation of regulations and governance of zakat at the regional level BAZ •• Implementation   of the   management of   BAZNAS and LAZ in accordance with BAZNAS regulations and standards 1.2 Clarify the portion of each executor in zakat, whether regulators or operators •• Implementation of monitoring and evaluation at BAZNAS at the regional level a. Clarift the functions and limits of BAZNAS on the functions of operators and regulators •• Reduced proportion of zakat collection by BAZNAS b. Differentiation of target collection •• Establishment and distribution of BAZNAS and LAZ of other to avoid programme overlap independent and sustainable funding sources for BAZNAS Strengthening Islamic Finance 1 Establishment of a standardised and integrated ecosystem of a national zakat management   •• Realization of differentiation between collection and distribution between institutions with a focus on group targets and specific fields Indonesia Islamic Economic Masterplan 2019-2024 259
  266. No Programme /Activities 2 Strengthening zakat institution integration with other stakeholders 2.1 Enforce mandatory zakat programs for certain agencies ** Output 2019 •• Implementation of automatic zakat deductions for employees of government agencies at both central and regional levels, BUMN and BUMD, LKS, Islamic Based Organizations and Islamic Banking Customers Year 2020 2021 2022 2023 2024 2025                               c. Conducting automatic zakat income deduction towards employees of institutions under Islamic Based •• Increasing the Organisations amount of zakat d. Encourage Islamic banking collection through customers to automate zakat Islamic banking deductions on account balances •• The revision of 2.2 Establishment of regulatory   Law No. 36 of integration with zakat stakeholder 2008 concerning institutions** Income Tax a. Enact zakat regulation as a tax •• Establishment of                                 a. Conducting automatic zakat income deduction towards employees of government-based agencies (PNS and BUMN) b. Conducting automatic zakat income deduction towards employees of Islamic Financial Institutions deduction to increase incentives for muzakki to pay zakat b. Enforce regulations that requires compulsory Zakat for Business Entities c. Enact zakat regulations managed such as tax and BAZNAS as budget management officials regulations that require Zakat for Business Entities,   especially those based on Islam Stakeholders Ministry of Religion, BAZNAS, LAZ, BKN, BKD, BUMN, BUMD, LKS, Islamic Community Organisations (Nahdlatul Ulama and Muhammadiyah), Ministry of Finance, Ministry of Law and Human Rights •• Establishment of zakat regulations managed such as taxes and BAZNAS as budget management officials Strategy IV: Development of Utilization and Distribution of Zakat Programs 1 Development and standardized and integrated Zakat Distribution and Distribution Program Database Database ** 1.1 Build a mustahik database nationally, both those who have been formed and those that will be formed 260 Indonesia Islamic Economic Masterplan 2019-2024 •• Implementation of mustahik databases and poverty maps that are targeted for utilization and distribution of zakat Ministry of Religion, BAZNAS, LAZ, Puskasbaznas, Ministry of Social Affairs, Ministry of Home Affairs, Bank Indonesia
  267. Programme /Activities a. Optimization of collaboration between Ministry of Social Affairs and Civil Engineering poverty map data b. Development of shared databases that can be accessed by all zakat managers especially for distribution and utilization programs Output 2019 •• Realization of differentiation between inter-agency distribution programs with a focus on group targets and specific fields 2 Development of measurable, transparent, accountable and sustainable distribution and utilization of zakat programs. Year 2020 2021 2022 2023 2024 2025 Stakeholders 4   •• Implementation   of the measurement method to assess the impact of 2.1 Develop a measurable, transparent, distribution and accountable and sustainable innovation distribution of distribution and utilization program zakat. a. Developing zakat distribution and •• Implementation utilization programs that have a of zakat significant positive impact on the distribution community. and utilization b. Measuring the impact of zakat programs distribution and utilization from all in synergy OPZ. by several measurable, c. Evaluate and monitor the success transparent, of the distribution and utilization accountable and program sustainable OPZs in several regions 2.2 Develop a synergy of the in Indonesia distribution and utilization of zakat programs of several OPZs Strengthening Islamic Finance No Ministry of Religion, BAZNAS, LAZ, technical ministry related to commodity programs a. Inventory of zakat distribution and utilization programs from all OPZ that have succeeded b. Developing zakat distribution and utilization programs from OPZ that have succeeded in various regions in Indonesia through synergy with OPZ Description: (*) is the main program, (**) is a quick wins Indonesia Islamic Economic Masterplan 2019-2024 261
  268. 2 .Waqf Development Plan No Programme/Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy I: Increasing the awareness of Wakif and the society about Waqf 1 Enhancement of public awareness to engage in waqf •• Matters on the   obligation and economic benefits of 1.1 Conduct intensive socialisation and   waqf are conveyed joint movements  during Friday sermons a. Incorporate waqf material into the   and lectures at each Friday sermon module which must mosque be delivered by Khotib Jum’at at each •• Increased number of mosque waqf advertisements b. Using the mosque as a socialisation through digital media   centre at the community level by such as applications, encouraging mosques to actively television, internet, broadcast the topic of waqf macro-ad                     c. Conduct socialisation of Cash Waqf •• Increased realisation   of waqf collection, Linked Sukuk (CSWL) which can also be used for branding productive waqf especially the collection of money waqf 1.2 Promote waqf through various   from the millennial media generation a. Conduct a mass money waqf   •• The formation of movement campaign through innovative money advertising media that approaches waqf products that the millennial generation are integrated with                     banking products   such as e-money or telecommunications   products such as credit                               b. Utilise Halal Media & Recreation as a promotion tool 1.2 Conduct joint movements in money waqf •• There are adverts   and money waqf multipayment services on the LKS-PWU ATM b. Encourage LKS-PWU to campaign for machines   the collection of money waqf •• There is an interneta. Include money waqf in merchant products that are found everyday such as e-money or credit based online waqf service and mobile banking at LKS-PWU •• The revision of Law No. 41 of 2004 concerning Waqf which adds waqf stock nomenclature and the formation of government regulations c. Add endowment stock nomenclature governing the technical to introduce the concept of waqf management through shares 262 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Religion, BWI, Waqf Institution, Ministry of Communication and Information, Digital Startup Businesses, Majelis Ulama Indonesia, Islamic Community Organisations
  269. No Programme /Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholders 4 1 Establishment of a technology-based waqf research and development management ecosystem •• Increased number   of Waqf Institutions that have user-friendly websites and have   online donation features 1.1 Developing waqf digitalisation in accordance with the development of user-friendly technology to provide ease •• Increased number of service for users** of Waqf Institutions a. Activate money waqf movements whose services through e-commerce and can be accessed crowdfunding in general through multipayment b. Utilise multipayment platforms banking (ATM and for banking services to encourage internet banking/ money waqf mobile banking), e-commerce, and c. Optimising website-based technology financial technology and applications for BWI at the •• Establishment of the national and regional levels BWI Strategic Study 1.2 Develop key performance indicators Centre and certain performance indicators for standardising the impact of technology- •• Formulation of KPIs to evaluate Waqf based Waqf Management Institutions Institutions and a. Develop key performance indicators Individual Nazirs for performance evaluation •• The process of standards and social impact monitoring, evaluating evaluations of Nazir Legal Entities and auditing Waqf and Nazirs Institutions and b. Develop key performance indicators Individual Nazirs for individual Nazir performance based on KPI set by appraisal standards BWI and the Ministry of Religion is carried c. Implementation of standardised KPIout based Nazir evaluations 1.3 Develop a shared database that could be accessed by all Waqf Management Institutions through the Waqf Information System (SIW)** a. Establishment of the BWI Strategic Study Centre b. Development of Waqf Application System for all BRI for integration of waqf systems for Waqf Institutions c. Enforcement of the Waqf Information System (SIW) for Nazirs who do not operate under BWI •• Establishment of Waqf Application System Ministry of Religion, BWI, Waqf Institution, LKS, Digital Startup Businesses                                                                                                           •• Establishment of a Waqf Information   System (SIW) that can be accessed by the   public   Indonesia Islamic Economic Masterplan 2019-2024 263 Strengthening Islamic Finance Strategy II: Strengthening the Waqf Ecosystem
  270. No Programme /Activities Output 2 Quality improvement of Nazir human resources that are professional and competent •• Formulation of curriculum for amil competency standards which consists of at 2.1 Enforce certification for waqf nazir least material related to and money waqf nazir waqf fiqh, programme a. Enact regulations that require Nazir, management, whether individuals or institutions to financial reporting have Nazir certification and management, asset management 2.2 Improving infrastructure that management and facilitates increased professionalism accounting records and competency of Nazirs of philanthropic a. Formulate curriculum for institutions competency standards of waqf nazir •• Establishment of and money waqf nazir Pusdiklat for waqf b. Increase the number of waqf nazir nazirs training institutions that have •• Establishment of standardised curriculum which a number of Nazir could simultaneously provide Nazir training institutions certification that have standardised c. Encourage LKS-PWU and Waqf curriculum which can Institutions to increase the number of provide Nazir Waqf human resources who have obtained Certification and Waqf Nazir Certification and Nazir Nazir Waqf Money Waqf Money Certification Certification Year 2019 2020 2021 2022 2023 2024   Ministry of Religion, BWI, Waqf Institutions, LKS                                                             •• Increase in the number   of certified Nazirs whether Individual e. Increase incentives for nazir to be Nazirs or Nazirs for able to obtain a proportion of rewards Waqf Institutions that are greater than the results of •• The revision of Law No. management of waqf 41 of 2004 on Waqf             Stakeholders   d. Issue regulations that prohibit the existence of individual Nazirs Strategy III: Strengthening Institutional Integration of Zakat Institutions 1 Establish a standardised and integrated national waqf governance ecosystem 1.1 Enact BWI regulations that consists of standardisation of national waqf governance** a. Accelerating the implementation of waqf governance in accordance with WCP b. Formulate regulations regarding Standards for Waqf Management Reporting c. Formulate regulations for Waqf Financial Management Standards 264 Indonesia Islamic Economic Masterplan 2019-2024 •• Implementation of the national waqf governance in accordance with WCP   Ministry of Religion, BWI, Waqf Institutions   •• Formulation of BWI Regulations on Waqf   Management Reporting Standards, Waqf Financial Management Standards, and Waqf Collection and Utilisation of Funds Standards                             
  271. No Programme /Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholders 1.2 Clarify the authority portion of each executor in waqf, both regulators or operators Strengthening Islamic Finance d. Formulate regulations on the •• Reduced proportion of Standards for Collecting and Utilising waqf collection by BWI of Waqf Funds Centre •• Establishment of other independent and sustainable funding sources for BWI a. Reducing the portion of BWI as an •• Increased number of operator of waqf management in stages waqf collections from BWI regions b. Optimising the role of regional BWIs 2 Strengthening the integration of waqf institutions with stakeholders of waqf institutions •• There is a waqf management laboratory for santri in boarding schools that 2.1 Optimising the role of boarding schools are built from waqf as a means of learning waqf management for santri and the surrounding community •• Implementation of community a. Building cooperation between Waqf empowerment Institutions and Islamic Boarding programmes around Schools boarding schools that b. Make Islamic boarding schools manage waqf by using as a laboratory for learning waqf the benefits of waqf management for santri management c. Make boarding schools as a means for educating and socialising to the community about waqf 4   Ministry of Religion, BWI, Waqf Institutions, Boarding Schools                           •• Establishment of   building use certificates for waqf land           •• Establishment of fiscal policies to optimize the productivity of management of waqf a. Accept the certificate of rights of special assets, especially those use on wakaf land used and owned by the b. Establish fiscal policy to collect rentals state 2.2 Optimizing waqf management by building cooperation and integration of policies with waqf stakeholder institutions on wakaf land used by the government •• Establishment of tax and wakaf assets that become state incentive schemes for wakaf assets endowments of money and stock waqf c. Establish a tax incentive scheme for •• There are special endowments of money and stock research allocations in endowments the waqf field through d. Establish cooperation with the Ministry the LPDP scheme and of Research, Technology and Higher the Ministry of Religion Education so that there is a special allocation of research in the waqf field through the LPDP scheme ** e. Encouraging the allocation of special research funds in the waqf field from the Ministry of Religion ** Description: (*) is the main program, (**) is a quick wins Indonesia Islamic Economic Masterplan 2019-2024 265
  272. 3 .Joint Development Plans (Zakat and Waqf) No Programmes/Activities Output Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 1: Establishment of an integrated ecosystem for zakat and waqf management to alleviate poverty and strengthen social security Compilation of 1 Strengthen the interconnection between sectors in zakat and waqf and the Masterplan for strengthen institutional consolidation * Zakat and Waqf that accommodates a. Arrange architecture for zakat and institutions outside waqf that have been adjusted to the scope of Islamic institutions outside the scope of economics Islamic economics Establishment of the b. Establishment of the International International Islamic Islamic Inclusive Financial Services Inclusive Financial Board (IIIFSB) ** Services Board c. Formation of the Zakat and Waqf (IIIFSB) Ministries in the Long Term Establishment of the Joint movements from various Ministry of Zakat and 2 agencies and stakeholders to promote Waqf in the long term zakat and waqf for the community Establishment of a. Develop regulations that synergizes zakat and waqf b. Build complementary zakat and waqf schemes complementary zakat and waqf schemes   Ministry of Religion, BWI, BAZNAS, KNKS                           Ministry of Education, BWI, BAZNAS                         Strategy 2: The establishment of close connectivity of zakat and waqf in supporting the real sector, especially the halal industry 1 Making zakat and waqf as supporters of the halal industry from the supply side by becoming a backbone for MSME players in the halal industry * a. Facilitate and facilitate the process of halal certification for mustahik b. Optimizing the distribution of zakat funds to support MSME entrepreneurs engaged in the halal industry c. Use zakat funds for the process of training and halal socialization of Value Chain for MSME entrepreneurs and the community d. Submitting a subsidy scheme or financing for halal certification with endowment benefits for MSMEs e. Empowering waqf assets for production for the halal industry, especially for mass production and export-oriented production* 266 Indonesia Islamic Economic Masterplan 2019-2024 Increased number of MSMEs, especially those that are LAZ, BAZ partners and Waqf Institutions that have halal certification                 Establishment of halal industrial estates that use waqf assets as a place for mass production and   export oriented                                 Ministry of Religion, BWI, BAZNAS, Ministry of Cooperatives and MSMEs
  273. Increased   consumption of halal products by beneficiaries of zakat and waqf Increased number a. Encourage the use of zakat for   of halal products in consumption of halal products from MSME production mustahik which are partners b. Encourage MSMEs funded by   of BAZNAS, LAZ, and zakat funds and waqf to use halal Waqf Institutions products for their entire business Establishment of c. Encourage the strengthening of   a ‘Halal Village halal supply chain in LAZ and assist Community’ from the communities by ensuring that all LAZ, BAZ and Wakaf economic activities in the assisted Institution assisted community are based on products communities and services that are halal                               Ministry of Religion, BWI, BAZNAS, Ministry of Cooperatives and MSMEs, KNKS Description: (*) is the main program, (**) is a quick wins Indonesia Islamic Economic Masterplan 2019-2024 267 4 Strengthening Islamic Finance 2 Making zakat and waqf as supporters of the halal industry from the demand side by encouraging increased consumption of halal by beneficiaries of zakat and waqf *
  274. Quick Wins Zakat and Waqf 1 .Development of digitization of ZISWAF to facilitate socialization (public education), payment services and management of Islamic Social Funds 2.The forming of International Islamic Inclusive Financial Services Board (IIIFSB) One of the main strategies that can be done to The realization of the collection of Islamic accelerate the development of zakat and waqf or social funds (especially ZISWAF) which is still Islamic social funds in general is to make Indonesia very low compared to its potential is one of the a center of inclusive finance for global Islam. Until main issues in the development of the Islamic 2018, there are no institutions or countries that have social fund sector in Indonesia. This condition was become the center of ZISWAF development, which influenced by several things, including low public is the core of Islamic inclusive finance. Indonesia knowledge and awareness on the importance of itself has actually played this role, which among ZISWAF payments, limited payment services of others can be seen from Indonesia’s initiatives in ZISWAF (especially digitally) and lack of information encouraging the preparation of the standardization of regarding the utilization of ZISWAF (including the management for international Islamic social funds, impact of ZISWAF on recipients or the economy of namely the Zakat Core Principles (ZCP) and Waqf society as a whole). Therefore, digitizing ZISWAF to Core Principles (WCP). ZCP was launched in 2016 facilitate socialization (public education), payment and is currently being implemented in several Islamic services and management of the Islamic Social countries. While the WCP was only launched in 2018. Fund are important in order for it to optimize. The Indonesia’s important role in forming international development of digitalization of ZISWAF has great standards for managing social Islamic funds has potential to provide convenience in ZISWAF payment made Indonesia a potential center for Islamic social services. Not only that, information related to the finance or an inclusive center for Islamic finance program and the distribution of ZISWAF funds in general. To realize this goal, it is necessary to can also be done digitally through social media or establish an International Islamic Inclusive Financial the likes. Therefore, indirect public education and Service Board (IIIFSB) which among others can socialization of the ZISWAF movement can also be play a role in determining regulatory standards and done. Thus, it is expected that the realization of the supervision in the field of social finance and financial ZISWAF collection and ZISWAF payer public trust inclusion and to encourage the development of halal can increase so that the potential of a large sized industry in Indonesia. This strategy is also the main ZISWAF in Indonesia can be optimized. quick-wins, namely the activation of the International Islamic Inclusive Financial Services Board based in Indonesia. 268 Indonesia Islamic Economic Masterplan 2019-2024
  275. 3 .Development of a shared database (sharing data platform) that is accesible by all players and communities, especially for the distribution and utilization of Islamic Social Funds One of the important challenges in developing social Islamic funds in Indonesia is the lack of integrated database and limited information The database that needs to be developed must include at least a mustahik or beneficiary database that is integrated with government data such as data from TNP2K and relevant statistics related to zakat and waqf, such as the number of institutions / operators, names of institutions / operators that have permits operations, collection statistics and distribution statistics. provided to the public, both from the regulators and operators. This is a separate obstacle for zakat and waqf institutions and other stakeholders, especially to obtain data that is relevant and needed by each stakeholder and institution. One of the big problems that arises because of the absence of an integrated and accessible database is the overlapping distribution of ZISWAF funds so it is not uncommon for a mustahik to receive ZISWAF from several institutions at once. Other issues are transparency and difficulty in accessing the required statistics and data on zakat / waqf. Therefore, the development of a shared database (especially for ZISWAF funds distribution and utilization activities) that can be accessed by both playerss and the public is one of the main strategy for developing ZISWAF in Indonesia. Indonesia Islamic Economic Masterplan 2019-2024 269 Strengthening Islamic Finance 4
  276. Quick Wins Specifically for Zakat : 1. Acceleration of the implementation of Baznas Regulation No.2 of 2018 on Amil Zakat Certification In 2018, BAZNAS as the regulator in zakat issued a regulation on Amil Zakat Certification in Baznas 3. Harmonization and revision of regulations related to zakat, including Zakat Law No. 23/2011 and Law No. 36 of 2008 concerning Income Tax to encourage zakat as tax credit One important strategy to increase the Regulation No. 2 of 2018. This regulation is one realization of zakat collection in Indonesia is to of the important regulations in the Islamic social provide incentives for muzakki to pay taxes. Making funds sector such as zakat especially to improve zakat as a tax deduction (tax credit) is one of the the quality of professional and competent amil zakat incentive efforts that have been implemented in resources. Therefore, as part of the ecosystem, Malaysia and is considered effective to increase improving the quality of human resources through zakat payments by the muzakki. However, the the implementation of the Amil Zakat Certification regulations in Indonesia, specifically Law No. 36 of needs to be done immediately. To support the 2008 concerning Income Tax, zakat is still used as a acceleration of the implementation of Baznas deduction from Non-Taxable Income and therefore Regulation No. 2 of 2018 on Amil Zakat Certification, the revision of this law to make zakat as a tax it is necessary to formulate a curriculum for the deduction as a form of incentive for zakat payment competency standards for amil zakat, increase the needs to be done immediately. In addition, Law No. number of amil zakat training institutions that have a 23/2011 also has various weaknesses and it needs standardised curriculum which can also at the same to be improved to harmonize with the various existing time provide Amil Zakat Certification and encourage regulations. This strategy will support the the main BAZNAS and LAZ to increase the number of HR who quick-wins, namely strengthening legal aspects and receives Amil Zakat Certification. coordination. 2. Automation of zakat for certain agencies, especially government-based agencies Zakat is one of the obligations of Muslims and is listed in the 3rd pillar of Islam. Therefore collecting zakat can be a state right in an effort to uphold Islamic law as it is done in some Muslim countries today. One effort that can be done to increase the realisation of zakat collection in Indonesia is to collect zakat through the automation of zakat income from certain institutions, especially government-based agencies such as the State Civil Apparatus (ASN) or employees of State-Owned Enterprises (BUMN). Other agencies that have the potential to collect zakat income automatically are Islamic Financial Institutions and institutions under Islamic Based Community Organisations. 270 Indonesia Islamic Economic Masterplan 2019-2024
  277. 1 . Revision of Law No. 41 of 2004 on Waqf One of the main issues in waqf management is that there are still a large number of individual nazirs whose management are unprofessional and are not officially registered with the regulator. This can be seen in the waqf regulation under Law No. 41 of 2004 on Waqf, which allows management of waqf to be carried out by individual nazirs. Therefore, the revision of Law No. 41 of 2004 to limit the criteria of waqf managers need to be carried out immediately in order to support productive and professional waqf management by the institution. In addition, greater government support, for institutions and budgetare, are also needed to encourage the development of waqf in Indonesia. Other revisions that need to be included in Law No. 41 of 2004 includes endowments and technical management nomenclature to legalize management of waqf shares and provide incentives for nazir to obtain a greater proportion of income from the management of waqf funds. This strategy also supports the main quick-wins, namely 3. Acceleration of Research and Development of Waqf Fields through the Formation of BWI Puskas and Allocation of Special Research Funds in the Endowments Field Research and development is one of the important ecosystems that need to be formed in every Islamic economic institution, including waqf institutions. However, up until now the Indonesian Waqf Agency (BWI) as a regulator in the waqf sector in Indonesia does not yet have a Research and Development Center. The establishment of a Research and Development Center for BWI is important, especially for the development of databases, strengthening strategic cooperation both at the national and international level, strengthening research and development programs and studies related to collecting, managing, and distributing waqf. Furthermore, another effort that can be done to support research and development in the waqf field is to collaborate with the Ministry of Research, Technology and Higher Education to strengthening legal aspects and coordination. allocate research funds especifically in the field of 2. Preparation and implementation of waqf accounting standards Fund Management Institution (LPDP) or through the waqf through the research scheme of the Education Ministry of Religion research scheme. Until 2018, there were still no waqf accounting standards in Indonesia. In fact, accounting standards are necessary not only for preparing financial reports for waqf management institutions but also for various other needs such as planning waqf collection and measuring the impact of waqf more accurately and effectively. Therefore, it is very important to accelerate the preparation and implementation of waqf accounting standards in Indonesia. Indonesia Islamic Economic Masterplan 2019-2024 271 4 Strengthening Islamic Finance Quick Wins Specifically for Waqf:
  278. 5 Strengthening Micro , Small and Medium Enterprises
  279. MSME contributes greatly to Indonesia ’s economy. Its networking has spread to various parts of the country and enables the wider community’s potential to enable them to live better.
  280. Based on Law Number 20 of 2008 concerning ceiling of 500 million to 5 billion rupiah . Micro, Small and Medium Enterprises (MSMEs), the difference between micro, small and medium enterprises can be seen from the net wealth and total annual sales of the businesses owned by individuals and / or individual business entities, and not by subsidiaries of larger businesses. Micro businesses have a maximum net worth of 50 million rupiah with a maximum annual sales of 300 million rupiahs, while small businesses are those that have a net worth of between 50 million - 500 million rupiah with sales in a year between 300 million rupiahs to 2.5 billion rupiahs. Medium businesses have a net worth of 500 million - 10 billion rupiah with annual sales of up to 50 billion rupiah. From the Focus Group Discussions (FGDs) that are facilitated by the masterplan, entrepreneurs also have different understandings for example fintech is classified based on bank savings and business’ capacities for credit or financing. Unbank is a bank that has no savings or financing, Bankable has savings and is able to meet bank financing requirements, while Underbank has savings with the bank, but does not have business track records which is a requirement for financing. Coverage of the MSME sector With the various definitions above and with the focus of this masterplan on the Islamic economy This definition is different from that of the Central Bureau of Statistics (BPS), which classify businesses based on the number of labor, where a household business has a maximum of 5 workers, medium-sized enterprises have between 6 and 19 workers, and medium businesses have 20 to 29 workers. If there are more than 100 workers, then it is classified as large businesses and it is not considered as MSMEs. and the halal industry, the first step is to determine the exact definition and uniformity between the institutions, so that the programs do not misled. Urgency Micro, Small and Medium Enterprises (MSMEs) contributes largely to the Indonesian economy. According to the Ministry of Cooperatives and SMEs (2017), the number of MSMEs in Indonesia continues to increase from year to year. Since Bank Indonesia also has a different understanding 2012 until 2017, the development of MSMEs has of MSMEs, where according to them the scale of reached 13.98%. In 2017, the number of MSMEs business is determined based on the credit ceilings reached 62,922,617-units far greater than large or working capital financing and investments that are businesses, which only totaled at 5,460 units. provided by the banks. Micro businesses are those This number is dominated by micro-businesses with a maximum ceiling of 50 million rupiahs, small as much as 62 million (98.7%), with small and businesses have a ceiling of between 50 million and medium businesses amounting to 815 thousand 500 million, while medium-sized businesses have a business units or only 1.3%. Figure 5.1 Figure 5.2 MSMEs Development in Indonesia MSMEs Contribution towards Indonesia’s GDP Source: Ministry of Cooperatives and UKM (2017) Source: Ministry of Cooperatives and UKM (2017) 62 60 IDR Triliun juta Unit 64 58 56 54 52 50 2012 2013 Micro Entrepreneurs 274 2014 2015 Small Entrepreneurs Indonesia Islamic Economic Masterplan 2019-2024 2016 2017 Medium Entrepreneurs 8000 7000 6000 5000 4000 3000 2000 1000 0 2012 2013 Micro Entrepreneurs 2014 2015 Small Entrepreneurs 2016 2017 Medium Entrepreneurs
  281. MSMEs Employee absorption Total Non-Oil and Gas Exports by MSMEs Source : Ministry of Cooperatives and UKM (2017) Source: Ministry of Cooperatives and UKM (2017) 120 250 100 200 80 60 40 100 50 20 0 150 2012 2013 Micro Entrepreneurs 2014 2015 Small Entrepreneurs 2016 2017 Medium Entrepreneurs 0 2012 2013 Micro Entrepreneurs 2014 2015 Small Entrepreneurs 2016 2017 Medium Entrepreneurs In its contribution to the GDP at current prices, sized businesses, and medium-sized enterprises to MSMEs also continue to increase from year to year. even a larger scale, to enable the number of national In 2017, MSMEs contributed Rp.7,704,635.9 billion production to increase significantly. For example, and the total contribution to GDP reached 60% of converting 2.8% of the number of micro business total business. The biggest contributor is micro units into small businesses unit has the potential to business with 36.82%, followed by medium business absorb employment of at least 10 million people and 13.57%, and small business 9.61%. increase the contribution of GDP by 2,700 trillion. MSMEs became the champion at reducing unemployment rates in Indonesia. MSMEs managed to absorbed 116,673,416 people or 97.02% as workers in all business sectors in Indonesia. Micro businesses absorbed 89.17%, small businesses Despite the limited supporting data for MSMEs in the halal industry, such data can be an indication that the strengthening of the MSME sector is needed to improve the main indicators of the Islamic Economic Masterplan. 4.74%, and medium enterprises absorbed 3.11% or 3.7 million workers. Figure 5.5 which are often dominant in their contribution to the Potential for More Labor and Contribution to the GDP by converting Micro Business Class to Small Business number of non-oil exports, MSMEs contribute far Source: Central Bureau of Statistics (2018, processed) Unlike the case with the previous three indicators, less than the large business sectors. MSMEs only met the share of 14.17% or Rp298 trillion, far behind 12.000.000 compared to the large business sectors which 10.000.000 reached Rp1,806 trillion or 85.83% of the market 8.000.000 share. This indicate that the MSME sector do not yet have a good capacity in carrying out exporting activities. At present, the difference in the number of business scales are unconvincing, where a large number of businesses are in the thousands while PotentialPenambahan for additionalTenaga labor Kerja Potensi (Orang) (person) 10.099.981 PotentialKontribusi GDP contribution Potensi PDB (Milyar (Billion Rp) Rp) 2.702.529 6.000.000 4.000.000 2.000.000 0 0.1% 0.4% 0.7% 1.0% 1.3% 1.6% 1.9% 2.2% 2.5% 2.8% there is only a large number of MSMEs on the other. With micro-enterprises as the largest absorber of labor and the largest contributor to the GDP, an initiative to convert micro-enterprises into small businesses is needed, likewise small to medium- Indonesia Islamic Economic Masterplan 2019-2024 275 5 Strengthening Micro, Small and Medium Enterprises Figure 5.4 IDR Triliun Juta Jiwa Figure 5.3
  282. Micro , Small and Medium Enterprises Global and National Conditions The use of technology currently changes the receive more than 6% of foreign income from offline business and consumer culture. All businesses are MSMEs, and an increase in total income of up to experiencing a readjustment in their operations. 80%. There is no exception even for MSMEs, as it must also compete to grow in this technological era. The use of technology in the digital economy is projected to drive annual economic growth by 2% (Deloitte, 2015). Online trading is a potential means to provide further development to MSMEs. In its development, since 2012, MSMEs have been recorded as the largest absorptive labor force in Indonesia with more than 90% absorption (Ministry of Cooperatives and MSMEs, 2017). Recorded until 2015, MSMEs accounted for more than 50% of GDP, with a growth rate of 6.4% (LIPI & Bank Indonesia, Based on a report from Deloitte (2015), MSMEs’ 2015). businesses involved in digital technology tend to Table 5.1 Employment Absorption of MSMEs by Industrial Origin Source : BPS, 2018 Total Business Total labour Average Employment Absorption 170.004 376.711 2 4.348.459 11.707.339 3 29.928 53.538 2 91.541 182.817 2 225.795 2.161.410 10 G. Big Trade and Retail, Repair and Maintenance of Cars and Motorbikes 12.097.326 22.493.987 2 H. Transportation and Warehousing 1.281.250 1.684.037 1 I Provision of Accommodation and Provision of Food Beverages 4.431.154 8.530.342 2 J Information and Communication 625.772 977.381 2 K. Finance and Insurance activity 86.266 406.598 5 L. Real Estate 385.491 507.937 1 M, N Company Services 352.936 1.055.068 3 P. Education 590.423 5.873,101 10 Q. Human Health Activities and Social Activities 209.048 893.338 4 1.148.296 2.363.281 2 26.073.689 59.266.885 2 Business Field Category B. Mining and excavation C. Processing industry D. Procurement of Electric Gas / Steam for Hot and Cold Air E. Water Management, Wastewater Management, Waste Management and Recycling, and Remediation Activities F. Construction R, S Other Service Activities Total 276 Indonesia Islamic Economic Masterplan 2019-2024
  283. on the business category is in large-scale trade and retail , car and motorcycle repair and maintenance which makes up almost 46.4%, followed by the provision of accommodation and provision of drinking food by 17%, and processing industries 16.7% (BPS, 2018). The halal industry included in the 3 major MSME businesses are halal food and beverages, halal tourism, halal fashion, and halal pharmaceuticals and cosmetics, as well as directly and indirectly including halal media and recreation. Keeping in mind the important role of MSMEs in Indonesia, especially for the development of the halal industry, the government issued several development strategies and regulations that targeted the development of MSMEs. The following is an outline of government-issued regulations relating to 3. Law No. 33 of 2014 concerning Guaranteed Halal Products To provide comfort, security, safety, and certainty on the availability of halal products for the community, the government issued a regulation on Guaranteed Halal Products. This regulation stipulates that as of the year 2019, all products sold in Indonesia are halal certified by BPJPH (Halal Product Guarantee Agency). 4. PERMEN K-UKM No. 16/Per/M.KUKM/IX/2015 in relation to Implementation of Savings and Credit Business Activities and Islamic Financing by Cooperatives This regulation regulates savings and loan businesses. Islamic Cooperatives can only be obtained Islamic based financing. This Ministerial MSMEs and the halal industry: Regulation regulates the management, membership, 1. Law No. 20 of 2008 in relation to Micro, Small and Medium Enterprises relevant contracts. The Islamic cooperatives can also capital, and KSSPS business activities with the This law regulates the empowerment of MSMEs. The principle of empowering MSMEs is growing independence, entrepreneurship, and realization of transparent public policies. The development MSMEs are based on potential market-oriented regions. Government and regional regulations together facilitate the business climate by establishing policies that cover funding, facilities and infrastructure, business information, partnerships, business licensing, business opportunities, trade act as a distributor of ZISWAF funds (Alms, Infaq, Sadaqah, Endowments, and other social funds). 5. NTB Governor Regulation No. 51 of 2015 concerning Halal Tourism in West Nusa Tenggara The Governor of West Nusa Tenggara (NTB) Regulation regulates halal tourism business activities in NTB. This regulation regulates halal tourist destinations, halal tourist accommodation standards, tour guide requirements and the role of promotions, and institutional support. the community in halal tourism in NTB. 2. Law No. 1 of 2013 in relation to Microfinance Institutions 6. West Nusa Tenggara Regional Regulation No. 2 of 2016 concerning Halal Tourism This regulation regulates the establishment of Microfinance Institutions (MFIs) in Indonesia. MFIs in Indonesia are incorporated as cooperatives or Limited Liability Companies. The MFI’s activities are in the form of savings and loan businesses, which includes community empowerment through loans on a micro scale to the community and managing deposits according to Shariah or conventional 5 This regulation complements the existing regulations regarding halal tourism industry. This regulation regulates halal investment policies by providing investment incentives, tax breaks for foreign investments, and simplifying regulations and bureaucracy for licensing. It also regulates promotion investments in halal tourism, sustainable marketing and promotion strategies for halal tourism. principles. Indonesia Islamic Economic Masterplan 2019-2024 277 Strengthening Micro, Small and Medium Enterprises The absorption of 3 labor force by MSMEs based
  284. 7 . DSN-MUI Fatwa No. 108 of 2016 concerning Guidelines for Implementing Shariah Tourism The Shariah National Council (MUI) issued a fatwa on halal tourism to support and be used as a reference to subsequent regulations on halal tourism. In this fatwa, DSN-MUI explained the transaction agreements that are used in the implementation of halal tourism. For example, DSN-MUI requires Shariah compliant hotels to use the services of Islamic Financial Institutions. 8. Law No. 1 of 2016 in relation to Guarantees This law was introduced to explain the basis, purpose and scope of guarantees. It supports government policies for channeling funds and encouraging the independence of MSMEs in order to contribute to the national economy. It also includes The objective for MSME as intended by the Ministry of Cooperative and Small Medium Enterprises (K-UKM), are carried out through the following efforts (Kemenkop, 2015): 1. Increasing the competency of MSMEs in entrepreneurship and innovation, technical production and enterprising management, together with local and abroad marketing. 2. Increasing the range, scheme and quality of services for the co-operative support and related MSMEs, financing, supporting enterprises, technological and information services, market intermediation and partnership. 3. Increasing the enterprising climate that financing guarantees based on Shariah principles. is conducive through determination and 9. Qanun of the Province of Nanggroe Aceh Darussalam No. 8 of 2016 concerning Halal Product Guarantee System of regulations and policies, easy licensing, The NAD issued a regulation regarding halal product certification in accordance with NAD halal standards. The Aceh Government is responsible for overseeing the Halal Product Guarantee System in Aceh. This regulation explains the duties of the SJPH officer. 10.Government Regulation No. 24 of 2018 in relation to Electronic Approval for Integrated Enterprise Services Online System Submission (OSS) is a registration approval system in the form of electronic document in line with the provisions of the law. The OSS board has granted approvals to entrepreneurs who do not require infrastructure to carry out their businesses. The OSS board is responsible to grant company’s approval facility to MSMEs’ entrepreneurs and to assist with the access to OSS website for approvals. The above has been introduced to assist the government to achieve the objective of supporting MSMEs in contributing to the national economy and in supporting the development of the halal industry. 278 Indonesia Islamic Economic Masterplan 2019-2024 through the establishment and improvement and increasing opportunities, certainty and business protection. 4. Increasing the integration of policies across agencies and central regions supported by the participation of other stakeholders.
  285. Strengthening Micro , Small and Medium Enterprises 5 Indonesia Islamic Economic Masterplan 2019-2024 279
  286. Opportunities and Challenges in Developing Micro , Small and Medium Enterprises The potential of the halal MSME industry consideration in several laws and regulations, but in in Indonesia is huge, considering the number practice, the distribution to MSMEs is still minimal. of potential Muslim consumers. Nevertheless, In fact, the source of funding is not only from banks. the market segment of Muslim consumers and Non-bank financial institution in Indonesia can also consumers of halal products must be distinguished be used as a source of funding if managed properly. based on influencing factors, such as subjective For example, fintech and Syariah Venture Capital. norms, attitudes, intention to purchase halal products PNM Ventura Syariah, is a state-owned company (Aisyah, 2017) and the level of religiosity (Rahman, that uses Islamic venture capital scheme in its Asrarhaghighi, & Rahman, 2015). Knowledge of the financing stated that over the past few years it has behavior of Indonesian Muslim consumers ought been difficult to find customers who are truly Shariah to be explored so that Indonesian halal MSMEs can compliant. However, the funds to be disbursed by maximize the domestic market and export at the PNM Ventura Syariah are also limited, making it a same time. The potential of Muslim consumers is constraint to develop their business activities further. not only in Indonesia, the Gulf countries and other In addition, from the Muslim entrepreneurs’ point of Southeast Asian countries can become export view, doubts or lack of knowledge in Islamic financial destinations for Indonesian halal industry products. institutions impedes entrepreneurs from cooperating Another potential for MSME is the management of technology-based halal industry. Some of the with existing Islamic financial institutions or Islamic banking. pioneers of the halal industry in Indonesia originated The next obstacle is in relation to halal from a digital-based economy ranging from the retail certification. The essence of the halal industry is the trade industry to those in rural residentials. guarantee that the products and services offered are However, more than one third of the total MSMEs in Indonesia are still not utilizing digital technology (Deloitte, 2015). In fact, in 2015 it is estimated that the entry of MSMEs in the digital economy is expected to boost sales by 80% (Deloitte Access Economics, 2015). Another obstacle for digital economy in MSME is the lack of education and awareness on the use of technology in businesses, and the availability of infrastructure that is not evenly distributed in the affected areas in Indonesia. halal and safe for consumption, especially for Muslim consumers. The K-UKM Ministry, in the focus group discussion session that was held on 17 October 2018, it explained that there were at least 1,500 MSMEs being assisted for applying halal certificates, brands, copyrights, and others. In hindsight, the obstacles faced by MSME entrepreneurs is the high cost of applying for the halal certification where not all entrepreneurs can afford. The K-UKM Ministry had explained that the halal certification is free of charge, but not many were interested. The K-UKM In terms of funding, the national banking sector Ministry said it still had to run a ball picking system. has channeled at least 20% of third party funds to Hence, there is a gap between the initiative of the MSMEs (private data from Bank Indonesia). BUMN, K-UKM Ministry and the reception of the MSMEs’ Islamic and conventional banks account for 50% of entrepreneurs. this fund distribution. Access to funding needs to broaden for the MSMEs to be able to develop their businesses better. Funding constraints are taken into 280 Indonesia Islamic Economic Masterplan 2019-2024
  287. many Another HR obstacle for the halal industry is the entrepreneurs are not aware of the terms and lack of good HR characters . Graduates nowadays conditions in categorizing goods and services as are seen working in Islamic financial institutions; halal. In general, halal are goods and services that most of them do not work because of passion, but do not contain alcohol and pork. The Halal Product because of financial needs. The lack of characters Guarantee Agency (BPJPH) had also mentioned that to advance the Islamic finance industry is a sign halal also includes everything that does not contain that there must be good character education for substances that can cause bodily harm. graduates of Islamic Economics to be able to help In addition to cost constraints, The disadvantage of BPJPH is that there is no centralized and complete data available to ascertain which MSME have not received halal certification where this can be the target for socialization. Another obstacle is lack of human resources (HR) to supervise and monitor the halal upstream to advance Indonesia’s halal industry. In addition, many graduates of Islamic Economics are not absorbed into employment. The OJK suggested a curriculum discussion with the Ministry of Manpower and other labor associations to prepare graduates with the right set of skills. downstream processes. At present, for example, Besides business, MSMEs also have difficulty there is an inadequate number of supervisory staffs in finding mentors for business development for slaughterhouses and traditional markets. consultations, in order to grow from micro The Indonesian Muslim Entrepreneurs Community (KPMI) stated that there were issues from entrepreneurs who have yet to apply for halal certification because they felt they were pressured to immediately apply for the certification. The recommendation to have this certification is still a matter of consideration by the entrepreneurs for business reasons. Entrepreneurs understand that their customers are not aware of the halal certification, which makes them feel that they do not need the halal certification for their businesses. They also do not see any guarantees that their halal certified products are better-off than their current products, and it is not certain that the costs and expenses incurred for the application can be recovered or reimbursed from their subsequent sale proceeds. businesses to small businesses, from business small to medium-sized businesses, and from medium-sized businesses to large businesses. MSMEs’ entrepreneurs need assistance for more competitive businesses in the digital economy. Online shopping sites or marketplace has the means to introduce Islamic finance institutions to MSMEs. However, only a handful of entrepreneurs are using such services. Based on this statement, it is an indication that the unfamiliarity of the Indonesian MSME’s entrepreneurs in digital financial services have the potential to become a source of capital for developing businesses. Opportunities and Threats for MSMEs in Supporting the Halal Industry Based on the description of the condition of Micro, Small and Medium Enterprises in Indonesia, the opportunities and challenges of developing MSMEs are identified as follows. Indonesia Islamic Economic Masterplan 2019-2024 281 Strengthening Micro, Small and Medium Enterprises 5
  288. Table 5 .2 Opportunities and Threats for the Development of MSMEs Aspects Demography Marketing Opportunities Threats Muslims in Indonesia are not aware of the importance of consuming halal products Large number of Muslims in Indonesia Expectations ought to be met by Muslim consumers, namely subjective norms, attitudes, buying intentions and religiosity Large number of Muslims is a potential marketing target Middle East countries are a potential marketing target MSMEs’ ability to export is still low One third of MSMEs in Indonesia have not yet entered digital technology Digital Economy Funding Halal Certification Business Several pioneers of the halal MSME industry Lack of access to the results of Research and started from digital-based economy Development that uses technology to maximize products (output) At least 20% of banking loans are channeled In practice, the distribution of funds to MSMEs is still minimal to MSMEs, state-owned banks account for 50% For funding, the majority of the entrepreneurs’ mindset are still focused on the banking Regulating regulate funding activities to industry MSMEs There is already Law No. 33 of 2014 concerning Guaranteed Halal Products which regulates the requirement to have halal certificates, including for MSMEs The existence of a halal certificate subsidy program from the Ministry of Cooperatives and SMEs and certain Provincial Governments Availability of online sites that can connect MSMEs entrepreneurs and financing facility providers Halal certificates is still costly The halal certificate subsidy program has not been properly socialized Data kept by BPJPH are limited Inadequate HR to supervise halal upstream and downstream Difficulties to find mentors that supports and finance businesses Lack of business infrastructure surrounding business activities The need for business assistance is required for Based on the descriptions above and additional three matters, namely how to trade (how to sell), how information obtained through the Focus Group to get financing (how to fund), and how to run (how to Discussions, there are six identified issues, namely: operate). These three matters are very important in encouraging MSMEs to play a major role in boosting the GDP of the Indonesian economy. Although the MSME sector has great potential and opportunities, there are also many challenges in achieving such potentials. 5. Lack of understanding and awareness on the importance of halal products. 6. The need for assistance to increase managerial capabilities of entrepreneurs to be able to carry out value creation. 7. Funding or disbursing funds to MSMEs, both 282 Indonesia Islamic Economic Masterplan 2019-2024
  289. 9 . The absence of an integrated digital platform are not applicable to MSMEs, as well as due that records MSMEs halal industry including to the lack of knowledge on applying for funds types of businesses, products, and locations from Islamic financial institutions. that can bring together entrepreneurs who 8. Infrastructure for business activities that needs excess funds. are still lagging, such as the slow process to 10.Lack of access to the results of Research apply for business licenses, workers who have and Development that uses technology to relatively little expertise, lack of tax incentives, maximize products (output). and no easy access to facilities to carry out product innovations. Indonesia Islamic Economic Masterplan 2019-2024 283 5 Strengthening Micro, Small and Medium Enterprises from the supplier side whose requirements
  290. Support for the Halal Industry Table 5 .3 MSMEs Support towards Halal Industry Cluster Association with MSME Cluster •• At the time this was drafted, there were no government regulations or ministerial regulations that pertain to technical information on halal auditors in BPJPH and who can become BPJPH partners in handling halal certification. •• The affected MSME complained about the high cost high for certification, the lack of information about halal certification for businesses, and the lengthy process to obtain labels. •• Insufficient number of halal auditors. Halal Food •• The affected MSME feels that halal certification will not add profit to their existing businesses. •• There is a gap between the initiative of the K-UKM Ministry and the number of MSMEs. •• The proposed halal certification is for the community, so that halal supervisors and halal auditors can be at the community level to reduce the operational costs of halal MSMEs. •• In addition, a socialization program is needed to highlight the importance of halal labels that can be accepted in the MSME business, the need for halal certification workers who are closer to MSME entrepreneurs, the need for a scheme to reduce the cost of halal certification, and simplification of halal certification requirements. •• MSME is one of the entrepreneurs at each halal tourism entry point value chain, which are tourism destinations, airlines and airports, hotel, restaurants, café, retailers and travel and tours. •• The growth of halal tourism MSME directly contributes to the growth of relevant industries. In addition, almost all MSME that collaborates with Halal Tourism industry receives Islamic financing which had enabled them to grow expediently. REGULATION Regulation Training & Development TRAINING & DEVELOPMENT Halal Tourism Tourism Destination 1. Media & Recreation 2. Food & Beverages 3. Modest Fashion 4. Hotel 5. MSME 6. Renewable Energy Transportation 1. Media & Recreation 2. Halal Food & Beverages 3. Modest Fashion 4. MSME Hotel & tAccommodation 1. Media & Recreation 2. Halal Food & Beverages 3. Modest Fashion 4. MSME Infrastructure & Facility Restaurant & Cafe 1. Halal Food & Beverages 2. MSME Travel & Tours 1. Halal Food & Beverages 2. Hotel 3. Airlines 4. MSME Sustainable Tourism ISLAMIC FINANCING •• 30% of UKM in Indonesia is controlled by Muslim clothing industry (Kemenperin, 2016) Muslim Fashion 284 •• However, MSME’s access to raw materials is still limited •• The need to strengthen the partnership between textile industry, designers, brand holders, and fashion MSME to expedite the growth of Muslim fashion. Indonesia Islamic Economic Masterplan 2019-2024
  291. •• A major entrepreneur in halal cosmetics from MSME started from a boarding school (i.e. Wardah). Halal Pharmaceutical •• This is a potential where MSMEs’ entrepreneur can be player in cosmetics industry by producing halal and Cosmetics cosmetics at affordable prices. •• Application and game developers are MSME. •• As big as 15 trillion Rupiah (2% from the total GDP of Ekraf national) GDP is a contribution to the Application and Game Developer in 2015. Halal Media and Recreation •• Only 0.97% entrepreneurs in the Application and Game Developer obtain funds from venture capital. •• Group scheme Angel investor may be used as a catalyst to increase access to Islamic capital for MSMEs’ halal media and recreation. Renewable Energy Digital Economy •• MSMEs’ entrepreneurs are hoped to be consumers of renewable energy. •• The Indonesian government provides great support for developing the domestic digital economy sector. One of the ministries / government institutions that specifically provides support for the digital economy is the Ministry of Cooperatives and MSMEs with digital programs. •• Lending services provide opportunities for small businesses (MSMEs) that have not been able to obtain bank loans (unbankable) in order to receive business capital. •• The strategy is to create more MSME which are supported by technology. Social Guarantee •• BAZNAS and BWI are also correlated with alternative institutions related to social security such as the Education Fund Management Agency (LPDP), Social Security Management Agency (BPJS), Revolving Fund Management Institution (LPDB) and other institutions related to the provision of social security. Social security provided by these institutions to MSMEs includes opportunities to improve HR capabilities through education, subsidized health access, Islamic capital. •• UMKM needs to make sufficient access with good philanthropists in Islamic banking, for example by accessing funds with regards to Islamic Banks or with institutions that manages ZISWAF, by utilizing the results of managing funds from productive Waqf institutions. •• The function of an Islamic bank currently is only to act as LKS-PWU (Institution of Money-Islamic Collectors), in the future it should also be encouraged to become the productive Waqf fund manager, or what is often referred to as Nazir Wakaf. Islamic Finance •• Hajj funds must also be optimized and placed in Islamic financial institutions and allocated to MSME projects, facilities and halal industrial infrastructure. •• Developing MSME centers in each provision by diversifying products. •• The government is to determine the district that will be the center of MSMEs. In addition, Islamic microfinancing institutions are to cooperate with Islamic banks to develop it. •• This district can also be used as a halal tourism destination that carries the concept of Islamic empowerment village. Indonesia Islamic Economic Masterplan 2019-2024 285 Strengthening Micro, Small and Medium Enterprises 5
  292. Cluster Specific Strategy for MSMEs No Strategy /Program/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 1: MSMEs Support and Financing Facilities* 1. Synergy between all Islamic financial •• Islamic financial institutions to educate micro businesses institutions can for easy financing ** synergize for education and a. Aligning micro-business financing financing for programs that have been or will micro-enterprises be owned by Islamic financial institutions to run in harmony in financing efforts that are targeted for micro-enterprises OJK, Bank Indonesia, Ministry of Cooperatives and SMEs b. Educating micro-entrepreneurs on financing facilities using Islamic financing schemes c. encourage Islamic financial institutions (Islamic banks) that focus or have a value proposition to provide financing to Halal Value Chain MSMEs d. Encouraging OJK to require Islamic financial institutions to have a financing portfolio of halal MSMEs with a minimum value chain of 30% 2. Government funding subsidy programs must be accompanied by shariah peerto-peer lending for micro and small businesses ** •• Existing government funding subsidy programs can be optimized a. Ensure that government financing supported by subsidies program can run as targets shariah peer-tob. Synergizing existing existing peerpeer lending for to-peer lending business activities micro and small to support the government’s funding businesses subsidy program 286 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Cooperatives OJK Bank Indonesia Ministry of Cooperatives and Small and Medium Enterprises Ministry of Communication and Information
  293. No Strategy /Program/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders •• The growth of small and medium enterprises is in line with a. Facilitating the implementation of the growth of productive waqf programs in synergy productive waqf with Islamic financial institutions, instruments with support from the regulatory side that allows Islamic financial institutions to channel productive waqf funds OJK, Ministry of Cooperatives, Indonesia Waqf Agency, DPR-RI b. Design a productive waqf program for small and medium-sized businesses whose implementation is in synergy with Islamic financial institutions to run well and ensure continuity Bank Indonesia, Indonesia Waqf Agency 3. Synergy between Islamic financial institutions supported by productive waqf is on target for small and medium enterprises ** Bank Indonesia, Ministry of Cooperatives, Indonesia Waqf Agency, DPR-RI c. Ensuring good governance to maintain the sustainability of productive waqf funds for small and medium enterprises 4. Facilitating capital-based financing by •• The issuance of providing advanced technology-based the relevant OJK marketplace stock investment (example: Regulations and Blockchain) for the exit strategy of the the availability of initial investors for small and medium1 marketplace sized businesses to conduct IPOs, while stock investment creating secondary markets that fulfil with 100 issuers shariah requirements, so that they can meet the needs of halal SMEs. shariahbased capital ** a. Providing infrastructure for advanced technology marketplace stock investment needs for initial investors for small and medium enterprises b. Escort the implementation of advanced technology-based marketplace stock investments for initial investors for small and medium-sized businesses whose implementation meets shariah principles OJK, Ministry of Communication and Information, Ministry of Cooperatives and Small and Medium Enterprises, DSNMUI OJK, Ministry of Communication and Information, Ministry of Cooperatives and Small and Medium Enterprises, Indonesia Stock Exchange Indonesia Islamic Economic Masterplan 2019-2024 287 Strengthening Micro, Small and Medium Enterprises 5
  294. No Strategy /Program/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 2: Halal Lifestyle Literacy for MSMEs 1. Increasing awareness among MSME entrepreneurs about the importance of halal products a. Socialization through existing MSME communities b. Cooperating with existing mass media facilities, both digital and non-digital, to change the mindset of the community, especially MSME entrepreneurs, about the importance of halal certificate 2. Strive for the progress of halal-certified MSMEs, and ensure all halal products of MSMEs have halal certificates * a. Support efforts for programs that facilitate halal certification in communities •• All MSME products can be halal certified in December Ministry of Cooperatives, MSME Community •• 2024 and in December 2019 a Government Regulation concerning halal MSME products has to be obtained from Islamic financing Ministry of Cooperatives, Ministry of Communication and Information, MSME Community •• Created a halal awareness culture among MSME entrepreneurs Ministry of Cooperatives, BPJPH •• The creation of a healthy halal industry ecosystem that is supported by local government and related authorities Ministry of Cooperative and Small and Medium Enterprises, Provincial and Regency / Municipality Governments, Halal Product Guarantee Administrators b. Raising or supporting social programs that provide subsidies for micro entrepreneurs in managing halal certificates 3. The halal industry for MSMEs is supported by local governments and related authorities a. Pemberian subsidi atau pendanaan dari pemerintah daerah untuk sertifikasi halal b. Adequate provision of halal infrastructure, including halal auditor c. Business permit requirements are accompanied by halal certification, after adequate halal infrastructure Ministry of Cooperatives, BPJPH, BAZNAS, BWI Halal Product Guarantee Agency, Ministry of Finance, OJK, Bank Indonesia Halal Product Assurance Organizer, Ministry of Cooperative and Small and Medium Enterprises 288 Indonesia Islamic Economic Masterplan 2019-2024
  295. No Strategy /Program/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders 5 1. Synergy involving MSME units in Islamic •• The majority of Boarding Schools & Islamic Boarding Islamic boarding Schools as active parties in building halal schools in industry human resources in Indonesia * Indonesia already have MSME a. Increase the number of pesantren units each with a production from all types of different type of businesses business b. Increase the number of •• and there entrepreneurs with new businesses is at least 1 c. Increasing the number of students hypermarket and ready for work 1 e-commerce platform in d. Creating hypermarkets in big cities Indonesia that specifically for marketing halal specifically products from Islamic boarding markets local schools. Supported with e-commerce MSME halal platform for all halal products. products and boarding schools KUKM Ministry, Ministry of Religious Affairs 2. Big Business Synergy with MSMEs * Ministry of Cooperatives, Ministry of Trade •• Cooperation in assisting a. Scale-up and export mentoring 3 BUMNs assistance with MSME b. Trade cooperation between SOEs and communities MSMEs KUKM Ministry, Ministry of Religious Affairs Ministry of Religious Affairs KUKM Ministry, Ministry of Religious Affairs, Ministry of Trade Ministry of Cooperatives, Ministry of SOE, Ministry of Trade Strategy 4: Developing MSMEs Database** 1. Define and record MSME entrepreneurs through the smallest community units a. Define who belongs to MSME sector b. Collaborating with relevant parties in order to use data on election participants, the Central Statistics Agency (BPS), BPJS and other national data providers c. Data record community who have the criteria for MSME entrepreneurs •• Can define who is included in MSME and available community data including MSME entrepreneurs Ministry of Cooperatives, KNKS, Bank Indonesia KNKS, Ministry of Cooperatives and Small and Medium Enterprises, Ministry of Home Affairs, General Election Commission (KPU), BPS, BPJS Health & BPJS Employment KNKS, Ministry of Cooperatives Indonesia Islamic Economic Masterplan 2019-2024 289 Strengthening Micro, Small and Medium Enterprises Strategy 3: Synergy in the Framework of Improving the Quality of MSMEs
  296. No Strategy /Program/Activities Target Indicator 2. Creating a database platform where •• There is a MSME entrepreneurs who are in need of database funds or excess funds can be met with platform that ZISWAF institutions that have productive can bring funds ready to use or accommodate together MSME productive funds entrepreneurs and ZISWAF a. Model plan database institutions, both b. Coordinating with relevant for the benefit of stakeholders funding needs and excess funds c. developing database infrastructure Year 2019 2020 2021 2022 2023 2024 Stakeholders KNKS, Bank Indonesia KNKS, Bappenas, OJK, LPS, Bank Indonesia, BAZNAS, BWI, Ministry of Cooperatives, DSN-MUI, Banking, Associations KNKS, Bank Indonesia, OJK, Ministry of Cooperatives d. Data record MSME and ZISWAF community object e. Officiating database f. Renewing data in each period Ministry of Cooperatives, BAZNAS, BWI KNKS KNKS, Ministry of Cooperatives, BAZNAS, BWI 3. Collaboration with Islamic Financial Institutions for business feasibility analysis and distribution of productive funds as business capital a. Developing cooperation with Islamic financial institutions b. With a built-in database, work together to analyze business feasibility c. Using Islamic banks as a medium for channeling productive funds for MSMEs 290 Indonesia Islamic Economic Masterplan 2019-2024 •• Collaborated with Islamic Financial Institutions to analyze business feasibility and channel productive funds as business capital KNKS, Ministry of Cooperatives, OJK KNKS, Ministry of Cooperatives, OJK KNKS, Ministry of Cooperatives, OJK
  297. 1 .Islamic Micro Financing Facility and MSME Assistance in accordance with Business Scale (Islamic Micro Finance Sharing Platform) funds to small and medium enterprises and it is well managed so that the element of sustainability is maintained. The acceleration of small and medium enterprises to move up to the next level can also be done by providing facilities for advanced technology Different approaches need to be taken according marketplace stock investment for small and medium to the scale of the MSME business in order to achieve enterprises, both in the primary market (IPO), and the the effectiveness of the financing program. For secondary market. This marketplace stock can be micro and small businesses, the support of Islamic an exit strategy for the initial investors for small and financial institutions and government programs medium enterprises whose implementation adheres targeted at micro and small businesses are very to Shariah provisions, in order to fulfill the MSMEs important. If Islamic financial institutions can halal value chain’s needs towards Shariah-based synergize well, micro-businesses will benefit, namely capital. financing that supports their business activities. To optimize the financing for the MSMEs by Islamic financial institutions, OJK can require financing distribution of 30% -40% to MSMEs. Likewise, for government programs, the business loans can harmonize with peer-to-peer lending or financing where it will produce good and targeted synergies, not only for micro businesses, but also for small businesses. Within the scope of small and medium enterprises, Islamic philanthropy instruments, namely productive endowments can be utilized by aligning them with Islamic financial institutions. It is hoped that, at the time of implementation, there are progresses in terms of regulations, where Islamic financial institutions are not only becoming Financial Waqf Distribution Institutions (LKS-PWU), but also assist in the distribution of productive waqf Indonesia Islamic Economic Masterplan 2019-2024 291 Strengthening Micro, Small and Medium Enterprises 5 Quick Wins to Develop Micro, Small and Medium Enterprises
  298. 6 Strengthening the Digital Economy
  299. Muslims are the world ’s strategic consumers. The transaction value is USD 107 billion (Rp 1.522 trillion) in 2014 and is projected to grow 17 percent CAGR to USD 277 billion or Rp 4,016 trillion by 2020.
  300. “Digital economy” is a new term in the world In relation to the Islamic digital economy, there of economics and technology. There is currently is currently no globally agreed definition. Thomson no exact agreed definition and understanding on Reuters and Dinar Standard (2015) calculate digital economy. According to the report from digital Islamic economics based on e-commerce the Committee for the Acceleration of Provision transactions and digital advertising expenditure of Priority Infrastructure or KPPIP (2018), digital carried out by Muslims. However in relation to the economy is one that includes economic activities Islamic economic masterplan, the team defines the that uses internet networks and platforms as digital economy as part of an Islamic economy that infrastructure and is not to be separated from the supports the halal industry through a good digital public. The 2018 ASEAN Investment Report defines platform that can increase sales and production digital economy as the application of technology to efficiency, which in turn will improve company use the internet in the production and trade of goods performance. and services. Meanwhile, the IMF, in its publication entitled “Measuring Digital Economy”, concluded that the term “digital economy” is often used to show that digitalization has spread to all sectors of the economy ranging from agriculture to warehousing. Another definition of digital economic states that digital economic is part of a national economy which is based on digital technology, with business models based on digital goods or services (Heeks, 2018; Accenture, 2016). More broadly, new economic activities such as collaborative economy, gig economy, and sharing economy can be categorized as digital economy. The definition of digital economy can also be seen from different aspects such as human resources and technology, business processes, and business structures. Several annual global economic reports put forward financial technology (fintech) and e-commerce platforms as cross-industry supporting infrastructures (e.g. food, IT products, fashion, travel) involved in digital transactions. The digital economy is not to be separated from other economic sectors because its application can be applied in various industrial sectors, ranging from finance, transportation and logistics, education, health, agriculture, etc., even across sectors. 294 Indonesia Islamic Economic Masterplan 2019-2024 The growth of the digital economy can be seen through two sub-sectors, namely e-commerce and fintech. These two subsectors show promising growth over the past few years. Bank Indonesia defines financial technology (fintech) as the result of a combination of financial services and technology, which ultimately changes the conventional business model, from initially transacting in person by carrying a certain amount of cash to now performing transactions in mere seconds. The OECD defines e-commerce as purchasing and selling transactions of goods and services, between businesses, households, individuals, governments, and other public or private organizations, through the internet. Ordering goods may be done via the internet, but payment and final delivery of goods and services are done online or offline (Cash on Delivery). Sharing economy platform or marketplace is also included in the e-commerce category.
  301. The global digital economy market generated side , starting from retail, marketplace, and economy US$ 1.9 trillion or around Rp. 27,550 trillion in 2014. sharing. In addition, social commerce, such as This value is calculated from the e-commerce discount information sharing platforms also provide transactions and digital advertising expenditure, good opportunities that can be optimized. and is expected to grow by 15% by 2020. Muslims represent an increasingly important consumer base, the value of Muslim consumers in the global digital economy is estimated at US$ 107 billion or around Rp 1,522 trillion in 2014, and is projected to grow at 17% CAGR to US$ 277 billion or Rp 4,016 trillion by 2020. Muslims worldwide represent nearly a quarter of the world’s population and around 5.8% of the global digital economy in 2014. For regulations that regulates fintech, it can be integrated into the existing regulatory frameworks or new regulations. An important guiding principle might be neutrality; ensuring that regulations do not support one entity or form of activity above the other, provided that the risks are the same (BIS (2018)). For this reason, authorities can apply stricter regulations on certain types of activities, such as fintech involving investors and retail consumers. For example, in The digital economy is a product of the unification Australia and the Netherlands, fintech loan providers of economy and technology. The scope of digital must submit applications for special licenses (and economy can be narrowed down to e-commerce and meet the stringent related requirements) to provide financial technology businesses. According to the loans to consumers. Thomson Reuters (2015) report, the digital Islamic economy has a potential market in several industrial sectors, ranging from the education sector, halal food sector, halal tourism sector, Muslim fashion, halal pharmacy and cosmetics, and Islamic finance. The greatest potential is in the Muslim fashion sector, pharmaceuticals and cosmetics, and Islamic finance. The strategic form of digital economic products to be developed is from the e-commerce Graph 6.1.1 Potential of the Digital Economy Sector Source: Thomson Reuters, 2015 In the United States, platforms involved in lending are required to apply for licenses in each state in which they operate. For this reason, many platforms work together with banks to provide loans to be approved online. There are similar practices in Germany, where the fintech platform is prohibited from being involved in loans without having proper banking licenses and prudential supervisions. A number of countries have introduced new regulations that are specific with certain licenses. All of these changes have occurred since 2015, and in some countries, these specific provisions have just been implemented. For example, Brazil and Mexico 4300 2020 in the early 2018. Licenses to operate fintech credit 277 platforms can be subjected to general requirements 1800 2014 for adequate governance and risk management. 107,2 0 introduced new regulations and licensing practices Minimum capital requirements have been applied 1000 2000 Pasar Global Global Market 3000 4000 Pasar MuslimMuslim Market 5000 in Spain and in the United Kingdom, and the same will come into force for Switzerland in January 2019. Indonesia Islamic Economic Masterplan 2019-2024 295 Strengthening the Digital Economy 6 Global Conditions and National Digital Economy
  302. In 2016 , the Chinese government began introducing Indonesia has the fourth largest population in new rules to ban several high-risk business models the world, and is often projected to be the largest and practices, and mandated information disclosure market for digital trade in Southeast Asia in the near and requirements. future. Over the years, Indonesia has made progress At the same time, many authorities are trying to ensure that its regulatory framework does not impede innovation and market entry. This can be very important in a developing market economy where the efficiency and benefits of access are potentially high. Authorities in various jurisdictions have placed facilitators of innovation, including: “regulatory sandboxes” to test new technologies in a controlled environment; “innovation hubs” that support new companies and navigate existing regulations; and “accelerators” that promote specific tasks of policy relevance, sometimes with funding support. Some jurisdictions have introduced special tax incentives in digitizing, as reflected in the increase of internet users and online buyers in the country. However, all stakeholders need to overcome a number of important problems to fully realize the potential of the digital economy. Firstly, the technology, information, and communication (ICT) infrastructure in Indonesia is relatively low compared to other developing countries, in terms of both quality and quantity. Internet usage grew to 25.4% of the population in 2016, placing Indonesia above Laos and Myanmar. However, Indonesia’s internet connection speed is also slower than in many of its neighboring countries, lagging behind China and Vietnam. The price of for investors too. Table 6.1 Fintech Policy Framework in Various Countries Source: Bank for International Settlements, 2018 Country Tax Incentives Regulations Licences Investor protection Risk management Australia - - - - - Brazil - √ √ √ - Kanada - - - - - Chili - - - - - China √ √ √ √ √ Estonia - - - √ - Finlandia - √ √ - - Perancis √ √ √ √ √ Jerman - - - - - Jepang √ - - - - Korea - - - - - Meksiko - √ √ - √ Belanda - - - √ - Selandia Baru - √ √ - √ Singapura - - - - - Spanyol - √ √ - √ Swiss - √ √ √ √ Inggris √ √ √ √ √ Amerika Serikat - - - - - 296 Indonesia Islamic Economic Masterplan 2019-2024
  303. Table 6 .2 Comparison of Indonesia’s Digital Infrastructure and ASEAN countries 6 ICT Development Index (IDI) IDI rating Cellphone penetration Unique Mobile Subscribers 3G+4G Smartphone Thailand 5,67 78 122% 85,47% 82,47% 58,98% Indonesia 4,33 111 126% 58,43% 40,48% 40,37% Singapura 8,05 18 145% 71,52% 63,14% 78,16% Malaysia 6,38 63 142% 76,1% 60,3% 64,63% Filipina 4,67 101 117% 65,09% 44,74% 40,9% Vietnam 4,43 108 152% 49,66% 36,48% 27,84% Country Remarks: The ICT Development Index uses data as of 2017, while mobile broadband, mobile phone and network customer data uses data as of 2016. broadband internet in Indonesia is also above the In developing a digital economy, communication regional average, mainly because it is an archipelago, and information infrastructure must be in existence which makes it technically more difficult to provide in order to succeed. Based on the ICT Development internet networks throughout the country. Index Although the government has begun to expand domestic broadband networks through the Palapa Ring Project, there is still much to be done for Indonesia to catch up with its regional counterparts in terms of infrastructure. Another big challenge for Indonesia is human resources. Many Indonesian start-ups face difficulties in finding skilled workers with relevant expertise within the country. As a result, they sometimes have to hire programmers or 2017 (International Telecommunication Union, 2018), Indonesia is ranked 111th out of 176 countries. It is far behind Singapore, which is ranked 18th, and Malaysia, which is ranked 63rd. However, Indonesia’s ranking has increased from the previous year, which was at 114th. This increase was driven by the growth of internet consumption from the number of households with installed internet connections, and number of internet subscriptions via mobile broadband. technicians from other countries, such as India. As The growth of the digital economy is influenced by the digital economy in Indonesia grows bigger over internet access. In Indonesia, the number of internet time, there will be an increasing need for workers who users experienced a significant increase from 42 specializes in programming, web design, internet million people in 2010 to 143.26 million people in security, data, and other key areas. In addition, 2018, increasing more than three times in the past 7 the government needs to increase investment in years. Sourced from the Indonesian Internet Service technical and vocational education and training, Providers Association (2018), economic activities and encourage people to be involved in vocational carried out by the Indonesian people include education related to ICT. Meanwhile, companies searching for prices (45.14%), helping jobs (41.04%), can also strengthen in-house training to meet their buying information (37.82%), online purchasing specific needs. However, because most companies in (32.19%), job-hunting (26.19%), performing banking Indonesia are micro, small and medium enterprises, transactions (17.04%), and online sales (16.83%). which does not have the ability to conduct adequate training at their own expense, the government has a role to supports the improvement of the capabilities of digital MSMEs when needed. Indonesia Islamic Economic Masterplan 2019-2024 297 Strengthening the Digital Economy Source: ITU and Bukht & Heeks, processed, 2018
  304. Graph 6 .1.2 Meanwhile, more specifically, the growth of digital Internet users in Indonesia transactions in Indonesia have also experienced Source: Association of Indonesian Internet Service Providers, 2018 significant growth. According to Euromonitor data (2018), from 2013 to 2017, digital transactions in 160 143,26 140 132,7 120 82 80 55 60 40 Rp. 132 trillion. The highest growth was dominated by transactions through mobile applications, which 110,2 100 Indonesia have grown by 169% from Rp. 49 trillion to grew by 383% since 2013, and transactions for retail 88,1 through mobile applications grew the highest, with growth of 2,437% from Rp 1 trillion in 2013 to Rp 38 63 trillion in 2017. 42 Graph 6.1.4 20 0 Digital Transaction Growth Source: Euromonitor, 2018 2010 2011 2012 2013 2014 2015 2016 2017 Until now, digital economic growth in Indonesia has shown a satisfactory increase, with the percentage of the information and communication sector being higher than the national economic 140 120 100 80 60 growth, which is around 5%. The value of production 40 in this sector continues to increase, although there 20 has been a decrease in growth percentage in the last 0 five years. Graph 6.1.3 Total Digital Transaction Digital Transaction via Mobile 2013 2014 Transportation Accommodation Retail Digital-Mobile Digital-Mobile Digital-Mobile Transaction Transaction Transaction 2015 2016 2017 Information and Communication Sector GDP Growth report (DailySocial.id), Indonesia is the largest Source: Central Statistics Agency, 2018 consumer market for digital products in the Southeast 11,00% 600 500 400 10,40% 10,10% 349,15 384,48 421,77 459,21 9,70% 9,80% 10,00% In fact, Indonesia ranks sixth among countries with 9,50% the highest number of start-ups in the world (Startup 9,00% Ranking, 2018). 8,90% 8,50% 2013 2014 2015* PDB (Billion Rupiah) Nilai PDB (triliun rupiah) 298 Indonesia Islamic Economic Masterplan 2019-2024 On the industrial side, the growth of Indonesia’s 10,50% 100 0 Asian region, which is expected to continue growing. 504,28 300 200 Meanwhile, based on the Startup Report 2017 2016** 2017*** 8,00% Growth (% yoy) Pertumbuhan (% yoy) digital start-ups also show a rising trend every year.
  305. Table 6 .3 10 The growth of the digital economy can be seen Countries with the Most Startups through the growth of two sub-sectors, namely Source: Startup Ranking, 2018 e-commerce and fintech. These two subsectors has Number of Startups Amerika 45909 of retail e-commerce transactions in Indonesia is India 5776 increasing. It is predicted that the value of online Inggris 4834 sales transactions in Indonesia will double in the Kanada 2414 Jerman 1948 Indonesia 1944 Perancis 1374 Australia 1282 Growth in Value of Retail E-Commerce Transactions in Indonesia Spanyol 1191 Source: Statista, 2018 Brazil 1062 According to data from Statista (2018), the value next 4 years, from USD 7.1 billion in 2017 to USD 14.4 billion in 2021. Graph 6.1.5 18 among the 50 start-ups with the highest funding in ASEAN. One of Indonesia’s leading digital start-up is one of the fastest growing technology companies 16.5 15 14.4 14 12.3 12 10.4 10 8 in ASEAN as well. The company also experienced 6 the most expansion, expanding to Malaysia, the 4 Philippines, Singapore, Thailand and Vietnam. 2 0 5.8 2016 7.1 2017 8.6 2018 2019 2020 2021 2022 Table 6.4 Digital Startup with the Highest Funding Source: ASEAN, processed, 2018 No Company Industry Amount of Funding Expansion 1 Tokopedia Online marketplace US$ 1,1 billion Not available 2 Go-Jek Transportation US$ 585 million Vietnam 3 Traveloka Travel USS 500 million Malaysia, Philippines, Singapore, Thailand, Vietnam 4 MatahariMall E-commerce platform US$ 142 million Not available 5 PT Indo Lotte Makmur (iLOTTE) E-commerce platform US$ 100 million Not available 6 PT MCash Integrasi Internet of Things US$ 43 million Not available 7 Pundi X Payments and remittances US$ 35 million Singapore 8 FinAccel (Kredivo) Fintech US$ 30 million Singapore 9 Sale Stock Fashion online marketplace US$ 27 million Singapore Indonesia Islamic Economic Masterplan 2019-2024 299 Strengthening the Digital Economy shown promising growth over the past few years. Country Some digital startups in Indonesia have become 6
  306. Based on data from Fintech Singapore (2018), both in the form of P2P lending/investment and disclosed investment in Indonesia reached IDR 2.56 consumer credit. Of the 37 members of AFSI, at least trillion in 2017. Then, transactions in the fintech 31 of them are lending companies in the Shariah market in 2018 are projected to be around Rp 323 sector, 3 companies in crowdfunding, 3 companies billion with annual transaction growth projections of in personal finance and wealth management, 1 up to 16, 3%. company in accounting, and 1 company in Point- Fintech itself is divided into several types, including loans (peer-to-peer lending), payment of-Sale. Meanwhile, other companies are academic institutions, consultants, and marketplaces. systems, investment and financial management, price comparison, insurance, crowdfunding, POS systems, cryptocurrency and blockchain, and accounting. Of the nine types of fintech which Graph 6.1.7 Shariah Fintech Distribution in Indonesia Source: Fintech Syariah Indonesia Association, processed, 2018 dominates the fintech ecosystem in Indonesia, the payment systems makes up 38% and P2P lending makes up 31%. Lending, 23,74% Graph 6.1.6 Accounting, 1,3% Distribution of Fintech Services in Indonesia Personal Finance & Wealth Management, 3,10% Source: Fintech Singapore, 2018 Crowdfunding, 3,10% POS, 1,3% Payment, 30% Lending, 31% Personal Finance & Wealth Management, 8% Comparison, 7% Insutech, 6% Crowdfunding, 4% POS System, 3% Criptocurrency & Blockchain, 2% Accounting, 1% Seeing the growth of digital transactions through mobile applications, the launch of potential mobile applications increases the growth of Islamic fintech. According to processed data from the Google Play Store, as of November 2018, there are 15 Shariah fintech companies mobile apps on the Android platform. Even so, the number of downloads on each application is still relatively small, collectively Based on the Association of Fintech Syariah Indonesia’s (AFSI) website in November 2018, there are 37 members who are registered with AFSI since it was founded in October 2017. Members of the AFSI do not only consist of Shariah fintech, but also include institutions, academics, and associations that have activities related to Shariah fintech. So far, the distribution of Islamic fintech in Indonesia is still dominated by the lending business sector, 300 Indonesia Islamic Economic Masterplan 2019-2024 only 5000 downloads are done through 6 of those applications.
  307. Table 6 .5 No Company Name Service Type Total Downloads 1 Tamasia Personal Finance & Wealth Management 50000+ 2 SyarQ Lending 10000+ 3 Qasir POS 10000+ 4 Oorth* Crowdfunding 10000+ 5 Ammana Lending 5000+ 6 Dana Syariah Lending 5000+ Note: Oorth is a social media application, but this application has digital services for payment of zakat and wakat. At the moment, the OJK, as one of the institutions 2018. The increase in the number of assets was that regulates financial institutions, has just mainly due to the increasing amount of P2P lending released data for fintech in the form of P2P lending. registered and supervised by the OJK. The growth of assets from peer-to-peer lending companies in Indonesia experienced a significant increase during 2018. In October 2018, there were 72 fintech companies registered with the OJK. Of the 72 companies, 2 of them are in the Shariah fintech category. Although there are only 2 Shariah fintech companies, some conventional fintech companies have also begun to provide Shariah-based financing on their platforms. In terms of regulation and support for the digital economy, the Indonesian government began to pay attention to its potential and had since issued several regulations to develop this sector. Among the strategic plans that have been issued by the government are the 2015-2019 Strategic Plan of the Ministry of Cooperatives and SMEs to develop the MSME sector through the digital economy, the 20152019 Ministry of Communication and Information With the data released from the OJK, P2P lending Strategic Plan, Making Indonesia 4.0 by the Ministry assets increased dramatically from around Rp 3 of Industry, and the E-Commerce Roadmap by the trillion in January 2018, to Rp 13 trillion in September Ministry Communication and Information. In Indonesia, there are 3 regulators that regulates Graph 6.1.8 Growth of P2P Lending Assets in Indonesia in 2018 the financial services and digital-based transactions. These bodies (BI and OJK) also regulate Shariah digital services. Source: Financial Services Authority, 2018 16 13,83 14 11,68 12 9,21 10 7,64 8 6 4 3 3,54 4,47 5,42 2 0 Jan Feb Mar Apr Mei Jun Jul Agu 2018 2018 2018 2018 2018 2018 2018 2018 Indonesia Islamic Economic Masterplan 2019-2024 6 Strengthening the Digital Economy Shariah fintech applications with the most downloads 301
  308. Table 6 .6 Regulators in Digital Financial Services Bank Indonesia Ministry of Communication and Informatics Financial Fervices Authority •• e-Wallet •• Peer-to-peer lending •• Telecommunication •• e-Money •• Crowdfunding •• Information Technology •• Gate of payment •• Digital banking •• Principals •• Insurtech •• Aspects of fintech which are included in information technology •• Switching companies •• Fintech in the capital market •• Card issuers and acquiers •• Venture capital •• Clearing houses •• Online financing •• Settlement agencies •• Data security •• Cryptocurrency and blockchains •• Consumer protection •• National Payment Gate •• Support for payment transactions, for example ATM, EDC, and data centers For the fintech industry, which requires heavy Regulation Number 77/POKL.01/2016 concerning monitoring, the government through Bank Indonesia Information Technology Lending and Borrowing and the OJK also issued regulations and support. Services, based on POJK Number 13/POJK.02/2018 Bank Indonesia has the Fintech Office, supports concerning Digital Financial Innovation in the innovation through the Sandbox Regulatory, and Financial Sector. issued regulations related to fintech through Bank Indonesia Regulation Number 19/12 of 2017 concerning the Implementation of Financial Technology. Meanwhile, the OJK issued POJK 302 Indonesia Islamic Economic Masterplan 2019-2024
  309. Table 6 .7 List of Regulations related to Digital Transactions Regulation About Issued by 1 UU ITE 11/2008 & PP 82 2012 Mandatory Data Center in Indonesia for enforcement of legal sovereignty & protection 2 Government Regulation 82/2012 3 Presidential Regulation 82/2016 4 Ministerial Regulation 20/2016 5 Presidential Regulation 74/2017 6 MRTI Banking Financial Services Authority Risk management in IT utilization, data location in Indonesia Regulation 38/2016 with the exception Financial Services Authority 7 P2P Lending/LPMUBTI Financial Services Authority The IT-based fintech loan lending business model, data Regulation 77/2016 location in Indonesia Financial Services Authority Electronic Transactions & Systems: Digital financial services include Organizers of the Public Electronic System National Financial Inclusion Strategy: The government’s goal is to increase national financial inclusion Government of the Republic of Indonesia President of the Republic of Indonesia Personal Data Protection Minister of CommuniSetting activities to collect, store and use customer information cation and Information Indonesia eCommerce Roadmap 2017-2019 Communication and Information Technology The government’s goal towards digital economy 2020 e-KYC (non face-to-face) 8 Government of the Republic of Indonesia Financial Services Authority The fintech business model is required to carry out the Regulation 12/2017 principles of customer recognition and prevention of funding for terrorism and money laundering Financial Services Authority 9 Financial Services Authority Digital Financial Innovation in the Financial Services Sector Regulation 13/2018 Financial Services Authority 10 Financial Services Authority Implementation of Digital Banking Services by Commercial Regulation 12/2018 Banks Financial Services Authority 11 DSN Fatwa No. 117/DSNMUI/II/2018 Information Technology Based Financing Services Based on Sharia Principles MUI National Sharia Board 12 DSN Fatwa No. 116/DSNMUI/II/2018 Sharia Electronic Money MUI National Sharia Board 13 Bank Indonesia Regulation No. 18/40/2016 Implementation of Payment Transaction Processing Bank Indonesia Bank Indonesia Regulation 14 No. 19/10/PBI/2017 Application of Anti Money Laundering and Prevention of Terrorism Funding for Payment System Service Providers Other Bank Indonesia Than Banks and Non-Bank Foreign Exchange Business Operators 15 Bank Indonesia Regulation No.19/12/PBI/2017 Organizing Financial Technology Bank Indonesia 16 PADG No. 19/14/ PADG/2017 Limited Testing Room (Regulatory Sandbox) Financial Technology Bank Indonesia 17 POJK No. 37/ POJK.04/2018 Funding Services through Information Technology-Based Share OJK Offerings (Equity Crowdfunding) Indonesia Islamic Economic Masterplan 2019-2024 303 Strengthening the Digital Economy No 6
  310. Challenges and Opportunities The development of the digital economy in Indonesia has a number of opportunities and challenges , this includes demand and markets, factors of production and regulations. In terms of demand and market, Indonesia’s opportunity in the digital economy lies in the increasing number of growth of Muslims at the national and global levels, the growth of digital transactions and the ever developing Islamic fintech industry. The challenges in terms of market demand include the lack of current digital economy capabilities in response to the demand and market, inequality exposure of the digital technology between regions, and the existing illiteracy on halal products and halal branding. In terms of production, the opportunity to develop the digital economy depends on capital, when investments in digital start-up increases it attracts foreign investors to the national digital start-ups, improved telecommunication infrastructure, HR, ICT graduates in Indonesia and the increase in the type of employment. Meanwhile, the threats are from the digital economy production in Indonesia, such as internet financing, high cost of electricity, internet inaccessibility, no curriculum for digital economy, inability of domestic venture capital to meet the 304 Indonesia Islamic Economic Masterplan 2019-2024 needs of digital start-up capital and the lack of professionals in the field of digital economy. For regulations, the opportunity for digital economy lies in the government’s support towards the digital economy industry. This support can be seen in the form of roadmaps, strategies and government policies related to the digital economy industry as carried out by the relevant Ministries and Institutions (E-Commerce Roadmap). However, government regulation may not be able to accommodate the rapid growth of digital start-ups from various institutions due to lack of harmony and coordination. Other challenges include lack of regulations on consumer protection in the digital sector and cybercrimes or cyberattacks that have not been resolved.
  311. Table 6 .8 Digital Economic Challenges and Opportunities Aspect Opportunity 1. Growth in the number of Indonesian and global Muslims 2. Growth of digital transactions, especially transactions via mobile Demand and Market 3. Growth of the Islamic fintech industry Challenge 1. Lack of digital economic capabilities 2. Inequality of exposure to digital technology between urban and rural areas (digital divide) 3. Literacy of halal products and halal branding 4. Expansion of the sector from e-commerce & e-travel to education, health, and technology Production/Input/ Resource Factors 1. Digital startup investment continue to increase 1. The cost and internet and electricity access are still relatively expensive and uneven 2. Improving the condition of telecommunications infrastructure 2. Curriculum and education for the digital economy have not yet been formed 3. The level of ICT graduates in Indonesia is relatively high 3. Domestic venture capital has not been able to meet startup capital requirements 4. Foreign investors’ interest in domestic digital 4. There is no sharia advisor for the digital startups startup industry 5. The creation of new types of work 5. The lack of professionals in the field of digital economics 1. Government support for the digital economy 1. Government regulations cannot accommodate industry in general the rapid growth of digital startups Regulations 2. There is a roadmap, strategy, and government policy related to the digital economy industry carried out by relevant Ministries and Institutions (E-Commerce Roadmap) 2. Harmonization of regulation and coordination between institutions 3. Rules for consumer protection in the digital sector 4. Issues of cybercrime and cyberattack Indonesia Islamic Economic Masterplan 2019-2024 305 Strengthening the Digital Economy 6
  312. Support for the Halal Industry Digitalization affects the manufacturing sector in the halal industry . The economic scope of digital around the world more significantly than through Shariah which is projected to play a role in the Shariah the production of information and communication economic industry in Indonesia includes augmented technology goods. The term “Industry 4.0”, “fourth reality (AR) technology, financial technology (fintech), industrial revolution”, or “fourth wave” of technological internet of things (IoT), big data, e-commerce, progress, refers to industrial ecosystems where artificial intelligence (AI), system integration, and all processes and functions of manufacturing and cloud facilities. The adoption and implementation distribution are interactively connected through of digital and industrial technology 4.0 will take digital networks. A narrower definition of Industry place in halal industries such as the halal food and 4.0 is the integration of production processes based agriculture sector, the media and recreation sector, on technology and devices that communicate the pharmaceutical and cosmetics sector, Muslim independently with each other, along with the value fashion, halal tourism, and Islamic finance. The chain. Industry 4.0 is expected to significantly economic contribution of Islamic digital to Islamic improve the competitiveness of various sectors, economics is expected to drive the rate of economic from agriculture to services. Digitalization also has growth, which ultimately contributes to the GDP. the potential to reduce costs and increase profit margins, based on the economic impact of between USD 25 billion and USD 45 billion per year in 2030 for Southeast Asian countries (Tonby et al., 2014). In realizing the vision of making Indonesia a center for Shariah economics in the world, a digital Shariah economy consisting of digital economics and industrial development 4.0 acts as an enabler Figure 6.1 SHARIAH COMPLIANCE Digital Economic Support for the Halal Industry Halal Pharma & Cosmetics Medest Fashion Halal Media & Creation Islamic Economy Halal Travel HALAL INDUSTRY Halal Food & Agriculture Supporting Eosystem Islamic Finance Digital Technology & Industry AR, Fintech, IoT, Big Data Analitics, E-commerce, AI, System Integration, Cloud 306 Indonesia Islamic Economic Masterplan 2019-2024 Islamic Digital Economy GDP
  313. Strengthening the Digital Economy 6 Indonesia Islamic Economic Masterplan 2019-2024 307
  314. Special Strategy for Digital Economy Development There are four recommended steps to develop to the establishment of incubator facilities for the the Islamic digital economy in Indonesia . This can growth of start-up companies that can strengthen be done by; supporting the Islamic digital economic national HVCs globally, develop through appropriate literacy by preparing the necessary HR which are and up-to-date technology development centers Islamic digital economy literate, supporting MSMEs to encourage production process efficiency in digital transformation to strengthen the national HVCs and innovative financing, system formation HVC, supporting the development and innovation of integrated information for halal product traceability, digital infrastructure for the HVC via digital economy and digital transformation for MSMEs. The quick- development, utilizing the 4.0 industry to support wins recommended for the development of digital the business scale particularly the MSMEs, and Islamic economics in Indonesia include increasing to support the financial resilience, regulations and digital literacy and Halal Value Chain for digital Islamic ecosystem in accordance with Shariah. economic through various events in the highlighted From the five mentioned strategies, there are at least four main programs and three quick wins that are important in the Islamic digital economy action plan. The abovementioned main program refers 308 Indonesia Islamic Economic Masterplan 2019-2024 areas, online marketplaces, halal payment systems, provisions of digital business guides and Shariah compliance guidelines.
  315. No . Strategy/Program Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders 6 1 Increasing digital and halal Value Chain literacy for business people through events in prioritized regions** a. Mapping regions that have the potential to Islamic digital economy b. Hold events specifically for the promotion of digital Islamic economy through exhibitions, competitions and forums in potential areas 2 Providing creative content and services that can create and encourage a digital economy a. ISPs to work with third parties to offer digital business starter packs (Google Cloud Subscriptions, Amazon Web Service -AWS, etc.) b.    Local Government / City Government can utilize digital platforms to create digital economic awareness programs online / application. 3 •• Mapping of potential areas as a center for developing digital Islamic economy     •• mplementation of events such as exhibitions, competitions and   forums to promote the digital Islamic economy •• Easy access for business people to enter the digital economy ecosystem •• Increased digital literacy                   •• Availability of integrated digital applications d.    Hold a photography / video making competition to socialize the digital platform that has been launched.                                 a. National survey of current labor preparations (knowledge, skills, competencies) on the needs of digital economic indicators.     c. Launched a digital application to help people verify halal certificates and other halal / hotel / outlet locations Identify and evaluate HR’s current readiness and forecast the knowledge and skills required for digital economy competition.               •• Measured national   digital literacy index             Bank Indonesia, OJK, Kominfo, Bekraf, Regional Government, Universities, MUI, Associations, KNKS MUI, Local Government / City Government, Associations, KNKS Ministry of Education and Culture, Ristekdikti, Kemenaker, BPS, KNKS Indonesia Islamic Economic Masterplan 2019-2024 309 Strengthening the Digital Economy Strategy 1: Encourage the establishment of human resources that are Islamic digital economy literate and to continue to increase literacy
  316. 4 •• Increased graduates who have digital Islamic economy competencies   a. Coordinate existing curriculum with •• Specialization of the development of digital technology study programs and Shariah compliance. or digital Islamic   Providing a digital Islamic economy specialization program in the existing curriculum in three main areas; entrepreneurship, ICT for Industry 4.0, finance & Shariah products. Up-skilling and digital and shariah re-skilling programs for existing employees through online or hands-on learning. •• Increased number of experts and professionals with digital Islamic economic competence a.  Issue balanced regulations and regulations for conventional and shariah businesses especially those related to digital economic supply chains. b.  Building a gig economical platform for halal industry players. 310 Indonesia Islamic Economic Masterplan 2019-2024           Ristekdikti, Higher Education, KNKS       ••           Kominfo, MUI, Professional Association, Private Sector, KNKS             ••       b. Mobility staff program by sending employees to study and gain experience to countries with relatively stable digital economic ecosystems. Creating a fair and competitive digital economic ecosystem between conventional and shariah business people.     a. Colleges to offer digital economics and shariah compliance courses for free through the Learning Management System (LMS) platform that can be accessed by the public. Fees will be charged for certification for the participants. 6   economic majors in   Higher Education. b. Offers specific cross-disciplinary study programs to produce graduates relevant to digital economic needs and Shariah compliance. 5 Ristekdikti, Universities, Training Centers, KNKS   Integrated services   to facilitate licensing for digital Islamic economic businesses.   Availability of digital freelance labour for the halal industry.   Kominfo, BI, OJK, KPPU, MUI, KNKS                
  317. 1 2 Providing digital and shariah economic awareness programs for MSMEs involving large companies and startups who have been successful through mentoring / coaching programs.   Increasing the number of MSMEs   involved in the digital Islamic economy. a. Hold sustainable digital economy and shariah education and provide acceleration and incubator programs for MSMEs.   b. Assess the digital readiness of MSME businesses and provide training to improve the digital skills of MSME employees.   Provide an information center for digital •• The increasing and shariah business models that can number of MSMEs be accessed by MSMEs online and involved in the distance learning. digital economy   a. Accelerating the Implementation of the Inclusive Digital Economy Accelerator (IDEA) hub nationally.   b. Make practical guidance for all digital Islamic economic businesses (investors, startups, supporting ecosystems, etc.) 3 ••     ecosystem. Provide special incentives to grow local •• Increasing MSMEs and provide opportunities for the amount of globalization. production for the   a. Collaborate with the private sector for strategic MSME funding, investment incentives, entrepreneurial development, commercialization and accelerated production support.   b. Organize events that bring together local MSMEs with domestic and global domestic investors               Kominfo, KemenKUKM, KNKS   •• Operational and production efficiency, as well   as increasing sales local and export markets from digital MSME players.                           Kominfo, KemenKUKM, Regional Government / City Government, Universities, Private Sector, KNKS                     KemenKUKM, Regional Government / City Government, Private Sector, KNKS Indonesia Islamic Economic Masterplan 2019-2024 311 Strengthening the Digital Economy 6 Strategy 2: Encouraging digital transformation for MSMEs that can strengthen national HVC *
  318. 4 Increase e-commerce adoption for producers of halal products and services a .       Assessing digital readiness of employees of producers of halal products and services •• Increasing the volume of sales of halal products and services through digital platforms     b.    Providing hands-on training on digital supply chains using e-commerce and Islamic fintech platforms (store setup, digital marketing, digital ordering, cashless payments, online shipping, etc.)   c.     Providing assistance / mentoring to producers of halal products and services post-training.                                 KemenKUKM, related Associations, Local Government / City Government, Private Sector, KNKS Strategy 3: Encouraging the development and innovation of digital infrastructure that can support the development of HVC through the digital economy 1 2 Establishment of incubator facilities •• Establishment that can facilitate the growth of start-up of incubator companies that can strengthen national facilities for startHVCs and have global coverage * up companies   a. Forming incubator facilities that can facilitate the growth of start-up companies, especially for start-ups that support the development of HVC   Develop a center for appropriate and up-to-date technology to drive the efficiency of production processes in HVCs and innovative financing * a. Build a center for developing appropriate and up-to-date technology to drive the efficiency of HVC production in various regions b. Develop appropriate and up-to-date technology to encourage financing for the development of HVC 3 •• The establishment of an appropriate and up-to-date technology development center that supports the production of HVC in various regions; Establishment of appropriate and upto-date technology that can encourage financing for the development of HVC                   •• The establishment   of an integrated information system that can facilitate a. Encouraging the information system   the traceability of integration process, especially in halal products supporting the traceability of halal                     Establishment of integrated information systems for traceability of halal products * products 312 that support the development of HVC Indonesia Islamic Economic Masterplan 2019-2024           Kominfo, OJK, BI, Bekraf, Kemristekdikt, Educational Institutions / Universities, Associations, KNKS Kominfo, Kemristekdikti, OJK, BI, Regional Government, Education / Higher Education Institutions, Associations, KNKS Kominfo, Ministry of Religion, BPJPH, LPH, BPPOM, LPPOM, DSN MUI, Associations related, KNKS
  319. Development of online marketplace and •• Availability of an   halal payment systems ** online marketplace a. Develop an online marketplace that is accompanied by a legal payment system 5 Mapping areas that have the potential and strength of the halal industry as a priority for digital infrastructure development. accompanied by a legal payment system •• Increased fast speed internet.                a.       Accelerate the development of internet network infrastructure and connectivity, especially in areas that have the potential to generate and accelerate shariah economy and financial growth.   b.    Coordinate with the Ministry of Tourism to determine strategic Halal Tourism areas and accelerate development infrastruktur di daerah tersebut.   Kominfo, OJK, BI, related Associations, KNKS Kominfo, KNKS                     Strategy 4: Utilization of Industry 4.0 technology to encourage the growth and scale of MSME businesses that focus on HVC by utilizing a more dynamic and competitive digital economy infrastructure 1 2 Establishment of a framework and mechanism to measure the readiness and capability of existing industries, including MSMEs, against the parameters of industry 4.0 •• Industry Readiness   Index 4.0 a. Building a national platform for evaluating the readiness of industry 4.0 for industries and MSMEs using best-practices approaches from countries that have implemented Industry 4.0.   Synergy between ministries to succeed •• Integrated services   the Industry 4.0 initiative (Making related to the Indonesia 4.0 road map) implementation of a. Harmonization of policies and regulations across ministries and institutions. Industry 4.0                                 Ministry of Industry, Ministry of Trade, Communication and Information, Research and Technology, Ministry of Human Resource, KemenKUKM, KNKS Ministry of Industry, Ministry of Trade, Ministry of Religion, Communication and Information, Ministry of Human Resource, KemenKUKM, KNKS Indonesia Islamic Economic Masterplan 2019-2024 313 6 Strengthening the Digital Economy 4
  320. 3 The creation of ecosystems that are •• The increasing conducive to the adoption and number of local implementation of Industry 4.0 industry players technology for industries and MSMEs who utilizes 4.0 (Big Data Analytics, IoT, Blockchain, technology etc.) a. Collaboration between the Central •• Creating more Government / Regional Government options of digital / City Government and industry business models. players and MSME players for 4.0 to build an effective and efficient supply chain for local industries (agriculture, plantations, craft factories, etc.)   •• The creation of digital solutions to conventional industrial needs / challenges.   b. Encouraging the private sector to make funding (venture capital, crowdfunding, CSR, etc.) and facility support (coworking space, incubators, etc.) to start-ups and MSMEs involved in industry 4.0 initiatives. c. Establishing cooperation between •• Increased the relevant government, Regional innovation and Government / City Government and industry-based the private sector to hold Industry 4.0 intellectual competition (Blockchain challenge property 4.0. for the financial industry, IoT challenge for agriculture, Datathon for MSMEs, etc.) 314 Indonesia Islamic Economic Masterplan 2019-2024                                 Ministry of Industry, Ministry of Trade, KemenKUKM, Ministry of Human Resource, BI, OJK, Regional Government / City Government, Private Sector, Universities, Private Sector, Associations, KNKS
  321. 1 Establishment of flexible policies and regulations for IKNB in ​​order to continue to innovate in meeting the needs of the digital market, especially for Islamic products and finance. •• Integrated services   for Islamic fintech   licensing processes •• The creation of a digital solution to respond to the a. Make regulations that can encourage   needs / challenges the development of digital innovation of the Islamic and vertical collaboration between fintech industry fintech companies and banks. 2 b. Collaborate with related institutions and associations to hold competitions that can meet the cross-industry digital economic value chain.   c. Involving fintech / Islamic fintech associations in drafting regulations to produce appropriate regulations and in accordance with industry needs.   d. Providing a Shariah Supervisory Board that can provide shariah consulting services for fintech that produces Islamic financial products.   Increase the inclusion of Islamic finance through the Islamic fintech application BI, OJK, Banking, Related associations, KNKS         •• Increasing the inclusion level of Islamic finance                                     a. Expand access to Islamic fintech through online to offline patterns.   b. Increasing the collaboration of Islamic fintech and banking in Digital Financial Services (LKD) and “Laku Pandai Agents” to fill blank spots in banking facilities in rural areas.                     BI, OJK, Banking, related associations, KNKS   Indonesia Islamic Economic Masterplan 2019-2024 315 Strengthening the Digital Economy 6 Strategy 5: Support the strengthening of Islamic finance, regulations and ecosystems in the digital economy
  322. 3 Preparation of digital business guidance and shariah compliance guidance ** a. Providing a digital business guide and shariah compliance guide accessible to the public 4 Encouraging innovation in Islamic fintech businesses a. Establish an innovation center for Islamic fintech businesses b. Hold an innovation / digital challenge competition for Islamic fintech businesses 316 Indonesia Islamic Economic Masterplan 2019-2024   •• Availability of digital business    guidance and shariah compliance   guidance accessible to the public •• Increased number of intellectual property in the Islamic fintech industry         MUI, BI, OJK, related associations, KNKS                              BI, OJK, Banking, related associations, KNKS
  323. 1 .Developing online marketplace and halal payment systems Currently, digital transactions accordance with Islamic values. Shariah compliance guidelines will later discuss the qualifications of digital products, company characteristics, and through business funding. The compilation of business e-commerce or online marketplace is a lifestyle models and Shariah compliance guidelines for and a necessity for the community. However, the digital economy industry can be facilitated by the marketplace is limited particularly those the Ministry of Religion through the Halal Product specializing in halal or Islamic goods and services Guarantee Agency, the Indonesian Ulema Council and where the transactions are Shariah compliant. In through the Inclusive Digital Economy Accelerator addition, conventional marketplace also rarely pay (IDEA) initiative. special attention to the halal status of a product, including the suitability of the transactions and their business model. Therefore, it is very important to develop a halal marketplace for halal products with Shariah compliant payment systems. This can be done by establishing a halal marketplace (ie a marketplace that sells halal products and uses 3.Increasing digital and halal value chain literacy for digital Islamic economic businesses through exhibitions, competitions, and forums in potential areas. payment transactions and systems that are Shariah To develop the halal industry through digital compliant) or establishing a halal marketplace technology, the relevant people ought to be digital through conventional literate especially when they are using fintech as an marketplace (for example by placing features that alternative source of financing and e-commerce as a help consumers to know the halal status of a product place to expand their market. This effort to improve in a conventional marketplace, to have payment digital literacy can be done in collaboration with digital systems in accordance with Shariah such as Islamic literacy programs by the Ministry of Communication e-money, Islamic go-pay and ovo-Shariah, and other and Information. As a form of further support for the relevant features). development of the Islamic digital Islamic, industry collaboration with the players can be provided with business mentoring, 2.Providing an information centre for digital business models and Shariah compliance guidelines that can be accessed by business people online coaching, and incubation facilities. In order to grow the Islamic industry, guidance is needed to determine standards for halal and business products and Shariah compliant financing models. With this digital business guide, it is expected that businesses can produce products that are in Indonesia Islamic Economic Masterplan 2019-2024 317 Strengthening the Digital Economy 6 Quick Wins Digital Economy Development
  324. 7 Supporting Ecosystems
  325. Improving the quality of human resources requires research and development (R & D) support. Research will map projections in the form of opportunities, challenges, and steps to be taken. With guidance on research, the development of HR for Islamic economy can operate smoothly.
  326. As a pre-requisite to establish halal value chain (BPJPH). This institution is headed by an echelon that can become an important component in who reports to the Minister of Religion. Not long supporting the development of Islamic economy and ago the Minister of Religion ensured that this year, national economy, a good ecosystem, integration BPJPH are able to serve consumers who require and efficiency are important to be developed. halal certification. This system connects the halal value chain as a whole. The ecosystem should also be competent to connect all the content of the components and support the halal industry from the upstream to the downstream. The supporting system are as follows: Second, human resources (HR). The Islamic economic development definitely requires competent human resources. College alumni are producers of HR for Islamic economics. From there, scholars are involved in various work related to First is literacy. This is an effort to stimulate Islamic economics, such as Islamic banks, Islamic public awareness to familiarize the people in economics study programs in various universities, consuming halal products. Halal commodities entrepreneurship and many more. are not easily differentiated on the surface. There should be evidence that such commodity has been tested and verified as halal by the relevant institution. Third is research and development. This section is a necessary because the results of the study become guidelines for developing the Islamic economy in the future. Parties that focuses on this Halal standards can be achieved if a commodity field consists of academicians, practitioners and the is made from ingredients that do not contain the government. The parties synergize with one another least amount of haram. For further information, the to establish Islamic economic development plans. products’ packaging will usually include a description on the composition of the basic ingredients. From there, one can know the ingredients of a product. Researches are usually carried out by universities. There will be data and facts collection. The collection are analyzed systematically, deeply and thoroughly. Halal certification has now been transferred from The process is outlined in documented narratives. the Majelis Ulema Indonesia to the government’s Stakeholders refer to the results of the research to representative i.e. Halal Product Assurance Agency As a pre-requisite to establish halal value chain that can become an important component in supporting the development of Islamic economy and national economy, a good ecosystem, integration and efficiency are important to be developed. 320 Indonesia Islamic Economic Masterplan 2019-2024
  327. produce product innovations , services, regulations, regulation is made by considering the benefit of the and many things related to the Islamic economic wider community. The direction is to support the development. development process, which is the government’s mission. This section mostly concerns the scholars from All of these functions are crucial in increasing the the Indonesian Ulema Council and the government. capacity of Islamic economics and the scale of the Fatwa arises because of the anxiety of the national halal industry, to be able to realize the vision community on an issue. For example, in relation to to make Indonesia the centre of the world’s Islamic vaccination, whether or not it is a necessity. The MUI economy. then conducts a study with a number of scholars. Various opinions were heard and it results in conclusions that confirm their stance and position. This conclusion is their fatwa which becomes a guideline for the community. Meanwhile, the government and the people’s representatives issue regulations by taking into consideration the opinions of various parties. For legislations, the process runs in the House of Representatives (DPR), which after the laws are announced the President then approves it. In addition, there are government regulations (PP) which derives from the law. This regulation was signed by the Head of State and is binding. The Indonesia Islamic Economic Masterplan 2019-2024 321 Supporting Ecosystems Fourth is fatwa, regulation and governance. 7
  328. Literacy , Human Resources, and Research and Development Literacy (public awareness and education), human resources, research and development (R&D) are important parts of the ecosystem and forms the basic strategy of Islamic economic development in Indonesia. In essence, human resources (HR) are humans employed in an institution or organization as a driving force in achieving its objectives. The best HR begins with literacy, or information and responsiveness to the concepts. HR readiness is one of the basic capital for the global economic developments in a disruptive economy and for the industrial revolution 4.0. The HR must be of good quality and competent so that it is able to develop the Islamic economy. The HR must also have the willingness to continue to compete and innovate through research and development. This shows the urgency of literacy, HR and R&D because the development of Islamic economics through the halal real industry may not stand alone without competent human resources. Indonesia Islamic Economic Masterplan 2019-2024 323
  329. Global and National Conditions 1 .Global Condition Public awareness is an important aspect especially in developing the demand side of the halal industry, which in turn will affect the supply side to follow the demand trend. This is reflected in the high score of awareness indicators for Malaysia and the United Arab Emirates (UAE) as the two countries were ranked highest in GIEI 2018. For various GIEI sectors, awareness indicators consist of the number international awards have also been achieved by these universities in the field of Islamic economics, for example INCEIF received an award from the Islamic Economy Awards 2018 in the category of Islamic Economy Knowledge Infrastructure. In addition, each of these institutions already has its specialization. For instance, IIUM focuses on Islamic finance and banking, while USIM focuses on Islamic Wealth Management. of news articles and events related to the halal Has a national research institution or center that industry. Especially for the Islamic Finance sector, focuses on Islamic economics and receives strong besides the two indicators above, there are also support from the government. additional indicators measured, namely the number of Islamic financial institutions and the number of research articles published. The importance of public awareness in Islamic economic development in Indonesia is also a consideration in the halal food and beverage sector. An example is ISRA (International Shariah Research Academy) which was established and fully supported by Bank Negara Malaysia (Central Bank of Malaysia) and INHART (International Institute for Halal Research and Training) IIUM which focuses on research and training for the halal Industry. In In terms of literacy, HR development and Islamic addition to developing research, Malaysia also economic research, the experiences of Malaysia publishes various textbooks and journals as a and the UAE can be used as the main reference in reference for academicians and practitioners of developing these aspects in Indonesia. Malaysia is Islamic economics. a Muslim-majority country with a Muslim population of more than 30 million. Some important factors related to the development of HR and Islamic economic research in Malaysia are as follows: Has a higher education institution offering S1-S3 programs in the field of Islamic economic studies. Provide funding to improve the quality and quantity of HR. The Malaysian government fully supports the increase in the quantity and quality of HR in the Islamic economy. This is also done in the form of providing full scholarships to lecturers for Islamic Malaysia is supported by many public and economic studies, both local and abroad, and private universities that have study programs issuing various research grants related to Islamic related to Islamic economics. The universities are economics. International Islamic University Malaysia (IIUM), Universiti Kebangsaan Malaysia (UKM), International Center for Education in Islamic Finance (INCEIF), Universiti Sains Islam Malaysia (USIM), and Universit Has various professional certification institutions related to Islamic economics. Several lists of professional certifications Malaya (UM). Some of these universities have study approved by the Malaysian Ministry of Finance programs related to Islamic economics, such as: related to Islamic economics and finance include: Islamic finance and Islamic economics. Various Certified Qualification in Islamic Finance (CQIF) 324 Indonesia Islamic Economic Masterplan 2019-2024
  330. issued by the Islamic Banking and Finance Institute attractive accelerators to support entrepreneurs as Malaysia (IBFIM) and Islamic Financial Planner (IFP) well as startups around the world and connect them issued by collaboration between the Islamic Banking with local sponsors from the UAE. An example of this and Finance Institute Malaysia (IBFIM) and the program is the Dubai Future Accelerators Program. Financial Planning Association of Malaysia (FPAM). Examples of incubators that UAE has established Strong link-and-match between universities and industries. Universities in Malaysia specialize in their respective fields related to Islamic economics. The specialization is also practical and appropriate to the industrial needs so that universities graduates can be directly connected with the industry. In addition, a clear career path supports this specialization so that after graduating from Islamic HR universities, they can work directly in the halal industry and other Islamic economic sectors. are Dubai Science Park, Dubai Techno Park, Dubai Silicon Oasis, D3 and many others. Currently, the UAE continues to increase innovation in technology and science to prepare itself for the post-oil era. In addition to Malaysia and the UAE, there are also other countries with majority of Muslim and non-Muslim residents who pay more attention to the development of Islamic economics and finance by establishing special Islamic economics and finance study programs. Some of these countries are Turkey, Thailand, Britain and Australia. The undergraduate program in Islamic Economics and Finance at The government provides enormous support for the Turkey Sabahattin Zaim University (Istanbul) the development of Islamic economics in Malaysia. has become the first department of economic This was evident from the establishment of the and Islamic finance to be established in Turkey. Halal Industry Development Corporation (HDC) on Whereas Thailand has a Halal Science Center, which September 18, 2006, which was the coordinator of is located in Chulalongkorn University since 2003, all halal industry activities in Malaysia. Besides HDC, followed by the national Halal Standards Institute, the Malaysian Government also integrates various which was also established in 2003. Australia also existing ministries to support Malaysia’s goal of has an organization called the Australian Center for becoming the leading country in the development of Islamic Finance (AUSCIF), which aims to facilitate the halal industry. the transfer of knowledge and thought leadership While the UAE is adopting a new vision, which is referred to as Vision 2021 where in 2021 they aim to enlarge its social and economic growth. The UAE government announced plans to allocate funds of USD 82 billion to fund projects in technology and innovation. Statistical data shows that UAE socio-economic development derives from startup technologies and SMEs, which also contribute to in the Islamic financial sector. The United Kingdom also experienced rapid development in the field of economics and Islamic finance as evidenced by the existence of 28 Islamic finance study programs for the master level (bachelorsportal 2018). Thus, it can be concluded that the global Islamic economic conditions that leads to the human resource sector are growing. 60% of UAE’s non-oil GDP. In addition to funding, the UAE government also initiated various innovative incubation programs and Indonesia Islamic Economic Masterplan 2019-2024 325 Supporting Ecosystems 7
  331. 2 .National Condition At the international level, Indonesia’s awareness indicator in GIEI 2018 is quite good, which is higher than the global score for all sectors. Even Indonesia’s awareness score is higher than Malaysia in the Halal Travel sector. However, the Indonesia’s values are still below Malaysia for other sectors and far below the UAE for all sectors. The importance of public awareness for the development of halal products can be seen in the halal food and beverage sector in Indonesia. The increase in Indonesia’s ranking in the 2018/2019 State of Global Islamic Economy was driven by the progress of the halal food and beverage sector along with the continuous promotional activities and media publications on halal food and beverages that helped build public awareness. In addition, Indonesia produces good quality human resources although they are still far behind other countries. Based on the data from The Global Competitiveness Index in 2017, one of the determinants of the quality of human resources is education and training, and Indonesia is ranked 64th out of 134 countries. This shows a low level of participation from junior and senior high schools, quality of education, quality of curriculum, ease of internet access in schools, and training that can improve soft skills and hard skills in Indonesia. The condition of Indonesian people who have had the opportunity to obtain higher education and participate in training programs tends to experience a downward trend (The Global Competitiveness Index 2017). The condition and development of Islamic economic HR in Indonesia is not as good compared to Malaysia and the UAE. This can be seen from the number of higher educational institutions related to Islamic economics which are still small in number, with only 820 universities (Report of the Ministry of Education and Culture 2016 and data from the Directorate of Islamic Higher Education Ministry of Religion) and not accompanied by sufficient quality. Based on data from the National Accreditation Board for Higher Education (BAN-PT) in 2018, the Islamic 326 Indonesia Islamic Economic Masterplan 2019-2024 Economics Study Program in Indonesia which has A accreditation for 10 Programs, B accreditation for 99 Study Programs, and C accreditation for 10 Study Programs. The quality of this study program will have an automatic impact on the quantity and quality of studies on Islamic economics. In addition, there are still very few certification institutions and experts who are certified. Based on the data from all the professional certification institutions in Islamic economics in Indonesia, the number of certified expert graduates is 231 (LSP Syariah Finance 2018). Moreover, based on the explanation from the Islamic Banking Statistics data, it can be seen that 38 percent of Islamic bank employees are graduates of S1 (conventional) Economics and only 9.1 percent are from Shariah. Improving the quality of HR also requires research and development (R&D) support. As with other real sector industries, halal products and services continue to grow throughout the world. In addition to rapid growth in quantity, development in terms of variety and quality of halal products is also developing at a fast pace. This can only be done if the halal industry and all halal value chains are supported by strong research and development. Unfortunately, most businesses in the national halal industry do not have sufficient R&D strategies or instruments internally. R&D is considered to be an unfavorable expenditure, and is only suitable to be done in university campuses.
  332. Graph 7 .1.1 Number of Indonesian Publications in 2017 by Field 7 Source: Sclmago Data, 2017 Supporting Ecosystems Business, Management and Accounting Chemistry Earth and Planetary Science Sosial Science Biochemistry, Genetics and Molecular Biology Physics and Astronomi Environmental Science Computer Science Medicine Agricultural and Biological Science Engineering 0 1000 2000 3000 4000 5000 6000 7000 The graph above shows data on the number not significant and tends to be stagnant compared of studies in all fields in Indonesia according to to other ASEAN countries. The number of patents SCImago in 2017. The total number of publications from Indonesia in 2015 registered in the United counts at 75,220 in all fields. Indonesia is ranked States amounted to 333 patents, which was below 52 of all countries registered with SCImago. In the other ASEAN countries such as Thailand with 1043 ASEAN region, it is still below Thailand (42), Malaysia patents, Malaysia with 2690 patents and Singapore (34) and Singapore (32). with 10004 patents. While in Indonesia, the number of patents produced by research institutions or Graph 7.1.2 Number of Patents Registered in the United States Source: USPTO Patent Count, 2015 industries that were registered with the Indonesian Patent Office in 2016 totaled 702 patents from 8,023 registered patents. Furthermore, according to WIPO (2016), 1200 Indonesia is ranked 35th in the world and 3rd in 1000 ASEAN. At the same time, South Korea was ranked 4th in the world. This shows that the conditions of 800 research and development in Indonesia, although 600 quite competitive in ASEAN, globally it has not been 400 able to compete and is still far behind other Asian 200 countries, namely South Korea. 0 2008 Indonesia 2009 2010 2011 Malaysia 2012 2013 2014 Singapore 2015 Thailand Besides publication, another way to look at the position and contribution of research is the number of patents produced. According to the United States Patent and Trademark Office (2015), the number of patents in Indonesia registered in the United States can be seen in the figure. From these data, it appears that the growth of Indonesian patents is Indonesia Islamic Economic Masterplan 2019-2024 327
  333. Graph 7 .1.3 per million population. Similarly in Singapore, where Patent Ranking the number of researchers per million populations Source: WIPO,2016 in the country reached more than seven thousand. Meanwhile, Malaysia has 2,590 researchers per Korea Selatan million populations, Thailand with 765 researchers 4 Singapore per million populations, and Indonesia around 1,071 27 Malaysia researchers per million populations. This indicates 31 Indonesia that the absolute number of Indonesian researchers 35 Thailand is still far below other countries in the Asian region. 37 Vietnam 45 Filipina 49 0 10 20 30 40 50 Graph 7.1.5 Number of Researchers in the Asian Region Source: UIS Data Centre (2015) One of the reasons for the low number of publications and patents produced is due to the low number of researchers in Indonesia. According to the data from the Indonesian Institute of Sciences (LIPI) in 2017, researchers in Indonesia amounted to 9,685 people. This figure shows the number of all functional officials of researchers from all Ministries /LPNK in Indonesia. 500 thousand 400 thousand 300 thousand 200 thousand 100 thousand Graph 7.1.4 Number of Researchers in Indonesia 0 Korea Rep. 1995 Malaysia 2000 2005 Singapore 2010 Thailand 2015 Indonesia Source: LIPI (2017) For a more general view of R&D, Indonesia’s 12000 10000 8000 7658 8713 9308 9685 capabilities and achievements can be measured through the Global Competitiveness Index (GCI). In 2018, Indonesia ranked 45th out of 140 countries 6000 in GCI. Furthermore, one of the pillars of GCI is the 4000 ability to innovate where Indonesia is ranked 68/140 2000 countries. In detail, this pillar is measured through 10 0 2011 2013 2015 2017 Since 2010, there has been an increase in the number of researchers from 7,502 people to 9,685 people in 2017. However, the number and growth is relatively low compared to the growth in other Asian countries. This is due to the large population of Indonesia which causes the ratio on the number of researchers per population to be relatively low. For example, currently the absolute number of researchers in South Korea is around 400 thousand, equivalent to 8 thousand researchers 328 Indonesia Islamic Economic Masterplan 2019-2024 indicators as listed in the following table.
  334. Table 7 .1 Indonesia’s Ranking and Values for GCI’s 2018 Innovation Capabilities Pillar Ranking Values 1-7 (Best) Diversity of Workers 37 4.9 Cluster Development Conditions 28 4.6 Discovery of International Collaboration Results (number of applications/ million population) 97 0.04 Collaboration of Various Stakeholders 25 4.6 Scientific Publication (H Index) 58 182 Patent application (number of applications/million population) 99 0.08 R&D Expenditures (% GDP) 112 0.1 Quality of Research Institutions (Index) 53 0.02 Buyer newness 49 3.7 Trademark Application (number of applications/million population) 97 166.22 Supporting Ecosystems Indicator Research and development in Indonesia are also conducts research individually, without national regulated by Law Number 18 of 2002 relating to grand strategy. In fact, research and development the National Research and Development System are needed to develop the halal industry. Referring and Science and Technology. Through the Act, the to the definition of the Halal Product Assurance government intends “to strengthen the capacity Act, the definition of halal products are products of science and technology to accelerate the that are manufactured in accordance with Shariah achievement of the country’s goals, and increase principles. In this case, research and development competitiveness and independence in fighting for plays a role in reviewing and monitoring products the interests of the state in international relations.” that are distributed to the community and consumed However, despite the support of the Act, Indonesia’s by Muslims. budget for research and development is still relatively small. According to data from the World Bank, expenditure for research and development on GDP from 2000 to 2013 only showed an increase of 0.01% from 0.07% to 0.08%. Meanwhile, global data for research and development expenditures on GDP in the East Asia and Pacific region reached 2.296% on average. In 2012, Malaysia’s expenditure amounted to 1.093% and in 2013; Singapore’s expenditure was Furthermore, research and development creates product standards. Halal products are expected to not only fulfill Shariah requirements but to also ensure that it passes halal certification process and quality standards. This is necessary to illustrate that halal is not only consumed by Muslims, but also by non-Muslims because halal products are quality products. 2.012%, higher than Indonesia. In relation to Islamic economic development, nationally, halal R&D activities are still sporadic and do not form a major part of the development of the halal industry. Universities that have halal study centers Indonesia Islamic Economic Masterplan 2019-2024 7 329
  335. Challenges and Opportunities in Indonesia Indonesia has several opportunities to support organizations (mass organizations) in Indonesia literacy, strengthen the development of human regarding the development of Islamic economics resources and improve R&D in the Islamic economy. is also yet to be seen. These opportunities include: 1. The rise of the Halal Lifestyle campaign by utilizing social media and involving public figures and millennials. 2. The active role of the government in supporting the development of Islamic economics. This includes realization through legal support including Act of the Republic of Indonesia Number 33 of 2014 concerning Halal Product Assurance (HPA), which provides a guide for the realization of a mechanism for the provision of halal goods, to meet the needs of the community. The issuance of this act is an opportunity for the growth and development of research centers and selection of products in the form of halal goods in various institutions, especially universities. In addition, government support is also reflected in the establishment of the National Islamic Finance Committee (NIFC), and the creation of the Indonesian Islamic Financial Architecture Masterplan. 3. Indonesia also has many Islamic-based mass organizations (Islamic mass organizations), some of which are Muhammadiyah and Ulama (NU) which are the two largest Islamic mass organizations in Indonesia today. Islamic mass organizations as institutions or Islamic da’wah movements are efficient in assisting the government in the process of socializing and implementing the Islamic Economy. However, it is still experiencing problems with the absence of synchronization in the community’s economic development programs or Islamic economics. The absence of a shared vision between Islamic community 330 Indonesia Islamic Economic Masterplan 2019-2024 4. The large number of universities in Indonesia. The number of Islamic-based educational institutions in Indonesia amounted to 78,156 which range from preschools to universities (Kemendikbud, 2016). However, there are more numbers of conventional educational institutions. Considering that Indonesia has the most universities in the world, the numbers are an advantage to have a center for the development and selection of products in the form of halal goods in Indonesia. 5. Rapid technological developments encourage and facilitate the implementation of R&D. In addition, technology also facilitate efforts to increase literacy and public education.
  336. Table 7 .2 Opportunities and Challenges of Literacy Development, HR, and Research and Development Opportunities Challenges 1. The rise of the Halal Lifestyle campaign 1. Limited halal education in early and basic education 2. The government plays an active role in supporting the development of the Sharia economy 2. The absence of technical guidance on the development of halal products 3. Indonesia has many Islamic based mass organizations (Islamic mass organizations) 3. The available regulations have not yet regulated the development and selection of halal services 4. The number of Islamic based education institutions 4. The number of higher education institutions that offer Islamic is quite a lot economic study program is still small 5. The large number of universities in Indonesia 6. Rapid technological development 5. Most Islamic economics study programs in universities still have poor quality 6. Limited Islamic economic professional certification institutions and certified expert in the field of Islamic economics 7. The absence of an agreement on the development of Islamic economics nationally 8. Mapping and synergy between various parties in Islamic economic R&D that has not been optimal However, the government also faces various Indonesia also has regulations regarding halal challenges in developing the Islamic economy products assurance, namely Act No. 32 of 2014. in Indonesia. The weaknesses possessed by This regulation can be seen as an opportunity for Indonesia’s Islamic economic human resources the growth and development of halal products in include: Indonesia. However, this regulation must also be 1. Limited halal education in early and basic education Awareness on the importance of halal products need to be instilled as early as possible. However, the lack of curriculum and learning programs related to halal education at early and basic education level is a challenge in halal supported by other government regulations that serves as a technical guidance in developing halal products in Indonesia. Whereas the available regulations are still focusing on developing and guaranteeing products in the form of goods. 3. The available regulations have not yet regulated the development and selection of halal services. literacy efforts in the community. Therefore, The available regulations have not yet halal lifestyle campaign that targets children and regulated the development and selection as well younger generation needs to be intensified. as guarantee of products in the form of halal 2. The absence of technical guidance on the development of halal products. services in Indonesia. In fact, Indonesia has enormous potential to develop products in the form of halal services in Indonesia through the Indonesia Islamic Economic Masterplan 2019-2024 331 Supporting Ecosystems 7
  337. provision of hotel and accommodation services , one university in Jakarta and two universities in travel and halal tourism. West Java. The results obtained indicate that The absence of adequate regulation can cause the growth and development of products in the form of halal services to be sporadic and vague direction. the absorption rate of Islamic finance graduates from each university is 20 percent, 40 percent, and 45 percent respectively with a positive trend. The lack of absorption of these graduates was due to the incompatibility of the curriculum 4. The number of higher educational institutions with the abilities required by the Islamic finance that offer Islamic economic study program is still industry. However, the government (especially small. Bank Indonesia) and several related associations Based on Table 7.3, it can be seen that the number of study programs related to Islamic Economics is large and is focused on education level S1. In most study programs, vocational schools and graduate schools are still minimal or not even available at all. In the medium term it takes 38,940 graduates from D3 to S3 levels in Islamic economics and in the long it will reach 125,790 (Zadjuli in Amalia 2013). This shows a significant demand, but the related study programs are still not available as the current quantity is not able to meet the workforce’s demans. (especially AFEBI, AFEBIS, APSEII and IAEI) have begun to coordinate and develop national curriculum standards for Islamic economics S1 study programs in Indonesia. At present, the academic text has been sent to be assessed by DIKTI and DIKTIS. In the process of discussing the national curriculum for Islamic economics S1 study programs, other similarly important problems were identified, namely the issue of labeling study programs. DIKTI, which oversees public universities, sets the nomenclature of ‘Shariah economics’ for study programs related to economics/finance/Islamic Table 7.3 DIKTIS, which oversees banking, religious while colleges, Number of Study Programs by Level of Education uses Islamic economic nomenclature. One Source: Higher Education National Accreditation Agency (BANPT), 2018 national curriculum because the names of study D3 D4 S1 S2 S3 Islamic Economics 0 0 181 28 3 Islamic Economic Law 0 0 131 0 0 Islamic Business and Management 24 6 93 4 0 Islamic Accounting 0 1 6 0 0 consequence is the difficulty of compiling a programs are not uniformed. In addition, this creates confusion for agencies or companies that have vacancies, especially for undergraduates from Islamic economics/finance/banking-related study programs. 5. The quantity and quality of education in Islamic economics study programs in higher education is still low. Based on data from the National AccreditationHigher Education Agency (BAN-PT), the number The case study conducted by Huda et al. (2016) examined the absorption rate of graduates of economic study programs into Islamic financial institutions using the Alignment Index (AI) method. The study took samples from 332 Indonesia Islamic Economic Masterplan 2019-2024 of Islamic economics study programs (Islamic Economics, Islamic Economics, and Islamic Economics) that are A-accredited is 10 PT, while the number of B-accredited programs are 99 PT, and C-accredited are 98 PT.
  338. Table 7 .4 certification costs. In addition, the cost of Accreditation of Islamic Economics Study Programs in Indonesia expensive certification is also the reason for the 7 lack of Islamic economic experts in Indonesia. PT) Accreditation Accreditation Accreditation A B C Number of Study Programs * 10 99 98 Note: The number of study programs is a combination of Islamic Economics, Sharia Economics, and Islamic Economics study programs The quality of this study program has an impact on the quantity and quality of studies on Table 7.5 Islamic Economic Professional Certification Agency in Indonesia Source: Processed from various sources Name of Certification Body Sector Number of Graduates LSP Syariah Finance Islamic Finance 231 people LSP DSN-MUI Shariah Supervision Unknown LSP Syariah Insurance Shariah Insurance Unknown LSP Ekbisi Economics, Finance and Shariah Business Unknown Islamic economics in Indonesia. The research program conducted by S2 and S3 students in the field of Islamic economics will certainly be helpful in finding a more standard form related to the Islamic economy, especially in the formation of a standard curriculum. By expanding the S2 and S3 scholarship programs in the field of Islamic Economics, it will improve the quantity and quality of Islamic economic studies. 6. Limited Islamic economic professional certification institutions and certified experts in the field 7. Lack of agreement on Islamic economic development nationally. The development of Islamic economic in each region is disintegrated, as a result of the absence of the halal industry value chain from upstream to downstream. The government needs to consider several matters in the development of Islamic economy in the future. The Halal Product Assurance Law needs to be reviewed because there are no rules regarding halal service activities, Based on the data from Table 7.4, from as today’s Islamic economy is not only limited every professional certification institution in to halal products. In addition, providing more Islamic economics in Indonesia, the number of opportunities for Islamic economic scholars in certified expert graduates is 231 people (LSP Indonesia to research and study abroad, through Islamic Finance 2018). In addition, based on the financial assistance and scholarships, is a explanation of Islamic Banking Statistics data, strategy to increase the number of research staff it can be seen that 38 percent of Islamic bank and experts in Islamic economics. Appreciation employees are graduates of S1 (conventional) of Shariah-compliant entrepreneurs needs to be Economics and only 9.1 percent are from carried out through the provision of promotion, Shariah. In addition to experts in the field of training and other forms of acknowledgement. Islamic banking, the government is also faced with a lack of experts such as surveyors for the halal certification process, resulting in expensive Islamic boarding schools, as one of the centers of Islamic economics in Indonesia, needs to be empowered. According to data from the Indonesia Islamic Economic Masterplan 2019-2024 333 Supporting Ecosystems Source: Higher Education National Accreditation Agency (BAN-
  339. Ministry of Religion , there are 25,938 boarding schools and more than 3.9 million students throughout Indonesia (Ministry of Religion 2018). The potential of Islamic boarding schools in Islamic economics is also worth considering because of the in-depth Islamic knowledge and values, therefore it is possible to develop Islamic economics through Islamic boarding schools. However, now, Islamic boarding schools have not become the focus of development for the government. 8. Mapping and synergy between various parties in Islamic economic R&D is not optimal. One of the obstacle in conducting research is the costs required to organize research facilities and activities. Likewise, to establish a research and development center and the selection of products in the form of halal goods in various universities requires a large investment in providing the adequate tools and technology. This can be resolved, among others, through collaboration between universities and industries. However, the current condition is that universities contributing operates to the independently development of in halal products. For this reason, the output produced by universities in developing and selecting products in the form of halal goods is not optimal. For this reason also, the government and university associations need to carry out mapping and synergy between universities to form an agreement on the establishment of a center for the development and selection of products in the form of halal goods that are in accordance with the advantages possessed by these universities. For example, for food products, it is centered at the Bogor Agricultural Institute for Java and Sumatra, while machinery it is centered at the Bandung Institute of Technology. assurance that products and goods produced certain conditions, which ultimately meets halal criteria. The synergy between higher 334 Indonesia Islamic Economic Masterplan 2019-2024 immediately, because at the same time universities that focuses on developing and selecting products in the form of halal goods have challenges from foreign universities located that also synergizes with industrial businesses abroad, to produce halal goods that meet the needs of the community, especially Muslims in Indonesia. Literacy, HR and R&D are able to support and improve the halal industry in a macro way through various methods, including: 1. Increasing public awareness and understanding the needs of halal products which in turn will encourage an increase domestic demand for halal goods and services. Awareness and understanding of producers on the needs of The industry needs clear research results, meets educational institutions and industries must be done halal products also motivates the expansion of production of halal goods and services.
  340. Supporting Ecosystems 7 2 . Increasing the quantity and quality of Islamic economic human resources in 4. Raising awareness of Islamic economic literacy of Indonesia. the public in general, this will support the market Increasing the quantity of Islamic economic increase for Islamic economic industry players. human resources is needed to meet the increasing Market enhancement and community Islamic needs of the Islamic economy industry, and to economic literacy are incentives for producers of improve the quality of products and services halal products and services. With the increasing produced. Increasing the quality and quantity, awareness and literacy of the public on halal when done simultaneously, can also maximize products and services will encourage producers results. to improve the quality of products and services 3. Strengthen regulations and governance from the relevant government with professional certification experts for the Islamic economic development. In addition, there must be clear regulations relating to the produced. Furthermore, this increases the demand for Islamic economic labor or human resources. 5. The results of research and development in the establishment Islamic economic field can help the industry in of Islamic economic study programs, from meeting the market needs for halal goods and vocational school level to post-doctoral degree. services. In addition, R&D can also contribute to Therefore, synergy with the relevant government improving industrial efficiency thereby cutting is important for the effective and efficient process costs to finance halal economy. of establishing Islamic economic study programs at every level. Indonesia Islamic Economic Masterplan 2019-2024 335
  341. Strategy and Program Based on the overall opportunities and challenges ’ industries and educational institutions, technology analysis above, the preparation of an action plan integration, developing new platforms such as Halal for developing literacy, HR, and research and Center and Data Centers, and developing research- development is divided into eight specific strategies. based industries. These strategies generally include revamping HR in Table 7.6 Action Plans for Literacy Development, HR, and Research and Development No. Programs/Activities Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders Strategy 1: Increasing the Effectiveness and Engagement of Islamic Economy Industry Actors in Improving the Quality of HR 1. Increasing the effectiveness of Islamic economic industries in improving the quality of HR a. Make practical guidelines for Islamic economics for industry players •• Increased growth of industries that are halal certified Halal Product Assurance Organizing Agency (BPJPH), Ministry of Industry, Kemenkop, UMKM, Ministry of Religion, Ministry of Manpower •• Increased growth of industries that are halal certified Halal Product Assurance Organizing Agency (BPJPH),Ministry of Industry, Kemenkop, UMKM, Ministry of Religion, Ministry of Manpower b. Mapping human resources needed by industries and institutions related to the development of halal industry c. Have a dialogue with industry players about the need for competency in the world of work so that HR is more productive d. Strengthen link-and-match with halal industry players 2 Increasing the involvement of industry players in the Islamic economy in improving the quality of HR a. Increase the frequency of training for halal industry players by the Ministry of MSMEs b. BPJPH provides convenience in managing and financing halal certification, in collaboration with large companies c. Initiating forums in each relevant industry sector 336 Indonesia Islamic Economic Masterplan 2019-2024
  342. No . Programs/Activities Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders Strategy 2: Improving the Quality and Quantity of Human Resources in Islamic Economics-Based Educational Institutions 1. Increased Islamic economic literacy a. Publish more books, articles and journals about Islamic economics that are easily understood by the general public •• The increasing number of educational institutions Ministry of Research, Technology and Higher Education; Ministry of Education and Culture, Ministry of Religion, Higher Education Institutions, IAEI, MES •• The increasing number of educational institutions Ministry of Research, Technology and Higher Education; Ministry of Education and Culture, Ministry of Religion, Higher Education Institutions, IAEI, MES b. Conduct extension counseling programs on Islamic economics through structural channels (approaches using institutional devices) and cultural (approaches by acculturating local culture) to the community c. Creating Islamic economic socialization cooperation program in each Islamic mass organization d. Make general training or lectures on Islamic economics held by Universities e. Give priority and increase the number of scholarship recipients for postgraduate S2/S3 in fields related to economic development/Islamic finance f. Attract Islamic economics human resources abroad to develop Islamic economics in the country The existence of a standard curriculum 2. related to Islamic Economics in educational institutions a. Encouraging acceleration of standardization of higher education curriculum related to Islamic economics / finance, especially at the level of S1 education and Vocational Education * ** b. Establishment of an Inter-University Center (PAU) to strengthen coordination and encourage the development of Islamic economics c. Extensive and simple useful standards / regulations * d. Inserting Islamic economic material in learning in junior and senior high schools including boarding schools Indonesia Islamic Economic Masterplan 2019-2024 337 Supporting Ecosystems 7
  343. No . Programs/Activities Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders Strategy 3: Improving the Quality of Human Resources in the Religious Social or Social Institutions of Islamic Economics 1. Common vision together related to the development of Islamic economics in Islamic organizations a. Collecting community organizations and educational institutions to develop Islamic economic socialization plans •• Increased growth in the number of Sharia social economic institutions Ministry of Religion, Islamic Organizations b. Agreeing on a shared vision between the government and Islamic organizations about the Islamic Economic Development Program is very important given the fairly central role of social institutions, especially religious institutions c. Make a MoU between the government and Islamic organizations in the development of Islamic Economics d. The MUI works with non-governmental Islamic institutions that are directly related to handling halal products Strategy 4: Quality and Quantity Improvement in Islamic Financial HR 1. Regulation that make it easier for Islamic economics actors to compete with conventional systems a. Accommodating interests for business people (as an example in determining the financing margin that can be realized by the existence of a margin system guide for the Islamic Finance industry) with adequate regulation b. Forming agents for managing halal certification for facilitating medium and small businesses Increased competency of Islamic 2. financial HR to be more competitive a. Bank Indonesia can provide training to Islamic Banks Certification acceleration program for HR who are currently/will be working in the industry that become the scope of economic and Islamic finance ** b. The Indonesian Banking Development Institute can provide intensive training to Islamic banks c. Make regulations related to the portion of CSR funds from Islamic Banks that should be used for the interest of Islamic economic development 338 Indonesia Islamic Economic Masterplan 2019-2024 •• Increased growth of Islamic financial assets Islamic Organizations, BI, OJK, Ministry of Finance Indonesian Banking •• Increased Development growth of Islamic financial Institute (LPPI), OJK assets
  344. No . Programs/Activities Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders 7 1. Creating a conducive ecosystem for the adoption and implementation of Industrial 4.0 technology a. Collaboration between the Central Government / Regional Government / City Government and industry 4.0 to build an effective and efficient supply-chain for local industries (agriculture, plantations, craft factories, etc.) b. Encouraging private sector to make funding (venture capital, crowdfunding, CSR, etc.) and facilities support for halal industry start-up c. Related government institutions, Regional Government / City Government cooperate with the private sector to hold competition for halal industry using 4.0 technology Ministry of Industry, Ministry of Trade, Ministry of Cooperatives and SMEs, Ministry of Manpower, Ministry •• Creating more of Energy and choices of digital business Mineral Resources, BI, OJK, Regional models. Government / City •• The creation of Government, Private digital solutions Sector, Universities, to conventional Private Sector, and industrial needs related Associations / challenges. •• The increasing number of local industry players who utilize 4.0 technology •• Increased innovation and industry-based intellectual property 4.0. d. Collaboration with the private sector (public-private partnership) to build a Center of Excellence that focus on research and development (R&D) innovation and technology adoption of Industry 4.0 in various fields (agriculture, manufacturing, finance, etc.) 2. Halal food R&D with industry 4.0 a. Develop framework and mechanisms to measure the readiness and capability of existing industry, including SMEs against industrial parameter 4.0 b. Conduct market research, survey market demand preferences c. Technology development research that can support industrial development Ministry of Industry, •• Industry Readiness Index Ministry of Trade, Ministry of 4.0 Cooperatives and •• Available SMEs, Ministry of data centers Manpower, Ministry halal food of Energy and and beverage Mineral Resources, industry BI, OJK, Regional Indonesia Government / City •• Research Government, Private journal for Sector, Universities, halal food Private Sector, and and beverage related Associations industry •• Increased volume of Indonesian halal products Indonesia Islamic Economic Masterplan 2019-2024 339 Supporting Ecosystems Strategy 5: Reinforcement of the Halal Value Chain of the Halal Industry with Industrial Technology 4.0
  345. No . Programs/Activities 3. Making a shared platform (apps and web) for halal tourism a. Creating a shared platform by halal travel associations Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders •• Indonesian halal tourism portal website and application Ministry of Industry, Ministry of Trade, Ministry of Cooperatives and SMEs, Ministry of Manpower, Ministry of Energy and Mineral Resources, BI, OJK, Regional Government / City Government, Private Sector, Universities, Private Sector, and related Associations b. Invite and select halal tour packages to be displayed on a shared platform c. Giving rating for halal tour packages d. Promotion of applications inside and outside the country 4. Establishment of supporting technology bases for the acceleration of the renewable energy industry. •• Development of adequate technology to support the renewable energy industry Strategy 6: Halal Center Development for Integrated Halal Industry Development 1. Establish an integrated Muslim fashion R&D center and innovation a. Hold studies and FGDs with related stakeholders ** •• Establishment of Muslim Fashion R&D Center Ministry of Finance, Ministry of Industry, Ministry of Trade, Ministry of Cooperatives and SMEs, Ministry of Tourism, BI, DPR, Ministry of Human Rights, Ministry of Economic Affairs, OJK •• Establishment of R&D substitute elements for pharmaceuticals and cosmetics Ministry of Finance, Ministry of Industry, Ministry of Trade, Ministry of Cooperatives and SMEs, Ministry of Tourism, BI, DPR, Ministry of Human Rights, Ministry of Economic Affairs, OJK b. Providing research and innovation grants in scientific journal publications and Muslim fashion related articles ** c. Providing incentives to parties conducting research and innovation in scientific journal publications and Muslim fashion related articles ** 2. Established a special R & D center for halal pharmaceuticals and cosmetics a. Hold studies and FGDs with related stakeholders ** b. Research grant for researchers c. National level scientific competition with halal themes in all fields d. Research to find alternative ingredients to substitute for haram ingredients ** 340 Indonesia Islamic Economic Masterplan 2019-2024
  346. Programs /Activities 3. Establish an integrated R & D center and renewable energy innovation. a. Mapping expert resources and coordinating related parties in the field of renewable energy research. ** b. Establishment of an international quality integrated renewable energy R & D center. ** 4. Increased research on Islamic economic fatwas covering market needs a. Identify the needs of the Islamic financial market and the halal real industry Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders •• There is mapping regarding expert resources •• Increased amount of research on renewable energy •• Fatwa support that can be accommodated in government laws and regulations. b. Arrange strategic steps in an effort to transform the fatwa into government laws and regulations. Strategy 7: Data Center and National Information System that can be Accessed by All Economic Actors in the Halal Industry 1. Data Collection and Integration of University Halal Centers a. Continuous collaboration between university-level Halal Centers ** b. The enactment of standardization of research labs at the university level ** •• There is a continuous supply of data regarding the halal industry Universities, Associations, Ministry of Research, Technology and Higher Education •• The existence of good legal framework and halal industry NIFC, BI, OJK, Ministry of Cooperatives and SMEs, Ministry of Industry, Ministry of Trade, Ministry of Tourism c. Provides regular presentation of halal industry data ** 2. Harmonization of the legal and regulatory framework as well as a good Islamic economic institutional governance system in Islamic financial institutions and halal industries. a. Conducting the latest legal studies related to the halal industry 7 Supporting Ecosystems No. b. Providing legal umbrella for every halal industry clerk c. Socialize the legal framework to related stakeholders Indonesia Islamic Economic Masterplan 2019-2024 341
  347. No . Programs/Activities 3. Develop a shared database that can be accessed by all Waqf Management Agency through Waqf Information System (SIW) a. Establishment of the BWI Strategic Study Center b. Development of Waqf Application System for all BWI for integration of waqf systems for Waqf Institutions Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders Universities, BPS, Ministry of Law and Human Rights, Ministry of Research, •• Availability of waqf application Technology and Higher Education, system for as well as ministries integration of from other related waqf systems sectors •• There is a database for qualified waqf c. Enforcement of Waqf Information System (SIW) for the Nazhir not operating under BWI Strategy 8: Development of Human Resources, Regulatory Frameworks and Products for Halal Industry Based on Research 1. Increased production of renewable energy products to increase market share and through collaboration with other industries to achieve industry achievement targets. a. Market research and benchmarking for collaboration between renewable energy and halal industry with halal tourism priorities. b. The use of renewable energy as an energy source for halal industries in Indonesia. c. Building mutually beneficial business collaboration through integration between halal tourism and renewable energy. d. Building a digital platform that connects halal tourism and renewable energy. •• The results of research on the potential of renewable energy as spot tourism for halal tourism •• Increased market share of renewable energy •• Increased supply of energy using renewable energy •• The existence of business cooperation between the perpetrators of renewable energy and halal tourism. 2. Increased research and publications on halal media and recreation and the use of media and the internet in the halal media and recreation industry •• There is more research on halal media and recreation a. Encouraging research and the benefits of international halal media and recreation market intelligence •• There is an incentive for market participants to be interested in the halal media and recreation industry b. Providing research and innovation incentives in scientific journal publications and articles related to halal media and recreation 342 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Energy and Mineral Resources, Ministry of Finance, Energy BUMN, Renewable Energy NGO, Association, Regional Government, Ministry of Tourism, Other Ministries related to halal industry Research institute, University, Ministry of Industry, Ministry of Research, Technology and Higher Education, Technology Industry, Ministry of Religion, Ministry of Communication and Informatics
  348. Programs /Activities Year 2019 2020 2021 2022 2023 2024 Target Indicator Stakeholders c. Encourage the growth and development of halal media/media sites and recreation 3. Encourage the development of new media and recreational products, in the form of films, music, publications and recreational venues that are valuable, and have a spirit of Islam. a. Market research and development of halal media and recreational products in accordance with the characteristics and culture of Muslim communities in Indonesia. b. Business collaboration between research institutions, directors, the media industry and recreation and universities. Research institutes, Universities, Ministry of Industry, Ministry of Research, Technology and Higher Education, •• Cooperation between related Technology Industry, Ministry of institutions for halal media and Religion, Ministry of Communication and recreation Informatics •• The development of halal media and recreational products c. Collaboration with the technology industry in product development. 4. Diversification of Islamic Financial Products and Services a. Conduct market research related to the needs of Islamic financial services products that are in accordance with the conditions of society and industry. b. Introducing New Islamic Financial Products According to Market Needs (Product Development). c. Develop Funding Instruments or Profit-Based Investment Alternatives. d. Develop investment management products according to the life cycle of customers or investors •• Increased number of Islamic financial products and services. •• Existence of development of new Islamic financial products in accordance with the conditions and demands of the community Sharia Bank, Financial Services Authority (OJK), Bank Indonesia (BI), and National Sharia Council Indonesian Ulama Council (DSNMUI), BWI, BAZNAS, Kemenag, IDX e. Improve the fund structure to support the expansion of the financing sector. 5. Development of Islamic boarding schools and their supporting research to make every pesantren have a halal business unit •• The increasing number of MSME entrepreneurs a. Develop the ability of santri to become MSME entrepreneurs. •• The large number of SME businesses that can sustain themselves b. Distribution of funds to support the development of Islamic boarding schools Ministry of KUKM, Ministry of Religion, Ministry of Trade, Islamic Boarding Schools, BWI c. Monitoring, evaluation, and further guidance on halal business activities Indonesia Islamic Economic Masterplan 2019-2024 343 7 Supporting Ecosystems No.
  349. Quick wins Based on the overall action plan to strengthen This is increasingly important considering the literacy , human resources, and research and small number of graduates from the Professional development above; there are six programs that Certification Institution (LSP) related to Islamic can be implemented in the short term (quick wins). finance in Indonesia. The acceleration of this The six programs are considered to have narrow certification can be done in various ways, including coverage but have a significant impact to encourage by encouraging the establishment of more LSPs and the development of halal industry and the Islamic improving the quality of learning in LSP. finance industry in terms of literacy, HR, as well as research and development. Quick wins itself has been allocated for completion in the 2019 period and is the initial momentum for other action plans in 2020 to 2024. 1.National halal literacy program 3. Program to accelerate curriculum standardization of Shariah-related economic and financial institutions, especially at the S1 level of higher education and vocational education. Standardization of the curriculum is necessary The national halal literacy program is needed so that graduates of educational institutions in to provide basic information regarding the halal Indonesia, starting from basic education (early economy, halal products and standards, halal media education) to high education have good literacy and and tourism, Shariah-compliant transactions and basic knowledge in Islamic economics and have good finance, as well as other matters related to the employment opportunities pursuant to mastering Islamic economy and halal industry in Indonesia. this knowledge. For college graduates, curriculum With this national literacy program, it is expected standardization is also needed so that graduates that the Muslim community and society in general from Islamic economics-related study programs have a good understanding of the various aspects of have the basic capabilities in Islamic economics and halal economy and are more motivated to carry out the profile of graduates who are relatively the same the halal lifestyle in their daily life. fits the criteria of the industry/Islamic economic institutions. The career path can also be explained 2.Certification acceleration program for HR who will /are currently working in industries that are under the scope of Islamic economics. Not all human resources will work / are working in an industry that is included in a Shariah economic scope comes from an educational background relevant to their work. In fact, with the increasing size of the Islamic economic market, the need for skilled workers and competent workforce will be even higher. Therefore, a certification program is needed to improve the HR competencies and expertise. 344 Indonesia Islamic Economic Masterplan 2019-2024 so that link-and-match with industry is increasingly clear. In addition, standardization of the university curriculum is also needed to develop knowledge and prevent the imbalance in the quality of graduates between universities that offer courses related to Islamic economics.
  350. 4 .One Data Center (Islamic Economic Data Center) One Data Center (Islamic Economic Data 6.Increasing the quantity and quality of research for halal products and industries Center) serves as an integrative information center At present, the quantity and quality of research that contains statistical data, reports, studies and for halal products is still very limited. In fact, research other information related to Islamic economics. like this is necessary to encourage innovation and These data are expected to be obtained from increase the scale of Islamic economic business various Islamic economic policy stakeholders and in Indonesia. Research related to food, beverages subsequently become accessible to the public. With and halal pharmaceutical products, for example, is the existence of this data center, it is expected that needed to facilitate the halal certification process. Islamic economic literacy and research will be more Research and engineering of halal pharmaceutical- developed. Islamic economic policy is also expected related industries is also very important considering to be research-based. there are still many drugs that still uses non-halal ingredients. Therefore, the quantity and quality of 5.Mapping of universities that can specialize in developing certain Islamic economic research, both in academic research and applied research research on halal products and industries must continue to be improved. The mapping of tertiary institutions aims to identify potential universities to develop certain Islamic economic fields / aspects. This can be done by involving universities that already have study programs related to Islamic economics, Halal Centers, or other related institutions. This mapping can also be done by strengthening the InterUniversity Center (PAU) with study programs related to Islamic economics. Indonesia Islamic Economic Masterplan 2019-2024 345 Supporting Ecosystems 7
  351. Fatwa , Regulation and Governance Since the demise of the Prophet and his companions, the community refers to Muslim scholars as a reference authority. The people’s need for a fatwa continues to increase. More so in the developing times where issues and problems often arises. This often confuses the people and invites speculation on a number of matters that were not discussed during the previous period. Various questions from the ummah on these problems are usually conveyed to scholars or competent religious figures. The people are in need of a fatwa to find out more about issues surrounding them, whether such issues are deemed obligatory, mustahab, makruh, haram or mubah? Fatwa is the response to a query when one seeks for legal clarity on an issue. Fatwa is usually a short answer and not accompanied by lenghty arguments. As the purpose is to provide explanation to the questioner, so that he can implement the teachings of Islam. Those who are qualified to issue fatwas are certain scholars with certain qualifications. Besides mastering Arabic and understanding the basics of Islamic law such as the Alquran, hadith and ijma ‘ulama. The scholar must also master the method of deducing law from the Alquran and Hadith. Muslim scholars such as Yusuf Qaradhawi argued that the task of issuing fatwas is a blessed capability. A fatwa is the successor of the Prophet Muhammad (peace and blessings of Allaah be upon him) to explain matters of the unlawful and unlawful in acting, the authentic and fasid (corrupted) in the practice, the acceptable and the ignorant in the matter of worship, as well as the right and wrong in faith. The Indonesian Ulema Council agreed that those who have the right to issue fatwa in Indonesia are the fatwa commission, pesantren scholars, scholars from various community organizations (community organizations) and universities. Indonesia Islamic Economic Masterplan 2019-2024 347
  352. Global and National Conditions Internationally , there are no organization that issues universal standards to be adopted by all jurisdictions. However, key organizations have led efforts to provide guidance to regulators and market participants. brand and logo, or whether it will be too restrictive. There are some ideas proposed to develop harmonization of standards to include cooperation with experts in the field of Islamic economics, creation of data centers in the global halal industry, The main fields that require standardization identification of contact persons and authorities in include: development of agreements between every country that has a significant halal industry, countries for secondary markets; more authoritative certainty that Shariah experts from all over the rating agencies that focuses on Islamic products; world engage in discussions to create global clarity of regulations, including empowerment of standardization and accreditation bodies, and, while national and / or international Shariah councils; aiming at global goals, also take smaller steps, such better training and certification processes, especially as mutual recognition agreements (MRA / Mutual with regard to Shariah-compliant legal aspects of Recognition Agreements) to facilitate halal trade. transactions and cross-country comparison laws; and measures to resolve the hindered development of sukuk. Standards that integrate the financial system Achieving the right balance in creating globally accepted standards and developing a global (or at least regional) accreditation system will contribute significantly to the development of a global halal by offering lower costs are welcome. Developing industry standards that help countries to adopt better and simplifying credible certification processes independent macro prudential regulations that and reliable audits for companies. This will also are integrated with the existing Islamic banking contribute to the broader Islamic economy by framework throughout the world should be the main helping halal businesses to easily enter new markets goal for standardization efforts. and facilitate interactions between the halal industry For the halal sector, there is a broad agreement by creating greater consumer trust and the Islamic financial sector. that the halal industry requires clearer and stronger There is a heated debate about whether universal standards. If developed through a global consultation standards in Islamic finance and the halal industry process, clear standards will help the halal industry will facilitate or hinder Islamic economic growth. At in reducing the costs and time for new companies present, the majority of experts argue that greater to enter the market, reducing the costs for suppliers standardization in both the Islamic finance industry to sell to various countries, increasing consumer and the halal industry will generate positive results confidence and ensuring the integrity of the supply that will benefit the Islamic economy as a whole. chain. At the same time, experts warn that excessive There is a mutual agreement that the halal industry will benefit from greater standard harmonization and a more credible accreditation system. However, there are still debates over how this should work, whether there is a centralized global system or not, and whether the long-term goal is to create a global halal 348 Indonesia Islamic Economic Masterplan 2019-2024 standardization will hamper innovation. The challenge for industry leaders, policy makers and investors now is to form standards that will succeed in reducing risk on the one hand but on the other hand can increase interest in halal products and Islamic finance. Nevertheless, it is very important to find the
  353. right balance between increasing harmonization of 3 . IIFM (International Islamic Financial Market) standards and allowing space for innovation and •• Operated in 2005 and based in Bahrain. adaptation to reality over several legal jurisdictions. •• Independent on Countries (OIC) and to provide incentives 1. AAOIFI (Accounting & Auditing Organization for through their rankings for ethical finance Islamic Financial Institutions) throughout the world. •• Established in 1991 and based in Bahrain. •• Published various Shariah standards and accounting standards that have become benchmarks and references in the development 4. IIRA (Islamic International Rating Agency) •• Established in 2002 and based in Manama. •• International institution established to develop the capital market and Islamic money market of Islamic financial transactions including in globally and develop a secondary market for the accounting and audit aspects. standardization focus in the region of the Organization of Islamic the following: audit that developing local capital markets, especially To date, International Standards Bodies include •• Emphasizes institutions and accounting / financial statements so that LKS global Islamic financial instruments. •• Focuses on standardizing contracts and primary and secondary market products, has financial audit and reporting standards that developing Shariah compliance instruments in are in accordance with international standards, but still in accordance with Shariah principles. •• Has issued 100 standards in the field of Shariah, liquidity management and so on 5. IILM (International Islamic Liquidity Management) accounting, auditing, ethics and governance •• Established in 2010 and based in Bahrain for international Islamic finance. •• An international institution established to introduce and facilitate effective and cross 2. IFSB (Islamic Financial Services Board) Islamic liquidity management solutions •• Established in 2001 and based in Kuala Lumpur. •• Issued international standards in the field of Islamic financial services, including banking, capital markets and Islamic insurance. •• More emphasis on the regulatory aspects and supervision of the Islamic finance industry to create a stable and prudent Islamic financial system. •• Until 2017, the IFSB has published twentyseven Standards, Guiding Principles, Guidelines and Technical Notes. Some countries apply different models in ratifying and adopting the international standards above, such as: 1. Malaysian Model In Malaysia, the Islamic Banking Act 1983 and the Central Bank of Malaysia Act 2009 mandated the establishment of the Shariah Advisory Council (SAC) within Bank Negara Malaysia’s structure (BNM, central bank) and is regarded as the main reference for legal authority in making Shariah standards in the Malaysian Islamic banking industry. As with the MUI DSN, the SAC-BNM has a formal relationship with the State. SAC-BNM members are remunerated by the State. Indonesia Islamic Economic Masterplan 2019-2024 349 Supporting Ecosystems 7
  354. In February 2004 , the World Halal Council 2. Bahrain Model As the host country for AAOIFI (Accounting Auditing Organization of Islamic Financial Institutions), the Islamic finance industry in this country publishes Shariah standard formulated by AAOIFI as guidelines that are complied by all Islamic financial institutions operating in Bahrain. 3. The British Model As a Western country with a minority Muslim community, the United Kingdom (UK) is one of the non-Muslim countries that promotes Islamic finance aggressively for both domestic and international markets. This country does not adopt Islamic elements in their positive law. In the context of UK Islamic banking and financial industry, a country through the Financial Conduct (WHC), which is now chaired by the chairman of the LPOM MUI, agrees to the requirements of halal certification institutions and general procedures for halal certification. Likewise, standard procedures for auditing flavors, microbial products and animal slaughter. At the 2007 WHC conference in Malaysia, standardization of halal certification was achieved for its members. Apart from that, there is cooperation between Indonesia, Malaysia, Thailand through the Growth Triangle (IMT-GT). In 2008, the 3rd WHF gave the International Halal Integrity Alliance (IHI Alliance) mandate to develop international halal standards. The results were presented at the 4th May 2009 WHF. Authority (FCA), formerly called the Financial Producing international halal standards is not an Services Authority (FSA) do not require Islamic easy matter, but it is not impossible. Some of the banks and other Islamic financial institutions problems include, first, differences in the schools to adopt the Islamic financial fatwas of certain of thought and usul fiqh of the fatwa commission organizations or authorities as is the case in which affect the halal status of a product. For Indonesia, Malaysia and Bahrain. In addition, example, some scholars consider all seafood halal, regulations and legal regulations in the United while other scholars consider sea prawns and eel not Kingdom, do not require banks and Islamic financial halal. Second, to ensure the halal status of a product, institutions to form a Shariah Supervisory Board the auditor must directly check all production sites (DPS) in their organizational structure. In a report or obtain written information that such product is issued by the FCA entitled “Islamic Finance in the not associated with potentially haram materials. UK: Regulation and Challenges”, the FCA stated Third, the standard audit approach used. According that as a secular State, the United Kingdom did to the International Organization for Standardization not intend to be directly involved in determining (ISO) standard, there is tolerance such as quality aspects of Shariah in its banking industry and standards. However, halal in Islam has no tolerance. Islamic finance. They will invite markets to adopt Once there is doubt as to the halal status of the various fatwas for Islamic financial transactions material or process, it must be replaced or rectified whether carried out by local fatwa institutions, or for the purpose of halal certification. international fatwa institutions such as the Fiqh Academy in Jeddah, Saudi Arabia, or AAOIFI in Bahrain. In the future, harmonization and standardization of halal certification between institutions and / or between countries needs to be done gradually. We For the standardization of halal certification, hope that an international halal certification will be efforts to unify halal standards have been carried accepted by various parties. This would be beneficial. out. In 2003, the MUI introduced the standardization First, clarify the audit model of halal certification of halal fatwa institutions for ASEAN. institutions. Second, the efficiency of the production 350 Indonesia Islamic Economic Masterplan 2019-2024
  355. because it is not directly proportional to the great they do not need recertification that adds costs . potential possessed. As a country with the largest Third, guaranteeing the fulfillment of consumer Muslim population in the world, of course Indonesia rights. The standards should be used based on can become a key player in Islamic finance and halal Islamic teachings, because halal is the Islamic industry in the world. Islamic finance and the halal term and Islamic law. Closer cooperation is needed industry can grow, develop and expand worldwide between halal certification institutions, producers, because there are still untapped resources. The scholars, researchers, and the government, as well development of Islamic finance and the halal industry as related parties. We hope that the development will also contribute positively in strengthening the of international halal standards will encourage the country’s economy. growth of halal products’ business. Supported by an efficient and accurate halal certification process will facilitate business people and benefit all parties. The Islamic finance industry and halal industry in Indonesia have developed rapidly. At present, there are various Islamic financial institutions and policies or regulations that support the industries. In the past ten years, the Islamic finance industry in Indonesia, which is dominated by Islamic banking, experienced significant growth with an average speed of 30-40 percent. However, the total assets of Islamic finance nationally are still relatively small. Likewise, the halal industry which has not been able to compete with other countries such as Malaysia, Singapore and Thailand, poses a big question and challenge Indonesia Islamic Economic Masterplan 2019-2024 351 7 Supporting Ecosystems process for producers and business people because
  356. 1 .Fatwa Globally, fatwas can come from the opinions of individual scholars, such as Al-Fatawa al-Hindiyyah, Majmu ‘al-Fatawa Ibn Taymiyah, Ibn Rushd Fatwa, coordination, and cooperation as the three main functions of governance needed to ensure that policies deliver the desired results. From a historical perspective, corporate Fatawa Ibn’ Aqil, and so on. As for institutions, governance systems have developed over several there are currently several institutions in the world centuries as a response to corporate failures or of Islamic finance that serve as references, such systemic crises. The first governance failure was the as the Islamic Fiqh Academy (Majma ‘al-fiqh al- South Sea Bubble in the 1700s, which revolutionized Islamy), the legal division of the OIC (Organization law and business practices in the UK. Likewise, many of Islamic Conference), and fatwas from AAOIFI security laws in the United States were enforced (Accounting, Auditing and Governance Standards following the capital market crisis of 1929. This was for Islamic Finance Institutions). In addition, fatwas followed by other crises, such as the secondary can also be issued from individual scholars in their banking crisis of Britain in the 1970s, the debt and capacity as jurists with certain positionswith the savings crisis of the United States of America in authority to issue fatwas, such as the mufti of Dar the 1980s, the financial crisis of Russia in 1998, the al-Ifta ‘Egypt or the mufti al-Lajnah ad-Daimah li al- financial crisis of Asia in 1997-1998, and the global Buhuts al-Islamiyyah (Council Science Research and financial crisis that began in 2008, which has not Fatwa) Saudi Arabia. In Malaysia, there are 14 mufti shown signs of ending. positions in each state which are authorized to issue fatwas. In Europe, fatwa institutions such as the European Council for Fatwa and Research (Al-Majlis Al-Auruby li al-Ifta ’wa al-Buhuts) have emerged. These crises generally begin with the fall of well-known companies as a result of management incompetence or fatal irregularities. In response to this, a new governance framework is applied to In the midst of the current global conditions regulate and supervise more stringent financial that is slowing economic growth, increasing scarce activities in various countries (OJK and ICF, 2014). resources, and the emergence of various conflicts of interest, governance has become an important global issue that has received much attention. The World Bank, for example, submitted a 2017 development report entitled Governance and the Law to answer the question of why many well-intentioned development policies end up failing to produce the expected results. Rather than questioning what policies are right for development, this report recommends the need to build a better governance system. Governance here is defined as a process in where state and non-state actors interact and implement policies in a series of formal and informal rules that form, and are shaped by, power (World Bank 2017, 3). In a sense, governance involves agencies (actors), structures (systems of relations between agencies), and power (the process of interaction that gives birth to power and power relations). The report also underlines the importance of commitment, 352 Indonesia Islamic Economic Masterplan 2019-2024 Good governance has a very high urgency and relevance for Islamic economic institutions. The OECD (Organization of Economic Cooperation and Development) (2015), as a global institution that promotes good governance, defines good corporate governance as “a series of relationships between management, the board of directors, shareholders, and other stakeholders that provide the structure through which the company’s objectives, ways to achieve these objectives, and mechanisms for monitoring company performance are determined.”
  357. for Islamic finance include the Islamic Financial of corporate governance as “ a combination of law, Services Board (IFSB), Accounting and Auditing legislation, and practices carried out by the private Organization for Islamic Financial Institutions sector on a voluntary basis that enables companies (AAOIFI), the International Islamic Rating Agency to attract financial and labor capital, perform (IIRA), the International Islamic Financial Market efficiently, and with all that can sustainably generate (IIFM), and the Liquidity Management Center (LMC). long-term economic values for their shareholders, The IFSB released the Principles for Governance and at the same time pay attention to the interests Systems for Islamic Financial Services institutions in of stakeholders and society as a whole.” (Maassen, December 2006 as Standards of IFSB-3, Governance 2000). Principles for Islamic Collective Investment Schemes Meanwhile, corporate governance provides a series of systems and processes to ensure accountability, integrity, and openness in carrying out organizational activities, as well as in relationships between different stakeholders. Good governance is crucial for the ability of a business to protect various interests (financial, ethical, religious, and other values) of stakeholders. as Standards of IFSB-6 (2008), and Governance Principles for Takaful as Standards of IFSB-8 (2009). Likewise, AAOIFI adopted the Governance Principles for Islamic financial institutions in 2010. These governance principles were created in order to maintain the stability and health of the Islamic financial system. The IFSB-10 establishes four aspects of the Islamic governance system for Islamic financial institutions: the establishment For developing countries, improving corporate of Shariah fatwas, ensuring the daily operations governance can help a series of important public of companies are in accordance with Shariah, policy objectives. A better practice of corporate reviewing and auditing internal Shariah compliance, governance will increase the company’s share and annual Shariah compliance audits to ensure price, so that companies with better governance review of internal Shariah compliance were carried can enjoy lower capital costs (Stijn Claessens & out according to procedure. Burcin Yurtoglu, 2012). Several studies show that good governance will increase the level of investor confidence, reduce the cost of capital, and create sustainable corporate performance, help protect the company from various corporate risks. At the global level, a comprehensive report regarding the condition of governance of Islamiceconomic institutions as a whole has not been found. However, Islamic banking is one of the leading sectors in Islamic economics, which has In addition to still adhering to the principles of received attention regarding the implementation and good corporate governance that apply in general, enforcement of principles of sound governance. For Islamic economic institutions also require additional example, the General Council for Islamic Banks and corporate governance principles, namely Shariah Financial Institutions (CIBAFI) and the World Bank compliance and provisions in all aspects of the issued a report on Governance Practices in Islamic contracts, procedures, and operations of Islamic Banks (CIBAFI-World Bank 2017). This report finds economic institutions, and this is known as Shariah the Corporate Governance Index of Islamic Banks governance. in the world, out of a sample of 77 Islamic banks, In response to this, a number of countries have established laws and regulations for Islamic financial institutions, and international institutions have been established to adjust conventional standards and harmonize good governance practices for Shariah economic institutions. International institutions reached 21.8 out of a maximum score of 36 (or 60.6%). Six indicators of Corporate Governance assessed include the Board of Directors, Board of Commissioners, Internal Control and External Audit, Risk Management, Shari’ah Governance, and Transparency and Disclosure. Of the six Indonesia Islamic Economic Masterplan 2019-2024 353 7 Supporting Ecosystems Meanwhile, the World Bank defines the meaning
  358. indicators , Islamic banks have the highest index the CRO currently does not have a high status in the Transparency and Disclosure indicator, at within the bank. This is reinforced by the lack 74.5%, followed by indicators of Internal Control of independent directors in the Risk Committee and External Audit, at 70.8%. The lowest score is in Committee. the Risk Management indicator, which is at 48.0%, improvements in Shariah Governance. The main followed by the second lowest indicator, Shariah issues are; the need to diversify the skills of Governance, which is at 50.2%. This is illustrated in Shariah Council members, the need to increase the table 7.2.1: frequency of Shariah Councils’ meetings, as well as Another suggestion includes the need for multiple positions of Shariah Council Figure 7.2.1 members to avoid conflicts of interest and to Corporate Governance Index Percentage Scores by the Six Corporate Governance Themes Council members to carry out supervisory roles and Source: CIBAFI – World Bank 2017 Board Of Direction 53 70.8 48 Transparency & Disclosure 74.5 60.6 0 20 40 60 factors that caused the low Islamic Banking Governance Index, namely the lack of independence of the board of directors, and the lack of involvement of independent actors in key issues such as the Audit Committee and the Risk Committee, in key issues. In addition, the Board of Directors and the Board of Commissioners (including the Sharia Council) do not hold the number of meetings expected considering the burden of responsibility they carry. This is both a weakness and a challenge for the executive ranks of Islamic banks (CIBAFI-World Bank 2017). report recommends the need for low level of these indicators can be understood given the importance of new risk governance recognized in the last few years. The matter that needs attention is the status of the Chief Risk Officer (CRO), who is generally a member of the Executive Management 354 Indonesia Islamic Economic Masterplan 2019-2024 Halal standards is considered to be one of the reasons why the halal industry’s growth is stunted, continues to increase. In Malaysia, for example, on November 1, 2018, the Malaysian Islamic Progress Office (JAKIM) released 75 global halal certification institutions from 43 countries that were recognized by JAKIM. This document states that all food and goods marketed in Malaysia should not be described as halal unless they have fulfilled the requirements, or are certified halal by, an overseas halal certification body recognized by JAKIM (JAKIM 2018). This diversity then gave birth to a proposal for the establishment of an accreditation body for halal certification institutions. Although the two fields of business in Islamic improvements in aspects of Risk Management. The Committee; which results in differences regarding the standards even though global demand for Halal products 80 In its analysis, this report found several dominant This country has at least one halal certification body, of halal products. The absence of globally recognized 50.2 Average For the halal industry, until now, there lacks recognized and accepted by all countries. Each 66.2 Internal Control & External Audit Shari'ah Governance functions (CIBAFI-World Bank 2017). a consensus regarding Halal standards that are Board Committee Risk Governance ensure there is sufficient time allocation for Shariah finance and halal economy have similar values, principles and markets, these two sectors are still developing independently. The halal industry only focuses on halal materials and production processes while still using conventional funds to finance its business, while Islamic financial institutions have not taken advantage of the wide-ranging business opportunities in the halal industry to finance their businesses.
  359. This discontinuation is indicated by the low services . The halal economy has become one of the penetration of Islamic financial institutions towards fastest growing consumer segments in the world, halal industry players. Data shows that many with a market of around 1.8 billion Muslims. they produce halal products and services (The Star Online, 2011). A study by Thomson Reuters shows that of 250 companies in the global halal industry with a market capitalization of US $ 132 billion, only 50% are registered as companies that meet halal standards according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (Thomson Reuters 2015). The World Bank, periodically evaluates the extent to which countries in the world implement international standards and codes. The results of the assessment are reported in the form of ROSC (Report on the Observance of Standards and Codes). The aim of the ROSC initiative is to identify various weaknesses that can contribute to a country’s economic and financial vulnerability. ROSC’s assessment of corporate governance is carried out In addition to the lack of consensus on halal by assessing the legal and regulatory frameworks, standards, other factors that contribute to this business practices, compliance of public companies, divergence is that the majority of halal entrepreneurs and the enforcement capacity on governance are non-Muslims, and that the halal requirements principles issued by the OECD (World Bank, 2010). for using Islamic finance are still voluntary, and For Indonesia, the first country assessment was not mandatory. Bank Negara Malaysia (2014) carried out in 2004, and was updated in 2010. In the identifies about 80% of companies that produce final assessment, the score obtained by Indonesia halal products are controlled by non-Muslims, so increased, including four principles that obtained there is no religious incentive for them to participate a status of “fully implemented”, 25 items rated in Islamic finance. In the majority of non-Muslim “broadly implemented”, 34 items rated “partially halal producing countries, conventional financing implemented “, and 2 items are considered not has been established, and companies producing implemented (World Bank 2010). Thus, the World halal products tend to be reluctant to switch to Bank recommended Indonesia to carry out reforms Islamic finance unless there are either financial to increase the capacity of regulators in enforcing or substantial economic benefits. This is further the provisions of good institutional governance. compounded by the fact that most halal producers are small and medium-sized companies, so they are unable to benefit from the capital market, which generally favours big companies. The Islamic capital market is also more pro-company, either through stock investment (both private and public) or through offering sukuk. Indeed, if these two industries can connect and converge with each other, both of them can support each other to reach potential opportunities and benefits. It is estimated that the industry’s value was around USD 3.2 trillion in 2012 and doubleddouble to around USD 6.4 trillion in 2018. With a growth value of around 20% per year, this industry is worth around USD 560 billion per year. High growth is formed not only by demand, but also by factors that lead to expansion of the market for halal products and Indonesia Islamic Economic Masterplan 2019-2024 355 Supporting Ecosystems companies do not use Islamic finance even though 7
  360. 2 .National Conditions of Cluster Fatwa, Regulations and Governance Islamic economy in Indonesia is currently growing rapidly. This is marked by the growth of various types of Islamic banking and financial institutions. The development of Islamic banking and financial institutions may not be separated from the underlying legal rules, namely Shariah principles formulated into various forms of legislation to become positive laws that must be obeyed. The existence of Islamic economic law in the national legal system increased in existence in the early 1990s, as the increasing awareness of Muslims to worship based on Shariah principles and was marked by the establishment of Bank Muamalat Indonesia (BMI) officially in 1991. The legal basis for the operation of BMI was Law No. 7 of 1992 concerning Banking. In 1998, the Banking Law No. 7 of 1992 amended by Law No. 10 of 1998. In substance, Law No. 10 of 1998 was much more exhaustive about Islamic banking. This law explicitly for the development of a more established and conducive industry. The Islamic Banking Act in general also provides policy directions and form the Shariah banking industry going forward, and even emphasizing the existence of several institutions which are important infrastructures for the Islamic banking industry, such as the National Sharia Council of the Indonesian Ulema Council (DSN-MUI) and the Religious Courts. In addition to being regulated in the form of laws, Islamic banking is also regulated by other regulations issued by banking authority institutions, namely Bank Indonesia (BI) and the Financial Services Authority (OJK). Bank Indonesia has a very important role in regulating and developing Islamic banking institutions at the beginning of its growth. Since 1999, Bank Indonesia has been given the authority to carry out its duties based on Shariah principles. Various strategies, policies and regulations have been issued by Bank Indonesia since then to develop Islamic banking. uses the word “Islamic bank” and clearly stipulates Then, based on the mandate of Law No. 21 of that banks, both commercial and rural, can operate 2011 concerning the Financial Services Authority, and conduct financing based on Shariah principles. as of December 31, 2012, the functions, duties and To strengthen the regulation of Islamic banking in authority of regulation and supervision of banking Indonesia, in 2008 the House of Representatives, institutions, both conventional and Islamic banking, with the support of the Government, passed a were transferred from Bank Indonesia to the OJK. special law regulating Islamic banking, namely Likewise, financial service activities in the Islamic Law No. 21 of 2008 concerning Sharia Banking. capital market, Islamic insurance, Islamic pension Ratification of Law No. 21 concerning this role funds, Islamic finance institutions, and other Islamic further strengthens the existence of Islamic banking financial institutions were shifted from the Minister arrangements in Indonesia. Nevertheless, the birth of Finance and the Capital Market and Financial of the Islamic Banking Act is not without struggle. All Institution Supervisory Agency (BAPEPAM-LK) to parties worked hard to enact special laws governing the OJK. Various policies and regulations have Islamic banking, given the growing development of since been issued by the OJK in developing Islamic these institutions, there are fundamental differences banking and financial institutions in Indonesia. with conventional banks. It took six years to ratify the Islamic Banking Act in Parliament, even though many other laws were passed during the same time period. Another institution that plays an important role in Islamic banking and finance law formation in Indonesia is the National Shariah Council of the Indonesian Ulema Assembly (DSN-MUI). Structurally, The existence of the Islamic Banking Law not only the DSN-MUI is an autonomous institution under provides a strong legal basis for the Islamic banking the MUI. DSN-MUI has the authority to issue fatwas industry nationally, but also provides an environment related to Islamic banking and finance. 356 Indonesia Islamic Economic Masterplan 2019-2024
  361. To strengthen the authority of the Religious Court intended as an effort of efficiency and coordination in resolving Islamic banking and financial disputes , of the scholars in responding to issues related to the Supreme Court issued several Supreme Court Islamic economic and financial issues. In addition, Regulations, namely Perma No. 2 of 2008 concerning the DSN is also expected to play a role as supervisor, Compilation of Islamic Economic Law, Perma No. 5 director, and driver of the application of Islamic of 2016 concerning Certification of Sharia Judges, principles to economic life. DSN-MUI is the only and Perma No. 14 of 2016 concerning Procedures institution that was agreed in 1998 to become the for Settling Shariah Economic Cases. parent of the Shariah Supervisory Board in Islamic banks, in order for there to be no conflict between issued fatwas. Therefore, the DSN is an institution that is mandated by law to establish fatwa on Islamic banking and finance. Based on the explanation above, it is illustrated that Islamic banking and financial law in Indonesia is growing rapidly. Banking and Islamic finance law consists of various forms, be it in the form of laws, Bank Indonesia Regulations, Financial Services The fatwas issued by the DSN must be followed Authority Regulations, DSN-MUI Fatwa and Minister by Islamic banking and financial institutions. The of Religion Regulation. The existence of these fatwa of the DSN is positivized in the form of Bank regulations strengthens the existence of Islamic Indonesia Regulations, Financial Services Authority banking and financial institutions in carrying out Regulations, and related ministerial regulations. At their activities. In addition, the existence of Islamic present, there are 116 fatwas issued by the DSN- banking and financial law reinforces the importance MUI. In addition to the legislation stipulated above, of the position of Islamic law in the national legal the government has also issued various other system. In the future, Islamic banking and financial regulations to support the development of Islamic institutions will continue to grow, and the law will banking and financial institutions. These regulations follow. include Law No. 19 of 2008 concerning State Shariah Securities, Law No. 23 of 2011 concerning Management of Zakat, Law No. 41 concerning Waqf, Law No. 34 of 2014 concerning Management of Financial Hajj, and Law No. 33 of 2014 concerning Halal Products Assurance. The development of Islamic banking and financial institutions also influences the absolute authority of religious courts in resolving civil disputes. The authority of the religious court was expanded since the amendment of Law No. 7 of 1989 with Law No. 3 of 2006 concerning the Religious Courts, which not only has the duty and authority to examine, decide, and settle cases related to marriage, inheritance, will, endowments and sadaqah, but was also given new authority in resolving Islamic economic disputes. The authority of religious courts in resolving banking and Islamic financial disputes was strengthened in Article 55 of Law No. 21 of 2008 concerning Islamic Banking and Decision of the Constitutional Court Number 93/PUU-X/2012. Indonesia Islamic Economic Masterplan 2019-2024 357 7 Supporting Ecosystems In principle, the establishment of the DSN is
  362. However , from another perspective, the existing operations. DPS, in carrying out its activities, will banking and Islamic finance laws are quite always consult the Indonesian Ulema Council. In numerous, so there is fear that there will be overlap terms of regulation and licensing, Law No. 7 of 1922 between regulations. In addition, it is also feared gave the Minister of Finance the authority to issue it that it will narrow the space for the Islamic banking after consulting Bank Indonesia. and financial institution to carry out their activities due to the many regulations they must undergo. Therefore, it is necessary to think about forming an Islamic economic master law as a legal umbrella for Islamic banking and financial institutions in carrying out their activities. This is expected to facilitate the preparation of integrated development plans and programs by accommodating every aspect, such as taxation, justice, supervision, and others. In 1998, Law No. 7 of 1992 concerning Banking was amended by Law No. 10 of 1998. This law formally uses the word ‘Islamic bank’ and regulates the possibility of establishing a bank based on Shariah principles and the operation of a conventional bank based on Shariah principles by establishing a Shariah business unit. This regulation is quite effective as proven by the emergence of new Islamic banks in the banking industry, both in the form of Shariah The law which is the legal basis for the operation of commercial banks and Shariah business units. With Islamic banks in Indonesia and accommodates bank the amendment of Law No. 7 of 1992 with Law No. 10 business activities based on profit sharing principles 1998 concerning Banking marked the beginning of a is Law No. 7 of 1992 concerning Banking which was new era in Islamic banking in the country, namely the ratified on March 25, 1992. In terms of content, the transition of the “dual banking system” era to the era Banking Law is a national banking regulation which of the “dual system bank”. The “dual banking system” content is more on regulating conventional banks refers to the existence of a bank whose business than Islamic banks. Formally, in Law No. 7 of 1992, activities are different from banks in general, namely Islamic banks are known as “bank profit sharing”. the existence of Bank Muamalat Indonesia, which The explanation and technical implementation of runs business activities not based on interest but the profit sharing bank is then regulated by the on Shariah principles. Meanwhile, the “dual system issuance of Government Regulation (PP) No. 72 bank” refers to a banking system in which there are of 1992 concerning Banks Based on Profit Sharing many banks with different provisions. Principles. According to Government Regulation No. 72, a bank based on the principle of profit sharing is a public or people’s pre-credit bank that carry out business activities based on the principle of profit sharing. The principle of profit sharing is based on Shariah principles. The legal basis of Islamic banking is getting stronger with the enactment of Law No. 21 of 2008 concerning Islamic Banking on July 16, 2008. The Law on Islamic Banking was enacted because of Law No. 7 of 1992 concerning Banking, as amended by Act No. 10 of 1998, had not yet regulated Islamic This Government Regulation also stipulates banking specifically, and did not accommodate that public banks and people’s pre-credit banks the operational characteristics of Islamic Banking, that operate on the principle of profit sharing may whose growth and volume of business is growing not simultaneously carry out business activities rapidly. In this Act, the Shariah compliance issue is based on conventional principles, and vice versa, regulated, whose authority is given to the Indonesian and requires the bank to profit from establishing a Ulema Shariah Supervisory Board (DPS), which is in charge Supervisory Board (DPS), which must be established of overseeing its business activities in accordance in each Islamic bank and conventional Islamic with Shariah principles. Structurally, the position of Shariah Business Unit. Bank Indonesia is also DPS in profit-sharing banks is independent, separate required to establish an Islamic Banking Committee, from bank management, and has no role in bank whose duty is to follow up on the implementation 358 Indonesia Islamic Economic Masterplan 2019-2024 Council represented by the Shariah
  363. 2018 the OJK has issued several provisions , both Indonesia regulations. However, the existence of regarding Islamic banking products, institutions and Islamic Banking Committee at Bank Indonesia has professions, governance and the level of banking undergone changes, with the shifting of the authority health as can be seen in the table 7.3.1. of Bank Indonesia in the supervision of banking institution to the Financial Services Authority. In addition, this Law also regulates the settlement of disputes that may arise in Islamic banking, where Islamic banking dispute resolution can be carried out through the religious court, as well as Shari’a, mediation and arbitration. The enactment of Law No. 21 of 2008 concerning Islamic Banking as a special law regulating Islamic banking activities further strengthens the existence of Islamic banking. The existence of laws and regulations above strengthens the existence of Islamic banking institutions in Indonesia. However, along with the passage of time there have been various kinds of changes in the regulation of Islamic banking institutions to the extent that their existence needs to be revised. The authority of Bank Indonesia stipulated in Law No. 21 of 2008 concerning Islamic Banking must be changed to the authority of the Financial Services Authority by the enactment of Law No. 21 In addition to the above laws and regulations, of 2011 concerning the Financial Services Authority. Islamic banking is also regulated by regulations The existence of the Islamic Banking Committee issued by the Financial Services Authority and Bank must be clarified again with the transfer of authority Indonesia. Based on the mandate of Law No. 21 of and regulation of Islamic banking from BI to the 2011 concerning the Financial Services Authority, OJK, given the importance of the Committee’s task the functions, duties and authority to regulate and in interpreting and translating the DSN-MUI fatwa supervise financial service activities in the banking in the Islamic banking sector into a Bank Indonesia sector, including Islamic banking, were transferred Regulation. Referring to several countries, such as from Bank Indonesia to the Financial Services Malaysia, the Islamic Banking Committee should Authority as of December 31, 2013. Since then the be given broader authority, not only to interpret and microprudential implementation function is the translate the fatwa of the DSN-MUI to be a positive authority of the Financial Services Authority and law, but also be given the authority to issue Islamic the macroprudential implementation function is the banking fatwas which are formulated directly into authority of Bank Indonesia. Although the authority OJK regulations. This further strengthens the to regulate and supervise banks, including Islamic position of the fatwa to become a positive law banking, has shifted from Bank Indonesia to the that Islamic banking institutions must adhere to. In Financial Services Authority, Bank Indonesia still has addition, the process of making a fatwa is expected authority over the Islamic banking industry, especially to be more effective and efficient. The composition through the payment system and monetary policy of members of the Islamic Banking Committee can sectors. Bank Indonesia continues to play a role consist of members of the DSN-MUI, OJK, BI and and contribute to the development of the Islamic other institutions that are considered representative. financial and banking industry. The issuance of several laws relating to Islamic banking and the increasing need of the Indonesian for Islamic banking services, has become one of the foundations of Law Number 21 of 2008 concerning Islamic Banking. The law also considers that the condition of Islamic banking has specificity compared to conventional banking. As the authority overseeing Islamic banking, in 2014 until the beginning of Indonesia Islamic Economic Masterplan 2019-2024 359 7 Supporting Ecosystems of the fatwa issued by the MUI in the form of Bank
  364. Regarding Shariah compliance , the Islamic Shariah audits must be carried out to ensure Banking Act does not clearly stipulate the procedures good Islamic banking governance. In addition, and the time period for adopting the MUI DSN fatwa harmonization related to DPS regulation must to be a positive law. The regulation of the Sharia also be carried out because each Shariah financial Supervisory Board (DPS) in the Islamic Banking industry, such as Islamic banking, Shariah capital Act must be strengthened by explaining directly in market, and Shariah IKNB, all have provisions that the law the duties and functions in Islamic banking regulate the duties and authorities of DPS so that institutions, given the importance of the DPS’s task there is provision uniformity and alignment. in ensuring Islamic banking’s Shariah compliance in carrying out its activities. Internal audit and external 360 Indonesia Islamic Economic Masterplan 2019-2024
  365. Table 7 .7 Regulation of Islamic Banking UU No. 7 of 1992 concerning Islamic Banking PP No. 72 of 1992 concerning Banks Based on Profit Sharing Principles Agencies Involved Bank Indonesia, Conventional Banks, Banks with profit sharing principles The Ministry of Finance, Bank Indonesia, Commercial Banks and Rural Credit Banks that run businesses based on profit sharing principles, the Indonesian Ulema Council UU No. 10 of 1998 concerning Amendment to Law No. 7 of 1992 Bank Indonesia, Conventional Banks, Islamic Banks UU No. 21 of 2008 concerning Sharia Banking Bank Indonesia, Islamic Bank, Indonesian Ulema Council UU No. 21 of 2011 concerning the Financial Services Authority Financial Services Authority, Banking, Capital Market, Non-Bank Financial Industry POJK Number 24 / POJK.03 / 2015 concerning Products and Activities of Islamic Banks and Sharia Business Units Financial Services Authority, Islamic Commercial Bank, Conventional Bank that has a Sharia Business Unit POJK Number 2 / POJK.03 / 2016 concerning Development of Financial Services Authority, Islamic Bank Islamic Banking Office Network in the National Economic Stimulus Framework for Banks POJK Number 3 / POJK.03 / 2016 concerning Sharia Community Financing Banks Financial Services Authority, Sharia Community Financing Bank POJK Number 64 / POJK.03 / 2016 concerning Changes in Business Activities of Conventional Banks to Islamic Banks Financial Services Authority, Conventional Banks that have Sharia Business Units, Sharia Commercial Banks Financial Services Authority, Rural Credit Bank, Sharia POJK Number 44 / POJK.03 / 2015 concerning Certification People Financing Bank of Work Competence for Members of the Board of Directors and Board of Commissioners of Rural Credit Banks and Islamic People’s Financing Banks POJK Number 65 /POJK.03/2016 concerning Application of Risk Management for Islamic Commercial Banks and Sharia Business Units Financial Services Authority, Islamic Commercial Bank, Conventional Bank that has a Sharia Business Unit Financial Services Authority, Islamic Commercial Bank, POJK Number 8 / POJK.03 / 2014 concerning Soundness Rating of Islamic Commercial Banks (BUS) and Sharia Business Conventional Bank that has a Sharia Business Unit Units (UUS) Financial Services Authority, Islamic Commercial Bank, POJK Number 16 / POJK.03 / 2014 concerning Asset Quality Assessment of Islamic Commercial Banks and Sharia Business Conventional Bank that has a Sharia Business Unit Units POJK Number 21 / POJK.03 / 2014 concerning Minimum Capital Provision Obligations in Islamic Commercial Banks Financial Services Authority, Islamic Commercial Bank, Conventional Bank that has a Sharia Business Unit POJK Number 12 / POJK.03 / 2015 concerning Provisions on Prudence in the Context of the National Economic Stimulus for Islamic Commercial Banks and Sharia Business Units Financial Services Authority, Islamic Commercial Bank, Conventional Bank that has a Sharia Business Unit POJK Number 66 /POJK.03/2016 concerning Minimum Capital Financial Services Authority, Islamic Community Financing Bank Requirement and Minimum Core Capital Fulfilment of Islamic People’s Financing Banks Indonesia Islamic Economic Masterplan 2019-2024 361 Supporting Ecosystems Regulations 7
  366. Regulation of the Islamic Capital Market Islamic capital market activities in Indonesia are In 2008 , the development of the Islamic capital regulated by various regulations based on fatwas market reached a milestone with the passing of issued by DSN-MUI. The legal basis for Islamic capital Law Number 19 of 2008, concerning State Shariah market activities in Indonesia refers to Law No. 1995 Securities (SBSN). Based on this SBSN Law, the concerning the Capital Market. The development of government issued the SBSN series IFR0001 the Indonesian Islamic capital market began with and IFR0002 for the first time on June 30, 2009. the issuance of Shariah mutual funds in 1997. It Bapepam-LK has made improvements to Bapepam- was subsequently followed by the emergence of the LK Regulation Number IX.A.13, concerning the Jakarta Islamic Index (JII) in 2000, and the issuance Issuance of Shariah Securities, and II.K.1, concerning of Syariah Mudharabah Bonds in 2002. On April 18, Criteria and Issuance of List of Shariah Securities. 2001, for the first time, the National Sharia Council of the Assembly The Indonesian Ulama (DSN-MUI) issued a fatwa directly related to the capital market, namely Fatwa Number 20/DSN-MUI/IV/2001 concerning Investment Implementation Guidelines for Shariah Mutual Funds. In order to provide legal certainty, Bapepam-LK issued a package of Islamic capital market regulations in 2006. The regulation package is Bapepam and LK Regulation Number IX.A13, concerning Issuance of Shariah Securities, and Number IX.A.14, concerning Contracts used in Under the Financial Services Authority, in order to strengthen the regulation of the Islamic capital market, there was a revision of Regulation No. IX.A.13 concerning the Issuance of Shariah Securities to become several product-based regulations, and one regulation concerning the application of Shariah principles in the capital market. In addition, there are also several new regulations issued, concerning capital market products, institutions and professions and governance, as seen in table 7.3.2. Issuance Shariah Securities in the Capital Market. Table 7.8 Islamic Capital Market Regulations Regulation Agencies Involved UU no. 1995 concerning the Capital Market Ministry of Finance, Bapepam-LK, Indonesia Stock Exchange Fatwa Number 20 / DSN-MUI / IV / 2001 concerning Investment Implementation Guidelines for Sharia Mutual Funds Indonesia Stock Exchange, Investment Manager Bapepam and LK Regulation Number IX.A13 of 2006 concerning the Issuance of Sharia Securities and Number IX.A.14 concerning Contracts used in the Issuance of Sharia Securities in the Capital Market Bapepam-LK, Indonesia Stock Exchange, Investment Manager Bapepam and LK Regulation Number II.K.1 of 2007 concerning Criteria and Issuance of List of Sharia Securities Bapepam-LK, Indonesia Stock Exchange Law No. 19 of 2008 concerning State Sharia Securities (SBSN) Bapepam LK, Ministry of Finance 362 Indonesia Islamic Economic Masterplan 2019-2024
  367. 7 Bapepam-LK , Indonesia Stock Exchange Bapepam-LK Regulation No. II.K.1 concerning Criteria and Issuance of List of Sharia Securities Bapepam-LK, Indonesia Stock Exchange Bapepam-LK Regulation No. II.K.1 concerning Criteria and Issuance of List of Sharia Securities Financial Services Authority, Indonesia Stock Exchange POJK No.17 / POJK.04 / 2015 concerning Issuance and Requirements of Sharia Securities in the form of Shares by Sharia Issuers or Public Companies Financial Services Authority, Indonesia Stock Exchange POJK No.18 / POJK.04 / 2015 concerning Issuance and Requirements of Sukuk Financial Services Authority, Indonesia Stock Exchange POJK No.19 / POJK.04 / 2015 concerning Issuance and Requirements of Sharia Mutual Funds. Financial Services Authority, Investment Manager POJK No.20 / POJK.04 / 2015 concerning Issuance and Requirements of Sharia Asset Backed Securities. Financial Services Authority, Indonesia Stock Exchange POJK No. 30 / POJK.04 / 2016 concerning Sharia Real Estate Investment Funds in the Form of Collective Investment Contracts (Sharia DIRE) Financial Services Authority, Indonesia Stock Exchange POJK No.16 / POJK.04 / 2015 concerning Sharia Capital Market Experts. Financial Services Authority, Indonesian Ulema Council, Indonesia Stock Exchange OJK No.61 / POJK.04 / 2016 concerning Application of Sharia Principles in Capital Markets to Investment Managers Financial Services Authority, Investment Manager POJK No.15 / POJK.04 / 2015 concerning Application of Sharia Principles in the Capital Market Financial Services Authority, Indonesia Stock Exchange Supporting Ecosystems Bapepam-LK Regulation Number IX.A.13 of 2009 concerning the Issuance of Sharia Securities The insurance industry in Indonesia is regulated by investment funds in their parent companies, or 10 Law No. 40 of 2014 concerning Insurance. This Act (ten) year since the enactment of this Law (2024), supersedes Law No. 2 of 1992 concerning Insurance the insurance company is obliged to separate Business, which is considered to no longer be in Shariah units into Shariah insurance or reinsurance line with the development of the insurance industry. companies. Unlike the previous law, Law No. 40 of 2014 concerning Insurance strictly regulates Islamic insurance and Islamic reinsurance. Nevertheless, there are still some rules that need to be clarified. Rules regarding the portion of foreign ownership in insurance companies that may not exceed 80 percent are a problem in spinning off. Even though it is ready in capital and infrastructure, the Takaful joint Among the arrangements for spin-offs business venture company is not easy to find local partners for. units in insurance and reinsurance companies In addition, insurance companies with low production to become Shariah insurance or reinsurance will find it difficult to cover operational costs in order companies, Article 87 of Law No. 14 of Insurance to separate their Islamic business units. Therefore, stipulates that insurance companies or reinsurance incentives need to be provided by the government companies that have Shariah units with tabarru for insurance companies to separate their Islamic funds and participant investment funds have business units. These incentives are not only limited reached at least 50% (fifty percent) of the total value to the capital side, it can be seen from the other side of insurance funds, tabarru funds, and participant so that the spin off of insurance companies with low Indonesia Islamic Economic Masterplan 2019-2024 363
  368. production can be carried out . Until now, there has In general, the zakat law in Indonesia has been been no regulation that regulates, in a comprehensive quite good at regulating the procedures for managing manner, the mechanism of this spin off. Therefore, Zakat funds. However, there are still problems in zakat the OJK must issue a detailed spin off mechanism law which still need to be improved to strengthen the so that these activities can be carried out. management of zakat funds for the better. These Dispute resolution of Shariah insurance companies that only require it be done through OJKapproved mediation institutions, as stipulated in Article 54, also raises problems because it limits the freedom of the parties in the dispute to decide on other settlement mechanisms that they may agree on, such as arbitration and court institutions. Table 7.9 Shariah Insurance Regulation Regulation UU no. 40 of 2014 concerning Insurance Agencies Involved Financial Services Authority, Conventional Insurance Company, Conventional Reinsurance Company, Sharia Insurance Company, Sharia Reinsurance Company problems can be summarized as follows: 1. Give full authority to BAZNAS in the management of zakat. The Zakah Directorate of the Ministry of Religion only acts as a supervisor and regulator, so that there is no conflict of interest. Article 15 (2) and (3) of the Zakat Law states that the establishment of provincial and regional divisions requires permission and action from the Ministry of Religion. This seems to be out of line with the position of BAZNAS, which is an independent institution answerable to the president. 2. Article 34 of the Zakat Law authorized the Ministry of Religion to develop and supervise BAZNAS, including the BAZNAS representative office in the provinces and regional areas, as well as the Amil Zakat Institution (LAZ). However, the governor and regent also have the same authority. There is no clear reason why the The social religious funding sector, such as zakat governors and regents have the same authority, funds, waqf has an important role in the development and the way BAZNAS can work with the Ministry of Islamic finance and the halal industry in Indonesia. of Religion is also unclear. BAZNAS should have To ensure that the social diversity fund is managed the authority to oversee BAZNAS representatives properly, it must be regulated by strong regulations. at the provincial and regional levels, as well as In Indonesia, the management of zakat is regulated to oversee LAZ. The obligation to report to the by Act No. 38 of 1999 concerning Management of BAZNAS regional office is stipulated in Article 71 Zakat. This law states that the management of of Government Regulation No. 14 of 2014. Article Zakat in Indonesia will be carried out jointly by the 71 states that the report must be prepared semi- Amil Zakat Agency (BAZ) and the people-based Amil annualy. If the obligation to provide this report is Zakat (LAZ) Institution. To strengthen and improve set to be monthly instead, it would help cultivate zakat management, Law No. 38 of 1999, concerning transparency in the Zakat management process Management of Zakat, was amended by Law No. (Article 73 also stipulates the same obligations 23 of 2011. This Law focuses on the management on the LAZ report). of Zakat under the National Amil Zakat Agency (BAZNAS). Zakat Law No. 11 was strengthened by Government Regulation No. 14 of 2014, concerning the Implementation of the 2014 Law concerning the Implementation of Law No. 23 of 2011, concerning Management of Zakat. 364 Indonesia Islamic Economic Masterplan 2019-2024
  369. Table 7 .10 ZISWAF Regulation Regulation Agencies Involved Amil Zakat Agency, Amil Zakat Institution UU no. 23 of 2011 concerning Amendment to Law No. 38 of 1999 National Amil Zakat Agency PP No. 14 of 2014 concerning Implementation of Law No. 23 of 2011 National Amil Zakat Agency UU no. 41 of 2004 concerning Endowments Indonesian Waqf Agency PP No. 42 of 2006 concerning the Implementation Regulations on the Waqf Law Indonesian Waqf Agency For waqf management, the Government of Supporting Ecosystems UU No.38 of 1999 concerning Management of Zakat Responsibility for managing waqf is divided Indonesia issued Law No. 41 of 2004 concerning between Endowments. This law is quite comprehensive and Unfortunately, this causes programs from both innovative in regulating the procedures for managing institutions to be inefficient and overlapping. Wakaf assets in a professional, transparent, and accountable manner. The law explicitly stipulates that waqf assets include not only immovable property, but also movable property, such as money. The waqf law also expands Waqf funding sources such as property, land, money, and other sources, and regulates waqf distribution procedures that not only focus on religious and social goals, but also goals of education, health, society, economic improvement, and others. To strengthen the management of waqf assets, the government BWI and the Ministry of Religion. Based on Law No. 17 of 1999 concerning the implementation of Hajj, the operation, management, and supervision of Hajj pilgrimage is to all simultaneously be carried out under the Ministry of Religion. The authority granted to the Ministry of Religion has been deemed ineffective and raises several problems, especially related to professionalism, transparency, and accountability in managing the Hajj pilgrimage and the use of Hajj funds. issued Government Regulation No. 42 of 2006 To provide the best service in managing concerning the Implementation Regulations on the pilgrimages, Law No. 17 of 1999 was amended Waqf Law. The implementing regulation creates by Law No. 13 of 2008. Law No. 13 of 2018 greater opportunities for the development of Waqf separates the sole authority of the Ministry of in Indonesia, especially through the optimization of Religion in regulating, managing, and supervising cash waqf. In Indonesia, institutions that are given the implementation of the Hajj into several parts. the authority to manage waqf are the Indonesian The Minister of Religion serves as the manager, the waqf agency and the Ministry of Religion. Director General of Hajj and Umrah Organization as 1. The waqf regulation is enough to regulate the the executor, and the Indonesian Hajj Commission management of waqf in Indonesia, but there are still problems that need to be improved. These problems include the following: 2. The lack of budget for the BWI has an impact on the BWI’s performance and reduces its ability to 7 as Supervisor. However, the separation of duties is still not considered optimal, especially in the field of implementing the Hajj and management of the Hajj fund, which still falls under the Ministry of Religion. be able to implement its programs. Indonesia Islamic Economic Masterplan 2019-2024 365
  370. (UU PKH). The PKH Law was issued to ensure the In addition, this Government Regulation is also realization of ideal hajj financial management. The a provision regarding the transfer of all activities, PKH Law regulates the management of the costs of passive and legal rights, obligations on Hajj finance, organizing the Hajj (BPIH), the Perpetual Community and their wealth from the Ministry of Religion to Fund (DAU), and other non-binding sources. Hajj the BPKH after being audited by the Financial financial management can be carried out in the form Examination Agency. of investments, whose value of benefits can be used to improve the quality of the Hajj pilgrimage, improve the rationality and efficiency of the use of BPIH, and also the to benefit of the Muslim population. According to Article 48 of the PKH Law, BPKH is given the authority to manage Hajj funds by placing or investing in activities that are in accordance with Shariah principles by considering aspects of The PKH Law also mandates the establishment security, prudence, value of benefits, and liquidity. of the Hajj Financial Management Agency (BPKH) to Placement of Hajj funds can be done in the form of conduct Hajj financial management that has public banking products, gold securities, direct investment, legal entities, is independent, and is accountable to and other investments. Related to the placement the President through the Minister of Religion. On of Hajj funds in the investment sector, according to July 26, 2017, the BPKH was established through Government Regulation No. 5 of 2008 concerning Presidential Regulation No. 110 of 2017. With the the Implementation of the PKH Law, the maximum establishment of BPKH, the management of Hajj placement of Hajj funds in direct investment is 20 finance is no longer under the authority of the Ministry percent of the total placement of funds or investment of Religion. Subsequently, on February 13, 2018, the in Hajj finance. Government issued Government Regulation No. 5 of 2018 concerning the Implementation of the PKH Law. The scope of this Government Regulation includes arrangements regarding the management of hajj finances, which include planning, implementation, accountability, reporting, and supervision of Hajj finances. Table 7.11 Hajj Fund Regulation Regulasi Instansi yang Terlibat UU no. 17 of 1999 concerning the Implementation of Hajj Ministry of Religion Law No. 13 of 2008 concerning Amendment to Law No. 17 of 1999 Ministry of Religion UU no. 34 of 2014 concerning Financial Management of Hajj Ministry of Religion, Hajj Financial Management Agency Presidential Regulation No. 110 of 2017 concerning the Establishment of the Hajj Financial Management Agency Hajj Financial Management Agency Government Regulation No. 5 of 2018 concerning the Implementation of the PKH Law Hajj Financial Management Agency 366 Indonesia Islamic Economic Masterplan 2019-2024
  371. funds into direct investment because BPKH does not yet have a robust system or competent resources . In addition, there are no clear investment regulations for the Hajj fund, hence these activities cannot be realized. Therefore, in order for the Hajj funds to be used to their maximum extent in the investment field, BJPH needs to issue comprehensive Hajj investment regulations by paying attention and considering aspects of security, prudence, value of benefits, and liquidity. 1.BMTs One form of Islamic microfinancial institutions 7 is known as the Baitul Maal wat Tamwil (BMTs). BMTs are microfinancial institutions that operate based on Shariah principles. The birth of BMTs in Indonesia was based on Muslim communities growing more conscient of carrying out economic activities according to Shariah principles as a whole (kaffah). In addition, the establishment of BMT aims to provide capital for people who do micro and small businesses which amounts are very large but have difficulty getting access to capital from formal financial institutions such as banks based on Shariah principles. In addition to conducting commercial activities, BMT also conducts socioreligious activities by managing Islamic social funds, such as zakat, infaq, donations and waqf. This religious social activity is a distinguishing characteristic of BMT with other microfinance institutions. At the beginning of their emergence, BMTs were not legal entities, but only microfinance institutions operating based on Shariah principles established by the Muslim community. But in its journey, the legal status of BMTs can be grouped into two, namely BMTs which are legal entities and BMTs which are not legal entities. Legal entity BMTs come in the form of cooperative legal entities and foundation legal entities. Whereas BMTs that are not incorporated are generally in the form of self-help groups (KSM) or non-governmental organizations (NGOs). BMTs in the form of KSM can be categorized as associations. Civil associations, associations or associations regulated in the KHU Perdata. From the two forms of legal status above, currently BMTs tend to choose cooperative legal entities, because the concept of cooperatives is considered to have similarities with the concept of BMT, is widely recognised by the community, and is able to provide formal legal status. Therefore, BMTs are Islamic microfinance institutions based on cooperative law, and are a characteristic of Indonesia not found in other countries. Indonesia Islamic Economic Masterplan 2019-2024 367 Supporting Ecosystems At present, BPKH has the problem of placing Hajj
  372. Cooperative BMTs are subject to Law No . 25 with applicable laws and regulations and Shariah of 1992 concerning Cooperatives. This law does principles so that the community can be expected not regulate BMTs as cooperative entities, but to obtain maximal benefits and welfare. In addition, only regulates cooperative institutions in general. several Ministerial Regulations issued previously BMTs being incorporated as new cooperatives was were also considered to be no longer suitable, and formally regulated in 2004, with the issuance of that improvements were needed. The enactment Decree of the Minister of Cooperatives and Small and of Ministerial Regulation No. 16 of 2015 further Medium Enterprises No. 91/Kep/M.KUKM/IX/2004 strengthened the existence of BMTs in terms of concerning Guidelines for Implementing Islamic legality because they were specifically regulated. Financial Services Cooperative Business Activities. Based on the Ministerial Decree, BMTs are named the Islamic Financial Services Cooperative (KJKS). KJKS is a cooperative whose business activities are in the fields of financing, investment, and savings according to the profit sharing pattern (Shariah). For cooperatives that are already operating and wishing to carry out Islamic financial services activities are permitted to carry out such activities by opening an Islamic Financial Services Unit (UJKS). In addition to the above activities, KJKS and UJKS can also play an active role in carrying out the collection and distribution of zakat, infaq, and donations (baitul mal) funds for the welfare of many. In Ministerial Regulation No. 16 of 2015, the term “KJKS”, as stipulated in Minister of Cooperatives and SMEs Regulation No. 91 regarding the Guidelines for Implementing Islamic Financial Services Cooperative Business Activities, was replaced with the term “Shariah Savings and Loan Cooperative (KSPPS)”. KSPPS is a cooperative whose business activities include savings, loans, and financing in accordance with Shariah principles, including managing zakat, infaq / donation, and waqf (Article 1 paragraph (2) Permen No. 16/2015). The definition of KSPPS above has accommodated the basic characteristics of BMTs in accordance with their function which is not solely profit seeking, but also has a social function To strengthen the KJKS and UJKS regulations, by managing and distributing zakat, donation, infaq, in 2007 the Ministry of Cooperatives and Small and and waqf funds to eligible recipients. While the Medium Enterprises issued several regulations, term Islamic Financial Services Unit was changed among others, including the Regulation of the to a Savings and Loan and Islamic Financing Unit State Minister for Cooperatives and Small and (USPPS). USPPS is a cooperative unit engaged in Medium 35.2/Per/M.KUKM/X/2007, the business sector including savings, loans and concerning Guidelines for Cooperative Management financing in accordance with shariah principles, Operational and including managing zakat, infaq/sedekah, and waqf Regulation of the State Minister for Cooperatives as part of the activities of the cooperative concerned and Small and Medium Enterprises 39/Per/M. (Article 1 paragraph (3) Permen No. 16/2015). KUKM/XII/2007, concerning the Islamic Financial Based on the above regulation, it is clearly stipulated Services Cooperative Supervision Guidelines and the that KSPPS/USPPS cooperatives in carrying out Cooperative Islamic Financial Services Unit. their activities must obtain business licenses and Enterprises Standards Islamic Finance, In 2015, the Minister of Cooperatives and Small and Medium Enterprises issued Regulation No. 16/ Per/M.KUKM/IX/2015, concerning Implementation of Savings and Loan Business Activities and Islamic Financing by Cooperatives. This regulation was issued with the consideration of developing the implementation of savings, loan business activities, and Islamic finance by cooperatives, in accordance 368 Indonesia Islamic Economic Masterplan 2019-2024 be supervised by the Ministry of Cooperatives and SMEs, or Dinas, that provide co-operatives in provinces or districts/cities, according to their level of working area from regencies/cities, provincial and national, including representatives abroad.
  373. The MFI Law also provides legal certainty for MFIs according to Article 21 letter (b) Permen No. when carrying out their business activities, especially 16/2015, KSPPS/USPPS can only channel loans and in the business field, when collecting public funds in Islamic finance to members, prospective members the form of deposits that have been disputed. The and other cooperatives, and/or members in the form MFI Law contains the main substance regarding of loans based on qard contracts and financing the provisions of the MFIs’ scope, the concept of with murabahah, salam, istishna, mudharabah, Deposits and Loans/Financing in the definition of musyarakah, ijarah, ijarah muntahiya bittamlik, MFIs, principles, and objectives. In addition, it also wakalah, kafalah, and hiwalah, or other contracts regulates institutions regarding the establishment, that do not conflict with Shariah. In other words, form of legal entity, capital, and ownership. KSPPS/USPPS may not provide loans and financing to parties other than those mentioned above. To strengthen the regulation of microfinancial institutions, in 2013 the Government issued Law No. 1 of 2013 concerning Microfinancial Institutions (MFI Law). The MFI Law aims to provide legal foundation and certainty to MFIs in carrying out their activities in the community, so that financial services for the poor and/or low income groups can be fulfilled. One of the MFI’s main activities is to collect funds from the community in the form of deposits. Table 7.12 Regulation of Micro, Small and Medium Enterprises Regulation Agencies Involved UU no. 25 of 1992 concerning Cooperatives Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil Ministerial Decree KUKM No. 91 / Kep / M.KUKM / IX / 2004 concerning Guidelines for Implementing Islamic Financial Services Cooperative Business Activities Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil Ministerial Regulation KUKM 35.2 / Per / M.KUKM / X / 2007 concerning Guidelines for Operational Standards for Islamic Financial Services Cooperative Management Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil Ministerial Regulation KUKM 39 / Per / M.KUKM / XII / 2007 Permen on Islamic Cooperative Services Cooperative Supervision Guidelines and Cooperative Islamic Financial Services Unit Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil Ministerial Regulation No. 16 / Per / M.KUKM / IX / 2015 concerning Implementation of Savings and Loan Business Activities and Islamic Financing by Cooperatives Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil UU no. 1 of 2013 concerning Microfinance Institutions Ministry of Cooperatives & SMEs, Cooperatives, Baitul Maal wat Tamwil Indonesia Islamic Economic Masterplan 2019-2024 369 7 Supporting Ecosystems In addition, related to business activities,
  374. Regulations on the Halal Product Assurance Law No . 33 of 2014 concerning Halal Products Assurance (hereinafter abbreviated as UU JPH) was ratified by the government together with the House of Representatives in 2014. The enactment of the JPH Law aims to provide comfort, security, safety, and certainty of the availability of halal products to the community in consuming and using halal products, and increase their value to incentivise businesses to produce and sell halal products (see explanation for the JPH Act). The following are important things regulated in the JPH Law: 1.Halal Product Assurance Agency According to Law No. 33 of 2014 concerning Halal Product Assurance article 1 point 6 understanding of the Halal Product Assurance Agency, hereinafter abbreviated as BPJPH, which is a body formed by the government to organize JPH. The BPJPH carries out the implementation of Halal Product Assurance, and is located under and responsible to the Minister of Religion. With the existence of Law No. 33 of 2014 concerning Halal Products Assurance, MUI is no longer fully authorized in issuing halal certification. Institutions that are authorized to hold a Halal Product Assurance are BPJPH. Based on Article 6, BPJPH is authorized to do as follows: a. formulate and establish JPH policies b. establish JPH norms, standards, procedures, and criteria c. issue and revoke halal certificates and halal labels on products d. registering halal certificates for foreign products e. socializing, educating, and publishing halal products f. accredit LPH g. register halal auditors 370 Indonesia Islamic Economic Masterplan 2019-2024 h. supervise JPH i. conduct Halal Auditor development; and j. cooperate with domestic and foreign institutions in the field of organizing JPH According to Law Number 33 of 2014 concerning Halal Product Assurance Article 7 in exercising authority as referred to in Article 6, the Organizing Agency for Halal Product Assurance, or BPJPH, works in conjunction with: a. Relevant ministries and/or institutions; b. Halal Inspection Institutions; c. Indonesian Religious Leaders 2.Halal Inspection Agency According to Law Number 33 of 2014 concerning Halal Product Assurance, Article 1 point 8 means Halal Inspection Agency, or LPH, is an institution that conducts inspection activities or tests on halal products. In Article 12 paragraph 1, the Government and/or the community can establish LPH, meaning LPH can be established by the government, ministries, or institutions. In addition, state universities can also establish LPH if they have met the requirements. Requirements for establishing a Halal Inspection Agency (LPH), in accordance with Law Number 33 of 2014 concerning Halal Product Guarantee Article 13 paragraph 1, are as follows: a. has its own office and equipment; b. has accreditation from BPJPH; c. has at least 3 (three) halal auditors; and d. has a laboratory or cooperation agreement with another institution that has a laboratory. The product halal examination and/or testing is carried out by the Halal Auditor at the business location during the production process. The agency’s minimum of 3 halal auditors, are all appointed, and dismissed, by the LPH.
  375. For a halal auditor to be appointed by the LPH , been issued. Article 65 of Law Number 33 Year they must fulfill the requirements contained in Article 2014, concerning Product Assurance, mandates 14 paragraph 2, as follows: the government to issue the PP two years after the absence of PP makes the Halal Product Assurance b. be a Muslim; c. possess the minimum education of a bachelor’s degree in the fields of food, engineering, biochemistry, biology, or industrial pharmacy; d. understand and have extensive insight into halal products according to Islamic law; e. put the interests of the people above personal and/or group interests; and f. have obtained a certificate from MUI. Halal auditors have a series of tasks. The duties of the Halal Auditor are in Article 15, namely: a. check and review the material used; b. check and review the product processing process; c. check and review slaughter systems; Agency (BPJPH) unable to run efficiently. The PP JPH Law must be ratified immediately in view of the effective enactment of the JPH Law in 2019, where the antitrust of all products must be certified. As a country with the largest Muslim population in the world blessed with beautiful natural resources, Indonesia has great potential to become a major destination for halal tourism in the world. Various efforts have been made by the government to make this happen. In 2013, the Ministry of Tourism (Kemenpar), in collaboration with the Indonesian Ulema Council, held a Grand Launching of Sharia Tourism. This program aims to attract tourists both at home and abroad, and to encourage the development of Islamic business entities in the environment of halal tourism in Indonesia. Halal tourism development will be focused on four d. examine the location of the product; types of businesses, namely in hotel, restaurant, e. putting the interests of the people above bureau or tourist travel services, and spas. The personal and/or group interests; and Ministry of Tourism has set three provinces as halal f. obtaining halal certificates. 3.Indonesian Religious Leaders Collaboration between the Organizing Agency for Halal Product Assurance (BPJPH) and the Indonesian Ulema Council (MUI) occurs in the form of: a. Halal Auditor Certification tourist destinations. The three regions are Aceh, West Sumatra and West Nusa Tenggara. Various products and facilities, such as halal restaurants and accommodation, have been prepared to support these activities. Regarding the laws and regulations, there are currently no specific regulations governing halal tourism in Indonesia. Halal tourism is carried out b. Determination of halal fatwa which results in based on Law No. 10 of 2009 concerning Tourism. Decision on Determining the Halal Status of In principle, the Law generally regulates tourism as a a Product. Fatwa is the halal or illegitimate whole in Indonesia. Halal tourism activities are further status of a product based on the audit process regulated by regulations issued by the Ministry of issued by LPPOM-MUI. Tourism in the form of Ministerial Regulations. c. LPH Accreditation The JPH Law has been running for four years, and will be effective in October 2019. However, until now, the Government Regulation (PP) as the implementing regulation for the JPH Law has not Indonesia Islamic Economic Masterplan 2019-2024 371 Supporting Ecosystems enactment of the JPH Law on 10 October 2019. The a. be an Indonesian citizen; chemistry, 7
  376. Table 7 .13 Implementing Regulations for Halal Product Assurance Law Presidential Decree Number 83 of 2015 concerning the Ministry of Religion Government Regulations Minister of Religion Regulations 1. BPJPH cooperation with ministries and/or institutions related to LPH, and MUI 1. Administrative sanctions for violating the provisions of the Halal Product Process (PPH) 2. Further provisions of LPH 2. Administrative sanctions for violations of employers holding halal certificates 3. Location, place, and halal product processing equipment (PPH) 3. Halal supervisors 4. Cost of halal certification 4. Procedures for filing halal certification 5. International 5. Procedure for determining LPH cooperation in the field of JPH 6. Procedures for registering halal certificates 6. Halal label provisions 7. Supervision 7. Administrative sanctions for violations of the inclusion of halal labels 8. Stages of types of products must be certified halal 8. Provisions on renewal of halal certification Until now, none of the Government Regulations and Minister of Religion Regulations have been issued. Consequently BPJPH has not been able to run optimally. 9. Financial management of BPJPH 10.Administrative sanctions for violations of registration of halal certificates 11.Community participation and awarding According to Article 1 (3) Law No. 10 of 2009, the definition of tourism is: ‘Various kinds of tourist activities supported by various facilities and services provided by the community, entrepreneurs, the Government, and the Regional Government.’ Furthermore, according to Article 14 paragraph (1) and (2), it is stated that tourism activities/ businesses consist of, inter alia: a. tourist attraction; b. tourism area; c. tourist transportation services; d. tourist travel services; e. food and beverage services; f. providing accommodation; g. organizing entertainment and recreational activities; h. organizing meetings, incentive trips, conferences and exhibitions; i. tourism information services; j. tourism consulting services; k. tour guide services; l. water tourism; and m. spas. Tourism business other than that referred to in paragraph (1) is regulated by a Ministerial Regulation. 372 Indonesia Islamic Economic Masterplan 2019-2024
  377. for regulating and developing halal tourism in the mentioned in the article above , if we observe the word country. According to the MUI, the issuance of this ‘various kinds of tourism activities’ in the definition rule is necessary so that the development of tourism of tourism, it indicates that it is permissible to carry in the country still maintains religious values and out tourism activities based on Shariah principles. teachings. In order for halal tourism in Indonesia to In principle, halal tourism business is a concept develop rapidly and be able to compete with other that integrates Islamic values into tourism activities countries, the Indonesian Government must provide by providing facilities and services in accordance it it with full support that is both constant and with Shariah provisions. In addition, halal tourism sustainable. Although halal tourism regulations are business activities are possible if they are supported good, without the full support of the government, the by infrastructure facilities provided by shareholders halal tourism business will remain underdeveloped.  such as the community and both the central and regional government. Islamic economy in Indonesia is currently growing rapidly. To support the development of Of the four types of businesses (hotels, the Islamic economy and become a major player restaurants, bureaus or travel services, and spas) on a global scale, the regulatory aspects of Islamic which will be developed in halal tourism, it is the new economics must be taken seriously. In other words, halal hotel business that has been issued by the legal support for Islamic economic activities from Ministry of Tourism, while the regulations related to various aspects of regulation is very necessary. restaurants, bureaus, and spas will be issued soon. One of the most important aspects of regulation In 2016, the National Sharia Council (DSN) of the MUI is regarding dispute resolution. Along with the has issued a Fatwa Number 108/DSN-MUI/X/2016 increasing awareness of the Indonesian people to concerning guidelines for implementing tourism transact in Islamic economic activities, disputes based on Shariah principles, which are the basis between the actors of Islamic economic activities for standardizing aspects of halal tourism. Some is unavoidable. As Islamic economic activities are regions, such as NTB and Siak Regency, are examples run based on Shariah principles, dispute resolution of those who have issued Halal Regulations. mechanisms should similarly also comply with Based on the explanation above, it can be understood that regulations related to halal tourism Shariah principles. In Indonesia, Islamic economic dispute in Indonesia are still very minimal. To develop resolutions are settled in the Religious Court. The Shariah tourism, the industry must be supported by authority of the Religious Court in resolving Islamic strong regulations. Therefore, the Indonesian Ulema economic disputes has been effective since 2006, Council (MUI), in Ijtima Ulama of the Indonesian V Fatwa Commission in 2015, urged the government to create halal tourism laws to act as the legal basis Table 7.14 Regulation of Halal Tourism Regulation Agencies Involved Law No. 10 of 2009 concerning Tourism Ministry of Tourism, Tourism Industry Actor DSN-MUI Fatwa Number 108 / DSN-MUI / X / 2016 concerning guidelines for implementing tourism based on shariah principles Actors based on Shariah Principles of Tourism Industry Indonesia Islamic Economic Masterplan 2019-2024 373 7 Supporting Ecosystems Although the words “halal tourism” is not explicitly
  378. after the amendment of Law No . 7 of 1989 with Law No. 3 of 2006 concerning the Religious Courts. At that time the authority of the Religious Court was expanded, in addition to the authority to examine, decide, and resolve disputes in the first level between Muslims in the fields of inheritance, inheritance, will, grant, endowments, zakat, infaq and shadaqah now, the Religious Courts’ authority was expanded to examine, decide, and resolve disputes in the Sharia This as stipulated in Article 49 paragraph (i) of Law No. 3 of 2006, which reads as follows: ‘The religious court has the duty and authority to examine, decide, and settle cases in the first level between Muslim people in the fields of: a. marriage; b. inheritance; c. will; d. grant; e. endowments; f. zakat; g. infaq; h. sadaqah; and i. Islamic economy.’ In its explanation, what is meant by “Islamic economy” is ‘an action or business activity carried out according to Sharia principles, including, but not limited to: (a) Islamic banks; (b) Islamic microfinance institutions; (c) Islamic insurance; (d) Islamic reinsurance; (e) Islamic mutual funds; (f) Islamic bonds and Islamic medium-term securities; (g) Islamic securities; (h) Islamic finance; (i) Islamic pawnshops; (j) pension funds for Islamica financial institutions; and (k) Islamic business.’ The word ‘Islamic business’ in letter (k) in the explanation of Article 49 letter (i) above indicates that if the business activity is carried out based on Sharia principles or using Islamic contracts, then should there be a In 2016, there was an increase. Of the total 14 appeal dispute, the dispute is to be resolved in the religious cases in 2015, it increased to 24 cases in 2016. The court. The expansion of the absolute authority same thing happened to the number of cases at the of religious courts in resolving Islamic economic district court; in 2015, there were only 102 cases, and disputes further reinforces the religious courts as a then in 2016, it increased to 229 cases. This increase judicial institution that carries out the functions of also occurred in the following year in 2017. The High judicial power in Indonesia. But on the other hand, Religion Courts (PTA) throughout Indonesia had this new authority is a challenge, because Islamic received 31 cases of Islamic economic appeal, an economics is a new field with complex problems. increase of 7 cases from the previous year, which Nationally, throughout 2015, Islamic economic cases received by appellate courts throughout Indonesia amounted to 14 cases, and the number of cases that had been decided was 15 cases. Meanwhile, at the district court, 102 cases have been received and 41 cases have been decided on. 374 Indonesia Islamic Economic Masterplan 2019-2024 received 24 cases. While in the first instance, the total cases received in 2017 were the same as the total cases received in 2016, which were 229 cases. The statistics above reveal that Islamic economic cases have shown an increasing trend over the past three years from 2015 to 2017.
  379. Supporting Ecosystems 7 In terms of resolving Islamic banking disputes , Article 55 paragraph (2) in the explanation is the authority of the Religious Courts is reinforced in described as follows “What is meant by” dispute Article 55 of Law No. 21 of 2008 concerning Islamic resolution carried out in accordance with the Banking, which states as follows: contents of the Contract “is the following efforts: a. 1. Islamic banking dispute resolution is carried out by courts in the Religious Court. 2. In the event that the parties have promised a dispute resolution other than as referred to in paragraph (1), dispute resolution shall be carried out in accordance with the contents of the contract. 3. Dispute resolution as referred to in paragraph (2) may not conflict with Sharia principles. discussion; b. banking mediation; c. through a court in the General Court environment. That Islamic banking dispute resolution is carried out by the Court within the Religious Court. However, Article 55 (2) of this Act provides an opportunity for the parties in the dispute to settle their case outside the Religious Court if mutually agreed upon in the contract’s contents. The dispute can be resolved through deliberation, banking mediation, the National Shariah Arbitration Agency (Basyarnas) or other arbitration institutions, and/or through a court in the General Court environment. Indonesia Islamic Economic Masterplan 2019-2024 375
  380. Article 55 (2) raises a problem because it gives the In the Amar Decision, the Constitutional Court authority to settle Islamic economic disputes to granted the Petitioner’s petition in part, stating a district court so that it creates legal uncertainty. that the Elucidation of Article 55 paragraph (2) of Article 55 (2) then submitted a judicial review to the Law No. 21 of 2008, concerning Islamic Banking, Constitutional Court. was in contravention of the 1945 Constitution of Based on the Decision of the Constitutional Court No. 93/PUU-X/2012, in its consideration it was stated, among others, as follows: a contract (agreement) is an Act for those who make it in accordance with the provisions of Article 1338 KHUPerdata, but a contract may not conflict with the Act, moreover Invite- Law which stipulates that there is absolute power for a judicial body that binds the parties to the agreement. Therefore, clarity in the preparation of agreements is a must. Furthermore, the choice of forum, as stipulated in the Elucidation of Article 55 paragraph (2) of the Islamic Banking Law, raises the issue of constitutionality, which in turn can create legal uncertainty and losses for customers and Islamic business units. In addition to legal uncertainty and causing losses, Article 55 paragraph (2) also creates overlapping authorities to judge, because there are two courts that are given the authority to resolve Islamic banking disputes. While the Religious Courts Act expressly states that religious courts have the the Republic of Indonesia, therefore having no binding legal force. In other words, the Explanation of Article 55 paragraph (2) has been deleted and is no longer valid. The decision of the Constitutional Court Judges is both declaratory and constitutive, because it contains a statement and does not contain condemnatory elements of judgment, and the decision nullifies a legal situation or creates a new legal condition. Based on this decision, it can be concluded that the settlement of Islamic banking disputes belongs entirely to the absolute authority of the religious court. Other courts, namely the general court, is not authorized to resolve Islamic banking disputes. The Constitutional Court’s decision was strengthened in the Plenary Meeting of the Chief of the Supreme Court, in which the settlement of Islamic banking was the authority of the religious court, and not the district court. If there are still parties who submit a lawsuit to the district court, the claim will be decided by NO (niet ontvankelijke verklaard). authority to settle disputes, Islamic banking is also included in Islamic economics. [See Court Decision No. 9 /PUU-X/2012, h. 37]. Table 7.15 Regulation on Islamic Economic Dispute Resolution Regulation Agencies Involved UU no. 3 of 2006 concerning the Religious Courts Supreme Court, Religious Court UU no. 21 of 2008 concerning Sharia Banking Sharia Banking, National Sharia Arbitration Agency Decision of the Constitutional Court No. 93 / PUU-X / 2012 Supreme Court, Religious Courts, Islamic Financial Institutions 376 Indonesia Islamic Economic Masterplan 2019-2024
  381. To increase capacity building and the quality At present , there are 560 judges from the existing of judges in religious courts in resolving Islamic religious courts, 560 judges who have been certified, economic disputes, the Supreme Court has issued and around 1,000 judges who have participated Republic of Indonesia PERMA No. 05 of 2016 in Islamic economic training (Islamic economic concerning Islamic Economic Judge Certification. technical guidance). Admittedly, to date, the judges This PERMA requires judges who will resolve Islamic who have been certified have not spread to all economic disputes in religious courts to pass the regions. So if there are no certified judges, the case administration, competency, integrity, and training will be resolved by judges who have attended Islamic of Islamic economic judges. The aim of this PERMA economic training; and if there are no certified judges was to certify Islamic economic judges and improve who have attended Islamic economic training, the the effectiveness of handling Islamic economic case will be resolved by the chairman or deputy cases in the context of enforcing Shariah law (see chairperson of the religious court. Islamic economic Article 3 of Republic of Indonesia Regulation No. 05). judge certification training will be held every year, so Judges who have fulfilled the requirements and are declared to have passed by the Selection Team, that in the future, all the judges in religious courts will be certified. will attend twelve days of training using curricula, teaching materials, and methods prepared by the Special Team and Technical Training Center of the Supreme Court of the Republic of Indonesia. The teaching team consists of various institutions such as the OJK, BI Academics, and competent practitioners. At present, the MA has collaborated with various institutions such as the OJK and BI in order to improve the competence of Islamic economic judges. Judges who have passed are then appointed as Islamic economic judges by the chairman of the Supreme Court. These judges will later be placed in religious courts and gain special authority to resolve Islamic economics. The performance of these Islamic Economic Judges will also be continuously evaluated. In the transitional provisions of article 25 PERMA RI No. 5, it is stated that in the event of there being no certified Islamic Economic Judge present, Islamic economic cases will be examined, tried, and decided by judges who have participated in Islamic economic training. Indonesia Islamic Economic Masterplan 2019-2024 377 Supporting Ecosystems 7 Supreme Court Regulation (PERMA) No. 05 of 2016 concerning Islamic Economic Judge Certification
  382. Supreme Court Regulation (PERMA) Number 14 of 2016 concerning Procedures for Settling Sharia Economic Disputes This regulation explicitly stipulates that Islamic can also be regulated through fatwas. A fatwa is economic matters can be submitted with two a legal opinion (or advisory opinion) on a problem mechanisms, namely through small claim court that arises among Muslims, which is issued by a and lawsuits with ordinary events (see Article 2). particular person or institution that has the authority This arrangement, in principle, distinguishes the to formulate and produce laws (kaifiyyah istinbath procedure for examining cases by the value of al-ahkam). The authority in question is the fulfillment material objects, whether the values are small or of a set of qualifications that proves that a person large, with the aim that Islamic economic matters has the capacity and worthiness to carry out ijtihad can be resolved quickly, simply, and at a low cost. (Hal al-Mustafid). The product of the ijtihad later Related to the procedure for examining cases becomes a fatwa. with simple claims, Article 3 (2) Perma No. 14 of Fatwas can come from individual scholars who 2016 explains that what is meant by a case audit are reputable in their knowledge and morals, and can with a simple event/claim is “an examination of also be from ulama institutions, both of which can Islamic economic cases with a maximum value of become reference for Muslims. As for the fatwas Rp. 200,000,000 (two hundred million rupiahs)”. that are issued institutionally, these fatwas are Furthermore, Article 3 (3) states that the simple meaningful because they are the legal decisions or case/claim examination refers to the Supreme opinions from official institutions authorized by the Court Regulation Number 2 of 2015 concerning legitimate government to issue fatwa. Homeland Procedures for Settling Simple Lawsuits, except clerics have also given birth to a number of fatwas those specifically regulated in this Supreme Court which have become a reference for the community, Regulation. Based on the above article, it can be both before and after the establishment of fatwa understood that Islamic economic matters, with a institutions, such as Buya Hamka, Hasbi Asshiddiqie, maximum value of two hundred million rupiahs, can Hazairin, and others. be solved in a simple manner. Examinations with simple events must be completed within no more than twenty-five days from the first trial day (PERMA Number 2 Year 2015). The Islamic economic case, whose value is more than two hundred million rupiahs, is settled by ordinary events carried out based on applicable procedural law (see Article 7 (1). Outside official government institutions, there are also non-governmentfatwas. The two largest community organizations in Indonesia, Nahdlatul Ulama (NU) and Muhammadiyah, play an important role in the economic growth rate of Shariah in the country. NU, with Bahtsul Masail, issued a fatwa related to usury in 1992, although it has not yet been This simple dispute resolution is very helpful in stated that usury is absolutely unlawful. Likewise, resolving Islamic economic disputes with small Muhammadiyah, with its Tarjih Council, expressly nominal value. However, at present, not many stated that the usury was forbidden in 2006. The people know about this simple dispute resolution two most popular Islamic organizations, as well as mechanism, so it needs to be carried out on an ongoing other Muslim community organizations, are used as basis. With the rapid development of the Islamic reference by Muslims everywhere. economy, the case value of a simple litigation case is recommended to be increased in value to 500 million s.d 1 billion so that the case can be resolved quickly. On the other hand, Islamic economic regulations 378 Indonesia Islamic Economic Masterplan 2019-2024
  383. explicitly exist in the standard rules in the Quran and are considered as an indicator of the strong role of as-Sunnah . In Indonesia, guidelines on Islamic legal ijtihad by ulama and intellectuals when it comes to fatwas issued by the MUI are stipulated in Decree solving problems of Muslim societies, in terms of Number U-596/MUI/X/1997. The authority of the both worship and muamalah.  MUI is to give fatwas about general religious issues The Indonesian Ulema Council was formed on July 26, 1975 in Jakarta, and became a forum for scholars, Muslim scholars, and government leaders in the religious field throughout Indonesia. The formation of the MUI was attended by 26 scholars representing 26 provinces at the time, stated in the MUI Charter of Establishment which was signed by all participants of the discussion, and would later be called the National Ulama Conference. concerning Indonesian Muslims nationally, and about Islamic religious matters in areas that are thought to be able to expand to other regions. To develop the application of Islamic values in economic activities in general, and the financial sector in particular, MUI established a National Shariah Board (DSN). DSNMUI has played a proactive role in responding to the dynamic development of Indonesian society in the economic and financial fields since its establishment in February 1999. The DSN itself has an independent MUI is an independent religious organization, not body within that is placed in banks and Islamic affiliated with any of the political parties, schools, or financial institutions, and is known as the Shariah religious groups in Indonesia. However, even though Supervisory Board (DPS). the MUI was born under the Muslim community, not denying that there were political intentions at the time. The establishment of the MUI with these functions was in line with the statement of President Soeharto, who stressed that the Ulema Council would advise the government, whether requested or not. DPS holds a supervisory function on Shariah compliance in Islamic financial institutions with members of certain competencies. In addition to having the ability to understand the provisions of Islamic law, the supervisors must also understand national positive law, both of which are the operational legal basis of Islamic banks. Understanding of The authority of the MUI as the issuer of fatwa Islamic law provides the ability for them to implement is inseparable from the functions of the MUI, Islamic principles in the operational provisions of determined in Article 4 of the MUI’s Articles of Islamic banks, while understanding of national Association and Statutes (ART/AD), which are positive law, especially banking law, provides the stated as follows: firstly, as a forum for discussion of ability to implement Shariah principles into formal ulama, government leaders, and Muslim intellectuals legal rules that have legal force and bind businesses in protecting the Islamic life of the ummah; secondly, in Islamic banking. as a forum for the gathering of ulama, zu’ama, and Muslim scholars to develop and practice Islamic teachings and mobilize ukhuwah Islamiyah; third, as a forum representing Muslims in relations and interreligious consultation; and fourth, as fatwa givers to Muslims and the government, whether requested or unsolicited. In practice, the function of the MUI is to provide the most dominant fatwa and influence Muslims of both the state and the nation.  According to Islamic banking law, an institution that has a Shariah compliance supervision authority in the Indonesian Islamic banking legal system is the Shariah Supervisory Board (DPS). Based on the Decree of the Board of Directors of Bank Indonesia, the DPS includes institutions under the DSN which are in charge of overseeing all bank activities and ensuring they comply with Shariah principles. The DPS is a body established and placed in a bank Fatwa has become a very important part of that conducts business activities based on Shariah socio-religious life. Fatwas become the legitimising principles to ensure that the operations of Islamic factor of new socio-economic practices that do not banks do not deviate from Shariah principles. Indonesia Islamic Economic Masterplan 2019-2024 379 7 Supporting Ecosystems In the Islamic world, including Indonesia, fatwas
  384. The DPS , as an independent body, is in charge 1. BPH-DSN conducts an in-depth study of the of directing, giving consultations, evaluating, and issues requested by the fatwa by conducting supervising the activities of Islamic banks in order to intensive meetings and workshops. ensure that the business activities of Islamic banks adhere to Shariah principles as determined by the DSN’s fatwas. In carrying out Shariah supervision, the DPS must carry out 2 (two) main tasks at minimum, namely: •• First, ex ante auditing, namely Shariah supervision activities by examining various moral policies, done by reviewing management decisions and conducting reviews on all types of contracts made by Shariah bank management, with all parties involved. The aim is to prevent Islamic banks from entering into contracts that violate Sharia principles. •• Second, ex post auditing, namely Shariah supervision activities, done by conducting an examination of the reports and activities of Islamic banks. The aim is to trace the activities and financial resources of Islamic banks that are not in accordance with Shariah principles.  Aspects of conformity with Shariah are the main and fundamental aspects that distinguish between Islamic banks and conventional banks. The DPS is in charge of overseeing the operation and running of Islamic banks in accordance with Islamic values. The level of Shariah compliance in Islamic banks with a supervisory role, organizational model, and competence possessed by DPS has a very close relationship. Sharia compliance is increasingly important to note because of customer demand, so it is important that Islamic banking products are not only innovative but also that data ensures they adhere to Islamic Shariah. Technically, the fatwa issued by the DSN-MUI must go through several stages of processes carried out by the BPH. The BPH-DSN issues a fatwa regarding a product, service, or provision after obtaining a fatwa request from the monetary authority or Islamic financial institution (LKS), with the following explanation: 380 Indonesia Islamic Economic Masterplan 2019-2024 2. The BPH-DSN formulates a fatwa draft to be discussed further at the DSN plenary meeting. 3. If the DSN plenary meeting approves the draft fatwa, then the draft fatwa becomes a legitimate fatwa. Until now, the DSN-MUI has issued around 122 fatwas on Islamic economics and finance. The structure and format of a fatwa only requires a simple summary. When compared to the format of the Egyptian muftis’ fatwas, for example, the DSNMUI fatwa is more complete in terms of substance and content. However, based on Articles 7 and 8 of Law No. 12 of 2011 concerning the Establishment of Legislation Regulations, fatwas are not one of the types of legislation stipulated in the Act. Therefore, fatwas may not be applied immediately. A new fatwa can be implemented by Islamic financial institutions if it has been legalized to become a positive law. The absorption of the DSN-MUI fatwas in legislation is more of an operational form, or a form of translation from the contents of the fatwa provisions, which technically cannot be applied directly to the activities. Therefore, the process of transforming fatwas into positive laws, such as laws and government regulations, becomes necessary. Basically, when the fatwa is transformed into positive law, it has undergone changes in form and function in the context of the national legal system. Fatwa has been integrated with other norms, which have changed into positive law. In certain cases there is a change in meaning, both in terms of broadening and narrowing the meaning. As such, in some fields in Indonesia, the subject of the law is broadened from just individual persons (naturlijk persoon) to persons and / or legal entities (rechtspersoon), as evident in the laws on waqf (wakif and nadzir) and the administration of zakat (muzakki and mustahiq).
  385. Whereas after the Islamic Banking Law , it was ruled Act Number 41 of 2004, in which wakif consists that fatwas could only be seen implicitly in the PBI of individuals, organizations, and legal entities that because there was no explicit explanation stating inherit their property. While nadzir is a group of people certain fatwas being used. or legal entities entrusted with the task of maintaining and mastering waqf objects. Meanwhile, according to the provisions of Article 1 of Law Number 38 of 1999 concerning Management of Zakat, is a person or legal entity owned by Muslims who is obliged to fulfill zakat. Meanwhile, a mustahiq is a person or legal entity entitled to receive zakat. At present, some of the DSN-MUI fatwas have been transformed to form the Bank Indonesia Regulations (PBI), Financial Services Authority Regulations (POJK), and Financial Services Authority Circular (SEOJK). The purpose of the transformation is so that the fatwa can be binding and implemented by LKS, especially Islamic banks, because one indicator of the development of Islamic banks is the increasingly varied Islamic banking products themselves. One example of the transformation of fatwa into law involves Law Number 21 of 2008 concerning Islamic Banking article 26 paragraph 1, which states that business activities, as referred to in Article 19, Article 20, and Article 21, and/or Islamic products and services, must comply with Sharia Principles. Where in the next paragraph, paragraphs 2 and 3 explain that the Sharia Principles as referred to in paragraph (1) are stated by the Indonesian Ulema Council, and the Fatwa as referred to in paragraph (2) shall be stated in a Bank Indonesia Regulation. Fatwas relating to business activities as explained by Law Number 21 of 2008 concerning Islamic Banking by the MUI are issued by the National Sharia Council which has the authority to handle all matters relating to fatwas on the types of financial activities, The DSN-MUI fatwa transformation is a necessity, fatwas for products and services finance, including and is considered urgent when an Islamic law (in this the authority to oversee the implementation of the case, the DSN-MUI fatwa) wants to have binding legal fatwa that has been issued and then the fatwas are force in positive law. This is because Bank Indonesia set out in a Bank Indonesia Regulation. cannot provide sanctions for Islamic banks or Islamic business units that do not follow the fatwa. Therefore, to make fatwas become binding, the solution was to transform the DSN fatwas into PBI. The transformation process is influenced by KPS as a recommendation for the DSN fatwa. When a fatwa is transformed into positive law, it has undergone changes in form and function in the context of the national legal system. Fatwa has been integrated with other norms, which have changed into positive law. Even in certain cases, there is a change in meaning both in terms of expansion and narrowing Furthermore, to compile the Bank Indonesia Regulations as referred to in article 26 paragraph 3 of Law Number 21 of 2008 concerning Islamic Banking, Bank Indonesia shall establish a Islamic Banking Committee as stipulated in Bank Indonesia Regulation Number 10/32/PBI/2008 concerning the Islamic Banking Committee, and one of its functions is to interpret fatwa in the field of Islamic banking. In addition, this committee is tasked with providing advice to Bank Indonesia about the fatwas issued by the DSN-MUI. of meaning. This can be seen in the period before Law No. 21 of 2008 concerning Islamic Banking, which was ratified by the fatwa of the DSN clearly contained as material for legal consideration by Bank Indonesia, even though it was only mentioned in the Codification of Islamic Financial Products. Indonesia Islamic Economic Masterplan 2019-2024 381 7 Supporting Ecosystems This is evident in the provisions of Article 7 of
  386. Shariah compliance is one of the elements in In order to answer the challenges of developing the assessment of the level of health of Islamic Shariah products , there are four things that banks financial directly can do, namely operating philosophy, organization proportional to the maintenance of public trust. structure, experience effects, and management style. Public trust and confidence in LKS is based more This has a significant role for the growth of Islamic on the implementation of Islamic legal principles market share, including product development and adopted in the operational rules of the institution, so innovation and is one part of the function of research that compliance with Shariah principles is needed. and development and brand experience that is able Without compliance with Shariah principles, it can to provide intense insight into the community about affect the community’s decision to utilize the services Shariah products. institutions (LKS) which is provided by Islamic financial institutions (LKS). Second, innovation in Islamic banking product From this perspective, Shariah compliance is development requires a legal basis from the DSN- the core of LKS integrity and credibility. Shariah MUI fatwa. Therefore, there needs to be a study of compliance is a logical consequence of the use DSN fatwa mapping and identification of market of guidelines that are formally agreed upon as a requirements for Islamic banking in connection guideline and become an absolute requirement for with product development. In order to support LKS in carrying out their business. In the banking product innovation efforts that can improve context, efforts to fulfill Islamic values are made the competitiveness of Islamic banking both by making DSN-MUI fatwa and PBI a measure of domestically, regionally and globally in the era of free compliance with Shariah principles in relation to markets with anticipation of various opportunities products, transactions and operations. Operationally, and challenges going forward, BI has conducted a compliance with Islamic banks to the DSN fatwa as mapping study of fatwa and identification of needs an embodiment of Shariah principles and rules must since 2010. The mapping intended to identify the be adhered to. Shariah compliance is an important extent of the implementation of the fatwa in Islamic aspect that distinguishes Islamic economics from banking products, what fatwas are constrained in conventional economics or between Islamic banking their implementation and what products are needed and conventional banking, because to date, Islamic by the industry that require a fatwa or affirmation of banks are suspected of still following conventional Sharia that have not been interpreted by the DSN. banks in terms of products, human resources or On the other hand, Islamic banking also expressed a operations. desire for the existence of several additional fatwas There are two crucial issues related to Islamic bank products that need to be followed up, which are, first, Islamic banking must have a Shariah standard operating procedure (SOP) and direct the product portfolio not to become the bank’s main financing segment. BI must make its own arrangements in order to improve the quality of service and customer security, as well as minimize the risks associated with these products, while also referring to the benefits of the national economy and the future Islamic banking business model. 382 Indonesia Islamic Economic Masterplan 2019-2024 regulating products for channeling funds / financing, raising funds and treasury products and payment systems. The fatwa is deemed necessary to be issued as a basis for developing Islamic banking products.
  387. In Article 34 paragraph 1 , it is stated that: for Islamic economic institutions in Indonesia is “Islamic Banks and UUSs are required to implement undoubtedly quite comprehensive. But the challenge good governance that covers the principles of here is weak law enforcement in Indonesia. The transparency, accountability, professionalism, and weak capacity of regulators to improve institutional fairness in carrying out their business activities.” governance regimes has made it difficult for Indonesia to adopt international standards regarding good institutional governance. This is considered to have contributed to the currently sluggish economic growth in Indonesia, including the growth of the Islamic economic sector. Further provisions concerning Islamic Banking Governance are regulated in the third Section of Islamic Banking Law Article 32, which states that (1) Shariah Supervisory Boards must be established in Islamic Banks and Conventional Commercial Banks that have UUS; (2) The Shariah Supervisory The World Bank, periodically evaluates the Board as referred to in paragraph (1) is appointed extent to which countries in the world implement by the General Meeting of Shareholders on the international standards and codes. The results of recommendation of the Indonesian Ulema Council; the assessment are reported in the form of ROSC (3) The Shariah Supervisory Boards as referred to (Report on the Observance of Standards and Codes). in paragraph (1) are tasked with providing advice The aim of the ROSC initiative is to identify various and advice to the board of directors and overseeing weaknesses that can contribute to a country’s the Bank’s activities in accordance with Shariah economic ROSC’s Principles. Further provisions regarding Governance assessment of corporate governance is carried out are contained in BI Regulation No. 11/33/PBI/2009 by assessing the legal and regulatory frameworks, concerning Implementation of Good Corporate business practices, compliance of public companies, Governance for Islamic Commercial Banks and and the enforcement capacity on governance Islamic Business Units. Meanwhile, the provisions principles issued by the OECD (World Bank, 2010). concerning Shariah Governance are stated in For Indonesia, the first country assessment was Circular BI Letter No. 8/19/DPbS/2006 concerning carried out in 2004, and was updated in 2010. In the Shariah Supervision Guidelines and Procedures final assessment, the score obtained by Indonesia for Reporting Supervision Results for Shariah increased, including four principles that obtained Supervisory Boards. In point 3, it is stated that a status of “fully implemented”, 25 items rated reports on the results of Shariah supervision, along “broadly implemented”, 34 items rated “partially with supervisory work papers, are to be delivered implemented “, and 2 items are considered not by the Shariah Supervisory Board to the Directors, implemented (World Bank 2010). Thus, the World Commissioners, DSN, and Bank of Indonesia (which Bank recommended Indonesia to carry out reforms has now transferred to OJK). and financial vulnerability. to increase the capacity of regulators in enforcing the provisions of good institutional governance. For the Islamic finance industry in Indonesia, governance is an issue that also receives the attention of regulators. For Islamic banking, Islamic Banking Governance is regulated in Law No. 21/2008 concerning Islamic Banking Chapter VI concerning “Governance, Prudential Principles, and Risk Management of Islamic Banking”. Indonesia Islamic Economic Masterplan 2019-2024 383 7 Supporting Ecosystems Indeed, the legal and regulatory framework
  388. In point 4 of this SEBI , it is stated that the as regulation, supervision, inspection, investigation, report resulting from Shariah supervision must, at and protection of consumers in the banking, capital minimum, contain the following items: market, and non-bank financial services sectors. 1. The results of supervision of the suitability of the Bank’s operational activities against the fatwa issued by the DSN-MUI. 2. Shariah opinion on operational guidelines and However, the Bank Indonesia Regulations and Bank Indonesia Circular Letter concerning Banking, including Islamic Banking, are still valid, as long as the OJK has not ratified the latest regulations. Regarding the Corporate Governance guidelines products issued by the Bank. 3. The results of the study of new products and services that have not yet been issued a fatwa, so that a fatwa is to be proposed to the DSN-MUI. 4. Shariah opinion for the overall implementation of the Bank’s operations in Bank publication reports. Since the enactment of Law No. 21 of 2011 concerning the Financial Services Authority, the regulation and supervision function of Islamic financial institutions has been transferred from BI and Bapepam-LK to the OJK, as Article 5 of the Law concerning OJK states “OJK functions to organize an integrated regulatory and supervisory system for all activities in the financial service sector”. Article 6 further details that “the OJK carries out the duties of the regulation and supervision of: under OJK supervision, the OJK has published the Indonesian Corporate Governance Manual in January 2014. The manual emphasizes strengthening the roles and responsibilities of the company’s board of directors and commissioners, increasing the amount and quality of disclosures, as well as increasing the accountability of the company’s executive board, which also applies to Islamic financial institutions. Improvements in governance weaknesses are focused on strengthening the role of the Board of Directors, the role of the Board of Commissioners, the rights of shareholders, material company transactions, disclosure and transparency, and internal controls. This manual also provides guidance on the implementation of general institutional governance that also applies to Islamic financial institutions. But unfortunately, because it is written for all companies supervised by the OJK in 1. Financial service activities in the Banking general, this Manual has not given attention to the specificity of Islamic financial institutions that must sector, 2. financial service activities in the capital market sector, fulfill Shariah compliance aspects. In terms of the governance of the halal industry, 3. Financial services activities in the Insurance the government has stipulated Law No. 33/2014 Sector, Pension Funds, Financing Institutions, concerning Halal Products Assurance. BPJPH has and Other Financial Services Institutions”. also been formed as one of the work units under Meanwhile, Bank of Indonesia, as the central the Ministry of Religion to hold a Halal Product focus bank, is tasked with guarding monetary Assurance. Unfortunately, this Act does not yet stability, and have implementing regulations, both in the form financial system stability. Thus, BI no longer of Government Regulations (PP) and Minister of regulates and supervises individual banks. Religion (PMA) Regulations. Article 2 states that However, payment the system macroprudential stability, aspect of supervising systemic risk in financial system stability remains under BI’s supervision. As mandated by Law No. 21 of 2011, the OJK carries out functions, duties, and authorities in a number of fields, such 384 Indonesia Islamic Economic Masterplan 2019-2024 “The implementation of JPH is based on: a. protection; b. justice; c. legal certainty; d. accountability and transparency; e. effectiveness and efficiency; and f. professionalism.”
  389. financial institutions so as to create an integrated governance of the Implementation of Halal Product halal value chain from upstream to downstream , Assurance in Indonesia, although there is no detailed from raw materials to product presentation, including explanation of how these principles have been the chain of financing, which is also halal because it implemented. complies with Shariah principles. The JPH Law Chapter V (Articles 29-36) regulates Slightly different from Islamic financial institutions, the procedure for obtaining Halal certificates. In the where the Shariah Supervisory Board is an internal Explanation of this Act, it is stated that this procedure and compulsory part of Islamic financial institutions, begins with businessmen submitting applications the provisions of halal product companies with halal for Halal Certificates to BPJPH. Then, the BPJPH supervisors, or those responsible for PPH (Halal conducts document review examinations. Next, Product Process), this only applies to large scale within a maximum period of 5 (five) working days companies and not to MSMEs. This is due to the from the time the application document is declared fear of MSME entrepreneurs objecting to the costs complete, the BPJPH assigns the LPH to carry out involved. Therefore, Article 53 of the Law on JPH inspection and/or testing of the halal product in provides a legal basis for community participation question. The LPH must obtain accreditation from in the implementation of JPH, either by conducting BPJPH in collaboration with MUI. The LPH then socialization submits the results of the product inspection and/ outstanding Halal Products conducted through or legal testing to the BPJPH. The BPJPH submits complaints or reports to the BPJPH. the results of inspection and/or testing of product halalness to the MUI to obtain the determination of the halal product. The determination of halal products is carried out by the MUI through a MUI halal fatwa hearing, and is then signed by the MUI. Article 3 U JPH states that the Halal Fatwa Hearing to decide on the halal status of the Product shall take place no later than 30 (thirty) working days after the MUI receives the results of inspection and/ regarding JPH, or overseeing The Muslim world has significant potential for Islamic economic development because it is supported by a growing Muslim population accompanied by relatively rapid economic growth. Islamic economics offers opportunities to develop connections between the Islamic finance sector and the halal industry, spur innovation and utilize shared values ​​and economic needs to expand new markets. or testing of Products from BPJPH. BPJPH issues Some of the main challenges faced by the current Halal Certificates based on the decision on Halal Islamic economy include: the need for more skilled Product Determination from the MUI. This JPH Law and expe r ienced workers, the immature and deep has at least provided procedures and time frames Islamic economic industry, the varied interpretations to provide legal certainty in the halal certification of Shariah, and the lack of global standards. However, process. the natu r e and level of global standards must be In this Law, Article 1 paragraph 3 states that “the Halal Product Process, hereinafter abbreviated as PPH, is a series of activities to assure the halal consider e d carefully because overly detailed and complica t ed arrangements can actually hamper innovation. status of Products that includes material supply, Efforts t o improve standard harmonization in processing, storage, packaging, distribution, sale, Islamic finance and the halal industry are seen and presentation of the Products.” From this as suppo rting Islamic economic growth because provision, it can be seen that the halal provisions still standard ization of practices will increase the only emphasize the elements of material, process, confidence of consumers and investors and facilitate and presentation. This provision has not encouraged global business. However, there is also another view halal businesses to use Islamic finance from Islamic that re gulations and standards that are too strict Indonesia Islamic Economic Masterplan 2019-2024 385 7 Supporting Ecosystems These principles have provided the basis for the
  390. will damage innovation , which is also important management, sukuk and Islamic social finance. With for concerned full encouragement from the government coupled about the effects of the risks of new regulations, with the various attractions it owns, Indonesia can laws or standards that are applied without a good attract foreign investors to invest their funds in the understanding of their potential impacts on the Islamic finance industry. development. Practitioners are market. Because the impact is difficult to measure, the best way to develop cross-country standards is through consensus building that aims to avoid contradictions. In addition to Islamic finance, the halal industry also has great potential to develop in Indonesia. The halal industry is one sector that supports the establishment of an Islamic economy in Indonesia According to a report issued by the Islamic in addition to Islamic financial institutions. The halal Research and Training Institute-Islamic Development industry is part of the real sector of the developing Bank (IRTI-IDB), Thomson Reuters and the General Indonesian economy. Various efforts have been Council for Islamic Banks and Financial Institutions made by the government to develop the halal (CIBAFI), the 2016 Islamic Finance Report Country industry. In terms of regulations, the halal industry is Report for Indonesia with the theme ‘Prospect for strengthened by the enactment of Law No. 33 of 2014 Exponential Growth ‘, Indonesia, as a large country concerning Halal Products Assurance (UU JPH). The with a majority Muslim population, has abundant JPH Law aims to provide comfort, security, safety, natural resources and a strategic geographical and certainty of the availability of halal products for location, offers great potential in economic growth the community in consuming and using products, and various opportunities for the Islamic finance as well as increasing added value for businesses to industry. In contrast to other countries, the Islamic produce and sell halal products. finance industry in Indonesia is largely built on community initiatives (community-based initiatives). In other words, the initiation of Islamic financial growth in Indonesia is carried out through a bottomup approach instead of a top-down approach. This desire emerged from the community and was accommodated by the government, not vice versa. However, at least this brings a positive impression Based on the JPH Law, the Halal Product Assurance Agency (BPJPH) was established. BPJPH is a government agency assigned to guarantee halal products. Its existence is under and is responsible to the Minister of Religion. According to Article 6 of the JPH Law, the authority of BPJPH in providing guarantees for halal products is as follows: by bringing up the development of unique features 1. Formulate and establish JPH policies. such as the presence of Islamic rural banks, retail 2. Establish JPH norms, standards, procedures sukuk, hajj funds and various other innovative social finance initiatives. Furthermore, according to the report, the and criteria. 3. Issue and revoke Halal Certificates and Halal Labels on Products; government has now made the development of the 4. Register Halal Certificate in foreign products; Islamic financial industry the main pillar in its overall 5. Socialize, economic growth strategy, so that the industry is Products expected to grow strongly while maintaining unique 6. Accredit LP products and services and it is expected to increase the Islamic financial market share more than doubled in the next five years. This study looks at the educate, and publicize Halal 7. Conduct Halal Auditor registration 8. Supervise JPH retail and corporate growth opportunities in the main 9. Conduct Halal Auditor development sectors of Islamic finance and assets; including 10.Cooperating with domestic and foreign Islamic banking, Islamic insurance, Islamic asset institutions in the field of organizing JPH. 386 Indonesia Islamic Economic Masterplan 2019-2024
  391. by law as an institution that has the authority to issue the only institution authorized to hold halal product fatwas related to Islamic finance . Law Number 21 certification in Indonesia. With the establishment of 2008 concerning Islamic Banking instructs Bank of BPJPH, the halal product certification process Indonesia, currently the Financial Services Authority, is no longer under the authority of the Indonesian to adopt fatwas issued by the DSN-MUI. Ulama Institute for Food, Drug and Cosmetics Studies (LPPOM MUI). Even so, according to what is stipulated in the JPH Law, MUI still has a strategic role in the process of certifying halal products. BPJPH will continue to collaborate with MUI primarily related to the halal auditor certification process, accreditation of the Halal Guarantor Institution (LPH) and the determination of halal products in the form of fatwas. With the birth of BPJPH, it is expected that the management of the halal guarantee process will be better than before. In terms of institutions and legality, the existence of BPJPH is certainly very In relation to halal harmonization and standardization carried out by LPPOM MUI with the establishment of BPJPH, BPJPH will harmonize halal certification standards that are the same as those at the Food and Drug and Cosmetic Study Institute of the Indonesian Ulema Council (LPPOM MUI). Harmonization of this standard is important so that entrepreneurs are not confused if BPJPH processes halal certificates. The standards set by LPPOM-MUI are still valid as long as these standards do not conflict with applicable regulations. strong and strategic because it is an official state institution and is strictly regulated in the JPH Law. Indonesia, in harmonizing and standardizing Islamic financial institutions, takes an institutional approach in which the National Shariah CouncilIndonesian Ulema Council (DSN-MUI) gets a mandate Indonesia Islamic Economic Masterplan 2019-2024 387 7 Supporting Ecosystems Based on the above authority, BPJPH is currently
  392. Opportunities and Challenges of Fatwa Clusters , Regulations and Governance Regulation of Islamic finance in Indonesia in still challenges that need to be corrected in terms general is quite comprehensive, as indicated by of regulations, so that Islamic financial institutions the many regulations that specifically regulate and the halal industry can run optimally and work each financial institution in the form of laws and cooperatively. implementing regulations. But even so, there are Table 7.16 Opportunities and Challenges of Fatwa Clusters, Regulations and Governance Aspect Fatwa Opportunities •• Indonesia has a fatwa council whose national fatwa is MUI •• Indonesia is the country with the largest number of Muslims in the world, so the opportunity for the presence of contemporary fatwas is large •• The fatwa of MUI and DSN-MUI has a good reputation in the world Governance •• The JPH Law has provided extensive space for community participation in the process of organizing halal guarantees •• The JPH Law gives space for the establishment of regional halal stakeholders •• The DSN under the MUI which is a selfsupporting institution of the government provides freedom and independence of the DSN from various potential cooptation and intervention from various parties •• OJK has published the Indonesian Corporate Governance Manual •• The potential for great philanthropy and Indonesia is a generous country Challenges •• MUI is not the only fatwa institution, so that if there is a conflict between the fatwa of MUI and the fatwa from other fatwa institutions, it will cause the people who follow the social organization not to obey the MUI fatwa •• MUI is an independent institution that is not within the government structure, so the fatwas issued cannot be used as a legal umbrella •• Lack of attention to organizational governance, making fatwas decided in a relatively long time, so they sometimes become out of date •• Implementation of the mandate of the JPH Law in 2019 is still difficult because it has not been supported by relevant regulations •• DSN does not have binding regulatory authority to financial institutions •• DSN-MUI does not have a standard period of fatwa stipulation •• There are no standard provisions regarding the recruitment mechanism for the resignation mechanism, and the dismissal of DSN members publicly •• There is no Code of Ethics and Conduct for DPS members •• There are no IKU / Key Performance Indicators (KPI) standards to evaluate the performance of DPS in Islamic financial institutions •• To oversee the post-ante, there is no operating standard for resolving Sharia non-conformity findings •• The Indonesian Corporate Governance Manual issued by OJK only applies to publicly-listed issuers •• Need to improve the governance of ZISWAF institutions Regulations •• In general, Islamic financial regulations are •• Many things need to be improved / amended from existing quite comprehensive Islamic finance regulations •• The DSN-MUI fatwa No. 108 of 2016 concerning Sharia Tourism Guidelines which become references for several Regional Governments to regulate halal tourism 388 Indonesia Islamic Economic Masterplan 2019-2024 •• UU no. 33 of 2014 has not received any regulatory support for the technical implementation
  393. In the field of fatwa , there are several opportunities arise with the current institutional status of the DSN available in Indonesia, firstly, there has been a fatwa as non-government institution are the absence of council in Indonesia that has existed for 5 decades, a standard time period for fatwa stipulation. For known as the Indonesian Ulama Council (MUI). simple issues, the process of establishing a fatwa The MUI has made various fatwas in the field of can be done quickly. However, for more complex society and formed a special council to deal with issues, the process of establishing a fatwa can take economic and financial issues specifically through a long time, sometimes even years. Such conditions the National Shariah Council (DSN-MUI). Secondly, are unconducive to efforts to accelerate Islamic Indonesia is the country with the largest number of finance. The sheer length of the fatwa determination Muslims in the world, so there is a large opportunity process has the potential to make the industry lose for contemporary fatwas. Third, the MUI and DSN- momentum in terms of taking advantage of business MUI fatwas have a fairly good global reputation. opportunities from products requesting fatwas. There are also fatwa institutions that are part of fairly old community organizations in Indonesia, namely Nahdlatul Ulama and Muhammadiyah, as well as fatwas issued by scholars from community organizations. So, should there be a conflict between MUI fatwas and fatwas from other fatwa institutions, the people tends to not obey the MUI fatwa. Secondly, because the MUI is an independent institution that does not exist within the government structure, the fatwas issued cannot be used as legal umbrella, unless there are laws or other regulations that refer to the MUI or DSN-MUI fatwas. Third, there is a lack of attention to organizational governance, which results in fatwas that were decided on a long time ago sometimes going out of date. As a non-governmental institution, the provisions for implementing good institutional governance are not binding on the DSN. But as an institution that issues fatwas for reference by Islamic law for the Islamic financial industry, the DSN needs to apply the principles of good institutional governance by relying on the principles of good governance including: transparency, accountability, responsibility, professionalism, and fairness. In addition, so far, there has not yet been any standard provisions regarding the process of recruitment of DSN members openly to the public. Different from the parent organization DSN, namely the MUI whose membership is based on representatives from Islamic mass organizations, the membership of the DSN is based more on In terms of Shariah governance related to the expertise and skills in the field of fiqh muamalah Islamic financial sector, institutional issues are one of maliyah. In addition to the recruitment process, the the crucial issue. In terms of institutions, the National mechanism of resignation and dismissal of the DSN Shariah Council (DSN) is a non-governmental does not yet have a standard. organization/non-governmental organization. This status, on the one hand, provides freedom and independence to the DSN from various potential cooptations and interventions from various parties. But on the other hand, as a non-governmental institution, the DSN does not have a binding regulatory authority to financial institutions. Some of the issues that In addition to the DSN, a good Shariah governance system should also be applied to the Shariah Supervisory Board in Islamic Financial Institutions. At present, there is no Code of Ethics and Conduct for DPS members. Another urgent issue is the preparation of the Key Performance Indicators standards to evaluate the performance of the DPS, which can also be applied to Islamic Indonesia Islamic Economic Masterplan 2019-2024 389 Supporting Ecosystems 7
  394. financial institutions . For performance evaluation, In general, all clusters require a specific master DPS currently relies more on self-assessment, regulation to regulate the cluster. This regulation is which is part of self-assessment of good corporate needed to encourage business and provide legal governance. But because it is self-assessment, this certainty for market participants. In addition to the report tends to be subjective. legal umbrella, clusters that produce processed In addition, to monitor post-ante, there is no operating standard for resolving Shariah nonconformity findings. In practice, there is a diversity of patterns in the form of resolving the finding of Shariah mismatches. However, in the supervising process, there is no standard operating procedure (SOP), which includes sanctions, for LKSs that violate Shariah provisions, even though there have been findings of such occuring from the DPS. products such as halal F&B as well as halal pharmaceuticals and cosmetics also emphasize on the efforts to accelerate certification, especially for industry players in the region. This acceleration can be supported by the presence of technical regulations to carry out the mandate of Law No. 33 of 2014 concerning Halal Products Assurance. The discussion on the regulatory and governance clusters also touched on the issues in the Halal Tourism Cluster where Minister of Tourism and Some of these Shariah governance issues Creative Economy Regulation Number 2 of 2014 need to be followed up immediately in order to concerning the Guidelines for Implementing Sharia harmonize the provisions of laws and regulations in Hotels and Halal Tourism Businesses was revoked Islamic financial institutions. Therefore, the qualified based on Minister of Tourism Regulation Number 11 institutional authorities need to adopt international of 2016. standards, especially for Shariah governance systems in Islamic financial institutions. Furthermore, the support of fatwas, regulations and governance of the halal industry can be identified through sectoral analysis of each industry. Each of these sectors or clusters has different conditions of fatwa, regulation, and governance so separate explanations are needed. Based on the description of halal Value Chain, the halal industry is classified into six clusters, including halal food and beverage (F&B), halal tourism, Muslim fashion, halal media and recreation, halal pharmacy and cosmetics, and renewable energy development. 390 Indonesia Islamic Economic Masterplan 2019-2024
  395. Table 7 .17 Support for Fatwa, Regulation and Governance of the Halal Industry Halal Food Halal Tourism Muslim Fashion Support / Linkages Encouraging the acceleration of ownership of halal certificates, especially for businesses in the regions with efforts to decentralize halal food fatwa by the LPPOMMUI region Strive to make halal tourism law with relevant ministries and institutions Strive for alignment of central and local government policies on creative economy, especially those relating to Muslim fashion Halal Media and Recreation Regulations need to be made that reduce copyright infringement and piracy, and strive for regulatory stimulus to support Islamic media and recreational programs Halal Pharmaceuticals and Cosmetics Encouraging the existence of fatwas and special regulations for pharmaceuticals and cosmetics, specifically related to the rules for selecting and using raw materials Strive for convenience in obtaining halal certificates Renewable Energy There are various regulations and laws that enable the procurement of renewable energy in various ways that can be done. However, in the field there are complaints that regulation in Indonesia is changing frequently, resulting in uncertainty for industry players Indonesia Islamic Economic Masterplan 2019-2024 391 Supporting Ecosystems Clusters 7
  396. Strategies and Programs Based on the basic concepts of Islamic economics Some descriptions of recommended strategies and analysis of the opportunities and challenges and programs are Islamic economic master above , the preparation of action plans for developing regulations, improved regulations, in the field of fatwas, regulations and governance is divided into Islamic banking, non-bank Islamic finance industry, eight specific strategies. These strategies generally and regulation of philanthropic institutions, reforming include the parent regulation related to Islamic halal industry regulations, creating legal frameworks economy in general, the development of the Islamic that establish financing links for halal industries finance industry, the development of the halal and Islamic financial institutions, the pursuit of the industry, and matters relating to cross-linkage from realization of a Islamic economic fatwa covering the the real sector and the financial sector. needs of the Islamic financial market, as well as the development of standards and certification of halal products. Table 7.18 Action Plan for Literacy Development, HR, and Research and Development No. Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 1: Main Regulation Islamic Economics 1. Coordination between all stakeholders in formulating the Islamic Economic Master Bill a. Coordination between stakeholder institutions coordinated by the KNKS b. Compiling the Master of Islamic Economics Bill 392 Indonesia Islamic Economic Masterplan 2019-2024 •• The Islamic Economy Master Bill can be arranged in 2020 KNKS, The House of Representatives of the Republic of Indonesia (DPR-RI), Ministry of Human Rights, Ministry of Economic Affairs, Ministry of Finance, Ministry of Industry, Ministry of Trade, Ministry of Cooperatives, Ministry of Tourism, BI, Financial Services Authority (OJK)
  397. No . 2. Strategies/Programs/Activities Make a Islamic financial economy master law a. Do comparative studies with regulatory systems in other countries that are considered successful b. Making the Islamic financial economy master law Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders DPR-RI, Ministry of Human Rights, Ministry of Economic Affairs, Ministry of Finance, Ministry of Industry, Ministry of Trade, Ministry of Cooperatives, Ministry of Tourism, BI, OJK •• Integration of Islamic financial arrangements because there has been a legal umbrella for Islamic economic law Strategy 2: Improved Regulation of the Islamic Banking Sector 1. Make clear rules and mechanisms regarding procedures and time periods for adopting the DSN-MUI fatwas to become positive laws •• There are clear rules and mechanisms regarding procedures and a. Make a review of the procedures and the time period the period of time for adopting the for adopting the DSM-MUI fatwa to be a positive law DSN-MUI’s fatwas b. Presenting regulations on the rules to become positive and mechanism of procedures and laws the period of adoption of the DSNMUI fatwa into positive law DPR-RI, BI, OJK, Kemenkum HAM, DSN-MUI 2. Make comprehensive rules about DPS duties and functions BI, OJK, DSNMUI •• There exist comprehensive regulations a. Make agreements between regarding the stakeholders to create good synergy duties and with each other functions of the b. Make regulations and technical DPS instructions about both internal and external Shariah audits c. Making regulations regarding the limitation of dual DPS positions, where one person may only become a DPS for one company in the same industry, so that confidentiality of each industry is maintained Indonesia Islamic Economic Masterplan 2019-2024 393 Supporting Ecosystems 7
  398. No . 3. Strategies/Programs/Activities Integrating the role of DSN-MUI in making Islamic financial edicts to become part of government institutions, so that the procedure for making Islamic financial edicts becomes faster a. Conduct studies that refer to international regulations regarding institutions of economic / financial fatwa Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders •• The function of DSN-MUI as a fatwa institution integrated into regulator institutions such as OJK or Bank Indonesia OJK, DSN-MUI •• There are comprehensive arrangements regarding the organization, capital and ownership of the UUS and UUS spinoff obligations Financial Services Authority (OJK •• There are rules of relaxation against the deadline for implementing spin offs Financial Services Authority (OJK) b. Conduct comparative studies to countries that have fatwa institutions to get models c. Formulate regulations regarding the ideal economic / financial fatwa institution in Indonesia 4. Comprehensive arrangements regarding organizational structure, capital and ownership of the UUS and UUS spin-off obligations a. Review of Law no. 21 of 2008 concerning Sharia Banking, specifically in the provisions concerning UUS and the obligation to spin-off b. Issuance of regulations that regulate comprehensively the organizational structure, capital and ownership of a UUS and the obligations of the UUS spin-off 5. Make a rule of relaxation against the deadline for implementing spin offs a. Review of Law no. 21 of 2008 concerning Islamic Banking b. Making rules for relaxation against the deadline for implementing spinoff 394 Indonesia Islamic Economic Masterplan 2019-2024
  399. 6 . Strategies/Programs/Activities Encouraging the Supreme Court to issue a policy, which states that religious courts have the authority to resolve sharia banking disputes a. The Supreme Court issued a policy, either in the form of a Circular of the Supreme Court or a Supreme Court Regulation which states that religious courts have the authority to settle sharia banking disputes, strengthen the Constitutional Court’s ruling Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Supreme Court •• The Supreme Court issued a policy stating that religious courts have the authority to resolve Islamic banking disputes, reinforcing the Constitutional Court’s decisions b. The implementation of sharia banking dispute settlement is carried out through a religious court Strategy 3: Improvement of the Regulation of the Non-Bank Islamic Financial Industry 1. Improved regulation of the Islamic capital market a. Support the cash endowments link sukuk program in coordination with the Ministry of Finance to optimize cash waqf link sukuk instruments, both from regulatory aspects and management aspects b. Incorporate into a regulation that contains provisions on sharia screening in the capital market regarding the obligation of issuers to place their funds in Islamic banks •• Regulations governing the provision of tax incentives to corporate sukuk issuers 7 Supporting Ecosystems No. Financial Services Aut hority (OJK) •• Created good coordination to support the sukuk link cash waqf program c. Simplify certain procedures and time periods so that it can motivate large companies to issue corporate sukuk d. Providing tax incentives to issuers of corporate sukuk in a certain period of time so that they can motivate large companies to issue corporate sukuk Indonesia Islamic Economic Masterplan 2019-2024 395
  400. No . 2. Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Regulatory improvements in the insurance industry •• There are comprehensive rules regarding a. Issue comprehensive rules regarding the separation of spin offs of Islamic insurance and Islamic insurance reinsurance business units and reinsurance b. Issue detailed regulations that business units require LKSs and halal industries to •• There are detailed use Shariah insurance in stages regulations that require LKSs and halal industries to use Shariah insurance in stages Stakeholders Financial Services Authority (OJK) Strategy 4: Improvement of Regulation on Philanthropic Institutions 1. Improve the governance of zakat and waqf institutions a. The establishment and supervision of the regional BAZNAS and LAZ is quite the responsibility of BAZNAS •• There are regulations that regulate the limitation of clear duties between the National Amil Zakat Agency (BAZNAS) and the Zakat Directorate of the Ministry of Religion b. Clear task restrictions between BAZNAS and the Zakat Directorate of the Ministry of Religion. The Ministry of Religion has the task of supervising and regulating regulations and their implementation •• BAZNAS is the only in the management of zakat by one responsible for BAZNAS the establishment c. Management of waqf assets is and supervision handled sufficiently by the BWI of the regional so that the management of waqf BAZNAS and LAZ assets can be more focused and •• In addition to independent carrying out its d. Availability of sufficient operational funds for the BWI so that it can effectively carry out its duties duties, the BWI is also a waqf manager, so that it can work in a focused and independent manner •• Availability of sufficient operational funds for the BWI 396 Indonesia Islamic Economic Masterplan 2019-2024 Ministry of Religion, National Amil Zakat Agency (BAZNAS), BWI
  401. 2 . 3. Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Integrating zakat as an instrument of •• Created the Islamic philanthropy with taxes as a integration supporting instrument for development between zakat as an Islamic a. Make regulations that allow the philanthropic management of zakat as taxes by instrument with the government, transparently and tax as a supporting on target instrument for b. Making regulations that allow zakat development as a deduction from taxes, is no longer a deduction from taxable income as a rule that has been applied at this time Ministry of Finance, Supporting the authority, regulation, •• BPKH has the and supervision of the financial authority to management of Hajj by the government regulate and through the BPKH by issuing related oversee the government regulations management of Hajj finances a. Make a study of the management of financial hajj by the government Ministry of Justice and Human Rights, Ministry of Finance, Ministry of Religion, BPKH National Amil Zakat Agency b. Issue government regulations relating to the authority, regulation and supervision of the financial management of Hajj by the government c. Socialization to the public about government regulations that support the authority, regulation and supervision of the management of hajj finances by the government through the BPKH Indonesia Islamic Economic Masterplan 2019-2024 397 7 Supporting Ecosystems No.
  402. No . Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 5: Improvement of Halal Industry Regulations 1. The issuance of PP Supporting BPJPH’s performance by issuing PP and PMA so that BPJPH can and PMA, which is the mandate carry out its duties efficiently* of Law No. 33 of a. Prepare the BPJPH as a halal 2014 concerning regulation integrator from upstream Guaranteed Halal to downstream Products, which b. Support the plan for a cross-subsidy contains: system between large companies •• Cross-subsidy and MSMEs for the cost of halal systems between certification large companies c. Supporting programs to provide tax and MSMEs for the incentives for companies, especially costs of managing MSMEs that are halal certified halal certification Ministry of Cooperatives and Small and Medium Enterprises, Ministry of Religion, Ministry of Trade, Islamic Boarding Schools, BWI •• Programs for providing tax incentives for companies that are halal certified •• BPJPH as a halal regulation integrator from upstream to downstream 2. Issue halal tourism regulations that regulate linkages with supporting sectors a. Conducting a review of Minister of Tourism and Creative Economy number 2 of 2014 concerning Halal Tourism which has been revoked based on a decision on Tourism Minister Regulation number 11 of 2016 b. Conduct studies on the importance of halal tourism regulations and linkages with existing supporting sectors c. Issue halal tourism regulations 398 Indonesia Islamic Economic Masterplan 2019-2024 •• There are halal tourism regulations that regulate linkages with supporting sectors Ministry of Justice and Human Rights, Ministry of Tourism, Regional Government
  403. 3 . Stakeholders 7 •• There are bureaucratic institutions that manage halal licensing and onedoor MSMEs Ministry of Economic Affairs, Ministry of Industry, Ministry of KUKM, Halal Product Guarantee Agency Supporting Ecosystems No. •• There are regulations that are able to synergize between the halal industry, MSMEs, and Islamic boarding schools Halal Product Assurance Agency, Ministry of Religion, Ministry of Cooperatives & SMEs, Ministry of Trade Make regulations that are able to •• Created a support the growth of a healthy digital regulation that economy ecosystem, in order to supports the support the growth of the halal industry growth of a healthy digital economy a. Making consumer data protection ecosystem, laws that are able to protect digital which protects consumer data in particular, and consumers, in Indonesian society in general, from terms of data misuse of data and funds, and b. Creating a trust fund law, which supports good provides legal power to fintech fintech corporate companies to raise public funds, governance with and is able to protect the interests of the availability of consumers / investors from misuse sharia supervisors of funds that have been deposited with investment companies Ministry of Law and Human Rights, Ministry of Communication and Information Technology, OJK Strategies/Programs/Activities Making bureaucratic institutions that manage halal licenses and one-door MSMEs a. Issue government regulations regarding halal auditors b. OSS program by maintaining the confidentiality of company data 4. Making regulations that are able to synergize between the halal industry, MSMEs, and Islamic boarding schools a. Islamic boarding school empowerment programs as economic community centers b. Print halal auditors and halal supervisors sourced from Islamic boarding schools and MSME communities Target Indicator Year 2019 2020 2021 2022 2023 2024 c. Issue a business license to establish a national halal hypermarket 5. c. Revise Law Number 40 of 2007 concerning Limited Liability Companies to require shariabased companies to have sharia supervisors Indonesia Islamic Economic Masterplan 2019-2024 399
  404. No . Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 6: Creation of a legal framework that builds links between financing the halal industry and financial institutions 1. Creating a legal and regulatory •• There exists a legal framework and institutional governance and regulatory that builds links between financing framework and the halal industry and Islamic financial institutional institutions, so as to create a halal governance ecosystem that is integrated in the that builds links halal value chain of Indonesia from between the upstream to downstream* financing of the halal industry and a. Spur the growth of the number of Islamic financial halal auditors and halal examining institutions institutions evenly in each region / district b. Complementing halal infrastructure needs for the community, especially MSMEs c. Integrating the growth of the halal industry with the Islamic financial industry, with the obligation to halal certification for companies, especially MSMEs, if they want to obtain Islamic finance 2. Harmonizing the legal and regulatory framework as well as a good Islamic economic institutional governance system in Islamic financial institutions and halal industries a. Make a study of Islamic economic institutions in Islamic financial institutions and halal industries b. Harmonizing the legal framework, regulations and systems of Islamic economic institutional governance in Islamic financial institutions and halal industries 3. Realizing a legal framework that enhances the literacy and inclusion of Islamic finance and the halal culture of society a. Creating a legal, regulatory and governance framework for Islamic economic institutions that improves financial literacy and inclusion and the halal culture of the community b. Socialize the legal and regulatory framework related to Islamic financial literacy and inclusion and the halal culture of the community 400 Indonesia Islamic Economic Masterplan 2019-2024 Bank Indonesia, Financial Services Authority, Ministry of Cooperatives and Small and Medium Enterprises, Ministry of Industry, Ministry of Trade, Ministry of Tourism, Halal Products Assurance Agency •• There is a harmonization of the legal and regulatory framework and a good Islamic economic institutional governance system in Islamic financial institutions and halal industries KNKS, BI, OJK, KUKM Ministry, Ministry of Industry, Ministry of Trade, Ministry of Tourism •• Realization of legal and regulatory reforms and governance to maintain sharia economy that enhances Islamic finance and halal culture literacy and inclusion in the community BI, OJK, Kemenkominfo, Kemendiknas, Kemenag
  405. 4 . Strategies/Programs/Activities Target Indicator Creating a legal and regulatory •• A link is established framework and institutional governance between that builds links between financing halal industry the halal industry and Islamic financial financing and institutions, so as to create a halal Islamic financial ecosystem that is integrated in the institutions to halal value chain of Indonesia from create integration upstream to downstream in the halal value chain a. Draft a legal framework that builds links between the financing of halal industry and Islamic financial institutions Year 2019 2020 2021 2022 2023 2024 Stakeholders BI, Financial Services Authority (OJK), KUKM Ministry, Ministry of Industry, Ministry of Trade, Ministry of Tourism b. Realizing the creation of a legal and regulatory framework and institutional governance that builds links between the benefits of the halal industry and Islamic financial institutions 5. Harmonizing the legal and regulatory framework as well as a having good Islamic economic institutional governance systems in Islamic financial institutions and halal industries a. Regulating harmonization of legal and regulatory frameworks in Islamic financial institutions and halal industries •• There is harmonization of Islamic economics between Islamic financial institutions and halal industries KNKS, BI, OJK, KUKM Ministry, Ministry of Industry, Ministry of Trade, Ministry of Tourism •• Increased Islamic finance and halal culture literacy and inclusion in the community BI, OJK, Ministry of Communication and Information, Ministry of National Education, Ministry of Religion b. Regulate good governance in Islamic financial institutions and halal industries 6. Realizing a legal framework that enhances the literacy and inclusion of Islamic finance and the halal culture of society a. Designing a legal and regulatory framework for enhancing Islamic finance and halal literacy and inclusion in the community b. Realizing the creation of a legal and regulatory framework and Islamic economic institutional governance that enhances Islamic finance and halal culture literacy and inclusion in the community Indonesia Islamic Economic Masterplan 2019-2024 401 7 Supporting Ecosystems No.
  406. No . Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 7: The pursuit of the realization of an Islamic economic fatwa covering the needs of the Islamic financial market 1. Strive to strengthen credible, professional Shariah economic fatwa institutions and be free from conflicts of interest * a. Review and review the current conditions of fatwa institutions in Indonesia •• Indonesia has credible, professional and Islamic economic fatwa institutions that are free from conflicts of interest BI, OJK, DSNMUI, Ministry of Religion •• Working Group Fatwa DSN-MUI, OJK, Bank Indonesia, Islamic Financial Industry •• The fatwa of Islamic economics in Indonesia can accommodate the needs of the Islamic financial market BI, OJK, DSNMUI b. Conduct studies on how fatwa institutions can be credible, professional and free from conflicts of interest c. Perform various actions on the results of the review, research and studies that have been done before to get a fatwa institution that is credible, professional and free of conflicts of interest 2. Establishment of a Working Group to Improve the Effectiveness of Fatwa ** a. Identification of stakeholders in the Working Group b. Inauguration of the Working Group to oversee the process of forming, issuing, and disseminating fatwas 3. Conducting Islamic economic fatwa mapping in identifying the needs of the Islamic financial market a. Identifying the market needs of Islamic economics in relation to Islamic finance b. Conducting comparative studies with other countries, as well as Islamic finance organizations about economic / financial fatwas that have been produced c. Make an Islamic economic fatwa map that identifies the market needs of Islamic finance 402 Indonesia Islamic Economic Masterplan 2019-2024
  407. 4 . Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders •• Financial fatwas in Indonesia can be transformed into binding regulations and must be fulfilled Bappenas, BI, OJK, DSN-MUI •• There is an Islamic economic legal system and infrastructure that is clear and can be a reference for law enforcement in every form of sharia financial disputes and disputes Supreme Court, BI, OJK Issued a regulation containing technical •• The sufficient regulations that regulate in detail the number of judges mechanism of education / training who have good and certification of Islamic economic competence in judges resolving Islamic economic disputes, a. Designing technical regulations at least 1 person that regulate in detail the Islamic in each religious economic judge education / training court and certification mechanisms Supreme Court, National Sharia Council of the Indonesian Ulema Council Develop strategic steps in the effort to transform fatwas into binding and compulsory government laws and regulations a. Coordinating between stakeholders to make the fatwa can be transformed into law in accordance with the needs in the Islamic finance industry b. Conduct studies on the possibility of easy transformation of fatwas into laws from the institutional side c. Formulate strategic steps in an effort to transform the fatwa into binding and compulsory government laws and regulations 5. Prepare a clear Islamic economic law system and infrastructure so that it can become a reference for law enforcement for any form of sharia financial disputes and disputes a. Prepare a good institutional structure to facilitate any form of sharia financial disputes and disputes b. Design and create a good system in facilitating every form of violation and disputes in Islamic finance c. Conduct massive and planned socialization for legal practitioners and the general public about law enforcement for all forms of Islamic financial disputes and disputes 6. 7 Supporting Ecosystems No. b. Issued regulations on technical regulations for the Islamic economic judge education / training mechanism Indonesia Islamic Economic Masterplan 2019-2024 403
  408. No . Strategies/Programs/Activities Target Indicator Year 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 8: Development of Halal Product Standards and Certifications 1. Establishment of technical rules (such as PP and PMA) to support the effectiveness of BPJPH ** a. Harmonization and implementation of regulations related to halal governance in the halal industry •• Technical rules related to the implementation of Law No. 30 of 2014 BPJPH, •• Creating synchronization and harmonization between institutions that have an interest in the establishment and development of halal standards Bank Indonesia, Financial Services Authority, DSNMUI, Ministry of Religion •• International standards in the field of Islamic finance and the halal industry can be well-ratified BPJPH, Financial Services Authority, Ministry of Trade, LPPOM-MUI LPPOM MUI b. Making halal manuals as a guide to obtaining halal certification for each sector of the halal industry c. Making standard operating procedures for halal audits for the halal industry 2. Strengthen the legal and regulatory framework that encourages synchronization and harmonization between institutions with an interest in establishing and developing halal standards a. Conduct studies on synchronization and harmonization efforts that can be carried out between stakeholder institutions in the establishment and development of halal standards b. Issue regulations that encourage synchronization and harmonization between institutions with an interest in establishing and developing halal standards 3. Encourage the government to ratify international standards in the field of Islamic finance and the halal industry a. Compile and review international standards in Islamic finance and halal industries that can be ratified b. Provide recommendations on international standards that need to be ratified based on priority scale 404 Indonesia Islamic Economic Masterplan 2019-2024
  409. 4 . Strategies/Programs/Activities Encourage the formation of Halal Inspection Institutions in each region * a. Conduct studies and data collection on the need for halal certification in each region Target Indicator •• There are halal inspection institutions in each region Year 2019 2020 2021 2022 2023 2024 Stakeholders BPJPH, LPPOMMUI b. Issue regulations to accelerate the establishment of Halal Inspection Institutions in each region 5. Decentralization of authority in •• Fatwa of halal determining the fatwa of halal products products can be to regional MUI decentralized to regional MUI a. Making a study of the importance of decentralizing the authority to determine the fatwa of halal products to regional MUI LPPOM-MUI b. Encouraging various steps that can be taken to decentralize the authority in determining the fatwa of halal products to regional MUI 6. Increasing literacy awareness and halal culture among the community by means of socialization through information and public events a. Making literacy mapping and halal culture in various communities •• There is literacy awareness and halal culture among the community 7 Supporting Ecosystems No. BPJPH, Ministry of Communication and Information b. Make various events simultaneously and simultaneously to increase literacy awareness and halal culture among the community Indonesia Islamic Economic Masterplan 2019-2024 405
  410. Quick wins Based on the overall action plan to strengthen the fatwa system , governance, and regulation above, there are two programs that can be implemented in the short term (quick wins). Both programs are considered to have narrow coverage but have a significant impact to encourage the development of halal industries and the Islamic finance industry. Quick wins itself has been allocated for completion in the 2019 period and is the starting point for other action plans in 2020 to 2024. is an important implementation of laws. However, until now the implementing regulations do not yet exist even though these regulations are necessary to support the duties of BPJPH in ensuring the guarantee of reference in halal products are: the institutions related to Islamic economics. However, issuing fatwas is often slow due to various factors, such as coordination with several parties. Working groups or task forces consisting of representatives from DSN-MUI, regulators, practitioners, academics and other related parties are expected to bridge the coordination problem so that the process of forming, issuing and disseminating fatwas can run more quickly and effectively. Thus, it is expected that appropriate regulations can be immediately issued and used by halal economic and industrial accordingly. Halal Products Assurance is the regulation on the included in the regulations related to assurance of formulation of regulations and governance of practitioners One of the mandates in Law No. 33/2014 on halal products in Indonesia. Matters that need to be 1.Establishment of a Working Group to Improve the Effectiveness of Fatwas Fatwa 2.Establishment of technical rules (such as PP and PMA) to support the effectiveness of BPJPH. •• Harmonization and implementation of regulations related to halal governance in the halal industry; •• Producing halal manuals as a guide for the obtaining halal certification for every halal industry sector; •• Establishing BPJPH branches to accelerate halal certification processes in the regions; •• BPJPH cooperation with universities to establish Halal Center, training halal auditors and supervisors; •• Producing standard operating procedures for halal audits for the halal industry; •• Adopting international halal standards so that the BPJPH halal label can be accepted internationally; and •• Producing halal standards for products - Halal imported products. 406 Indonesia Islamic Economic Masterplan 2019-2024
  411. Supporting Ecosystems 7 Indonesia Islamic Economic Masterplan 2019-2024 407
  412. 8 Conclusion and Recommendation
  413. In the context of regional-based halal hub development , the role of local governments is crucial to be able to create a conducive environment for the development of halal industries in their respective regions.
  414. Indonesia Islamic Economic Masterplan Main Programs This Indonesia Islamic Economic Masterplan (2) Developing research and development capacity, proposes short and medium term programs for (3) increasing the quality and quantity of human implementation. As illustrated in the masterplan resources, and (4) Increasing public awareness and framework below, there are four main strategies literacy. aimed at establishing Indonesia as an Independent, Each of the above strategy is developed in cluster Prosperous and Civilized country by becoming the programs, which have been explained in the previous leading center of Islamic economy in the world. chapters. From the several programs, there are a few The four strategies are: (1) Strengthening the Halal that are considered important as it can accelerate Value Chain, which are the halal food and beverage the fulfillment of the visions in the masterplan. The industry, halal tourism industry, Muslim fashion main program is divided into four main sub-clusters: industry, halal media and recreation industry, halal pharmaceutical and cosmetic industry and renewable energy industry, (2) Strengthening Islamic Finance, (3) Strengthening Micro, Small and Medium Enterprises (MSME) and (4) Strengthening Digital Economy. Besides the main strategies, the ecosystem is supported by policy strategies, they are: (1) Strengthening regulations and governance, Figure 8.1 Indonesia Islamic Economic Masterplan Framework VISION ACHIEVEMENT TARGETS MAIN INDICATORS Independent, Prosperous and Civilized Indonesia as the World’s Leading Islamic Economic Centre Increasing the Scale of Islamic Economy Increasing Ranking in the Global and National Islamic Economic Indices Increasing Economic Independence Increasing Welfare Index Increasing Islamic Businesses’ Production and Assets Increasing Score/Ranking in Global Islamic Economic Reports Increasing Food and Energy Self-Sufficiency Increasing National and International Shariah Maqasid Index Strengthening Islamic Finance Strengthening Micro, Small and Medium Enterprises MAIN STRATEGIES Strengthening Halal Value Chain MAIN PROGRAMS BASE STRATEGIES 410 • Halal Hub Region • Halal Certification • Halal Lifestyle campaign • Investment Incentives • International Collaboration • National Halal Fund • Islamic Inclusive Financial Services Board (IIFSB) • ZISWAF-Fiscal-Commercial Integration • Framework and indicators for monetary, macroprudential and macroeconomy policies Increasing public awareness Increasing quantity and quality of Human Resources Indonesia Islamic Economic Masterplan 2019-2024 • Education for Micro Entrepreneurs • Integrated Financing Facilities for MSMEs • MSME Database • MSME Literacy Increasing research and development (R&D) capacity Strengthening Digital Economy • Halal Marketplace and Islamic Financing System • HVC Start-up Incubators • Information system integrated with halal product’s traceability Strengthening Fatwa, Regulation and Governance
  415. This program is important as it can help to strengthen the Halal Value Chain . The following are the five main programs: 1. Developing areas for Halal Industry and Halal Hubs in various regions in accordance with the comparative advantage of each of the region as supported by the research center This is intended to support the halal industry, which are based regionally according to the characteristics and comparative advantage of each region. For the efficiency of the halal industry and halal hubs, which are identified in several regions, it is hoped that it can contribute towards labor absorption and increase the regional economic capacity. In the context of developing regional based halal hubs, the role of the local governments is crucial in order to create a conducive environment for the development of the halal industry. 2. Strengthening infrastructure to increase efficiency and standardizing halal certificate process in Indonesia (Halal Center, Halal Assurance Board, BPJPH representatives, Halal Information System, etc) Halal certificate will be a factor that can contribute to the decision making of the consumers to purchase. Most of the halal businesses in Indonesia are operated by small and medium businesses where halal certified products have not become a priority; therefore, there is a need for efficiency in the halal certification process to boost the development of the halal industry. Based on the above, there is a need for a supporting infrastructure to support the halal certification efficiency through supporting boards such as the halal center board, halal assurance 3. Increasing outreach through public socialization and education on Halal Lifestyle Halal literacy means the ability to differentiate goods and services that are allowed or prohibited based on the principles derived from Islamic laws and values. Low halal literacy automatically means low halal awareness of the community. The main program is by way of National Halal Life Style campaign that is hoped to increase literacy and awareness of the community to opt for halal life style. In addition, halal industry and economy may also be publicized in the curriculum of schools and higher education institutions. 4. Incentive Programs for local and global players to comprehensively support the development of HVC (starting from raw materials, production, distribution and promotion) The main component in a halal industry is raw materials. Until now, the raw materials used for production are largely imported. In fact, Indonesia is rich with natural resources and can afford to produce raw materials for the halal industry. However, limited use of technology and funding is an obstacle for the supply sector. To overcome this, there should be a joint venture with major local and global players to invest directly in Indonesia. With a production process by a major player in the country, it is hoped that it can increase raw materials output production in the short term and can accelerate transfer of technology in the long term. Therefore, incentives programs are needed to attract major local or global players to invest directly in the country. This incentive programs cover raw materials, production, distribution and promotion. board, BPJPH representatives in regional level and through integrated halal information systems. Indonesia Islamic Economic Masterplan 2019-2024 411 Conclusion and Recommendation 8 Strengthening Halal Value Chain Main Programs
  416. 5 . Strengthening international cooperation and recognition to broaden the halal product market in Indonesia, such as through standardization and harmonization by establishing an international halal center in Indonesia. To become a major player in the international halal industry, strong promotion and advocacy are needed from government to government (G to G) to receive international recognition for the halal certification and products in Indonesia and to broaden its halal product export market. G to G cooperation at the international level aims at supporting the strengthening of halal Value Chain by involving all relevant parties (under the guidance of KNKS, Ministry of Foreign Affairs and Ministry of Trade). This is implemented by the initiative to establish an International Halal Centre which aims to bridge Indonesia’s cooperation with foreign parties in developing the halal industry in the country. In addition to the G to G collaboration, strengthening international economic cooperation can also be initiated through regular Indonesian participation No. Programs in international exhibitions and competitions to strengthen the presence of Indonesia in the international halal industry. In addition, the International Halal Center serves to encourage promotion and international cooperation for halal products and industries in Indonesia. •• Positioning both G to G and multilateral agreements in various Halal Value Chains (such as food and beverages, tourism, and medicines). •• Positioning Indonesia in the business of Halal Value Chain globally through various international forums that have significant impact in encouraging industrial competitiveness. •• Positioning Indonesia in the development of a global financial sector regulatory framework that includes the commercial, social, monetary, macroprudential and macroeconomic sectors. The five main programs are to be implemented in the period 2019 to 2024, with detailed work plans as in the following table: Year 2019 2020 2021 2022 2023 2024 Stakeholders Program 1: Establishing Halal Hubs in various regions 1 Identification and discussion with potential regional stakeholders 2 Formulation and harmonization of arrangements to encourage halal hubs in the regions 3 Dissemination and consolidation of halal hub development 4 Development of halal hub infrastructure 5 Halal hub officially operates 412 Indonesia Islamic Economic Masterplan 2019-2024 National Development Planning Agency, Ministry of Finance, Bank Indonesia, Ministry of Industry, Ministry of Religion, Indonesian Ulema Council, Associations, and Universities
  417. No . Year Programs 2019 2020 2021 2022 2023 2024 8 Stakeholders 1 Formulation of verification methods for halal products 2 Halal standardization arrangements 3 Socialization of halal product standardization policies 4 Implementation of standardized halal product policies 5 Promotion of halal standardization abroad Indonesian Ulama Council, Drug and Food Inspection and Monitoring Agency, Ministry of Religion, Associations, and Universities Program 3: Increase outreach and effectiveness of public outreach / education programs. 1 The preparation of the curriculum and the teaching material for halal industry Preparation and dissemination of halal economic books 2 Halal lifestyle campaign in schools for students and teenagers (milienials) 3 Halal lifestyle campaign for families in communities Bank Indonesia, Financial Services Authority, Deposit Insurance Agency, Indonesian Ulama Council, Ministry of Industry, Creative Economy Agency, Ministry of Religion, Associations, and Universities Program 4: Incentive program for global players 1 Identification of priority business sectors and superior regions 2 Identification of potential global players that provide competitive advantages for the development of halal industries in Indonesia 3 Proper incentive setting and win-win solution for both domestic and foreign 4 Dissemination of incentive programs at home and abroad 5 Facilitation and implementation of incentive programs National Development Planning Agency, Ministry of Finance, Bank Indonesia, Ministry of Industry, Ministry of Religion, Indonesian Ulema Council, Associations, and Universities Program 5: Establishing an International Halal Center 1 Formulation of IHC development plans 2 Consolidation between stakeholders 3 IHC infrastructure development 4 Strengthening IHC operational capacity 5 IHC operational inauguration National Development Planning Agency, Ministry of Finance, Bank Indonesia, Ministry of Industry, Ministry of Religion, Associations, and Universities Indonesia Islamic Economic Masterplan 2019-2024 413 Conclusion and Recommendation Program 2: Standardization / certification of halal products that are effective and accepted at the international level
  418. Islamic Finance Main Programs There are five main programs to strengthen Islamic finance in Indonesia , namely: 1. Establishing a National Halal Fund National Halal Fund (NHF) is a fund that aims to specifically support the development of the halal industry in Indonesia. The fund does not provide direct financing but uses a funding-level subsidy mechanism similar to the practice in KUR. This subsidy is given to Islamic banks’ customers who are involved in developing the halal industry and fulfill the terms of the provision of financing. In the initial stage, funds must be distributed to Funds are distributed to: •• Encourage the growth of the Halal Value Chain priority sectors (such as food and beverages), creative industries, including start-up companies that are provided selectively but progressively. •• Encourage the growth of halal hubs / centers that have the potential to strengthen the ability to export halal products and import substitutions. •• Encourage the implementation of halal certification programs, especially for MSMEs. from two main sources, the Government Fund and •• Finance the increase of business productivity by the MSMEs in the halal industry, especially in the halal food and beverage sector. crowdfunding. The purpose of crowdfunding is •• Finance and access international exposure. to attract waqf, zakat, infaq, donations, and funds •• Encourage applied research activities that can increase the quality and competitiveness of products in the domestic and global markets. the prioritized halal sector. NHF funding will come that contain non-halal elements (tainted funds). Funds from crowdfunding will be used to increase the capacity of clients who satisfy the requirements imposed by Islamic banks or other institutions. The description of the National Halal Fund scheme are as follows: 1. Offers Shariah based financing Islamic Banks 3. Subsidizing financing margin National Halal Fund 414 Indonesia Islamic Economic Masterplan 2019-2024 2. Payments of capital Halal Industry Practitioners
  419. 2 . Establishing an Islamic Inclusive Financial Board (IIFSB) One of the main strategies to accelerate the development of zakat and waqf or Islamic social funds in general is to make Indonesia a center of inclusive finance for global Islam. At present, there is no institution or country that has become the center of ZISWAF which is the core of Islamic inclusive finance. Indonesia itself has actually played this role, which among others can be seen from Indonesia’s initiatives in encouraging the preparation of standardization of management of international Islamic social funds, namely the Zakat Core Principles (ZCP) and Waqf Core Principles (WCP). ZCP was launched in 2016 and is currently being implemented in several Islamic countries. Meanwhile, the WCP was only launched in 2018. Indonesia’s important role in shaping international standards for managing Islamic social funds has made Indonesia a potential center for Islamic social finance or an inclusive center for Islamic finance in general. To realize this goal, it is necessary to establish an Islamic Inclusive Financial Service Board (IIFSB), which among others can play a role in determining regulatory standards and supervision in the field of social finance and financial inclusion and to encourage the development of halal industry in Indonesia. The establishment and activation of IIFSB is Indonesia’s effort in demonstrating leadership at the international level in the field of Islamic social funds. The establishment of this institution is also expected to have a significant impact in responding to the economic challenges in OIC countries. IIFSB acts as •• Compilation of best practices into an international standard regulation. •• Conduct leading-edge research on Islamic social fund’s connectivity to the production frontier. 3. Integrating ZISWAF, Fiscal and the Commercial Sectors Comprehensive financial system practices actually have links between the commercial sector and the social sector and are supported by the fiscal sector. The Islamic social sector itself includes the collection of zakat, infaq, and sadaqah (ZISWAF) where zakat is a compulsory instrument while the remaining are voluntary. Zakat itself also stands as one of the classical fiscal policy instrument, which can actually be integrated with other fiscal policy instruments such as taxes. 4. Establishing Islamic BUMN Banks The achievement of the Indonesian Islamic banking market share as of December 2018 reached almost 6%, despite the various efforts made through policies by the relevant stakeholders. The establishment of Islamic BUMN banks is considered to be a strength for Islamic banks to increase their market share. The expected impact of the establishment of an Islamic BUMN is to increase business scale or increase financing, efficiency and expansion space, where with a large capital capacity it can provide leverage to collect larger deposits therefore increasing the financing scale. Greater capital and business scale will certainly provide a broader space for service expansion and innovative products. an inclusive financial standardization institution that includes zakat, infaq, alms and waqf with developing areas including: Indonesia Islamic Economic Masterplan 2019-2024 415 Conclusion and Recommendation 8
  420. 5 . Developing Framework and Indicators for Monetary, Macroprudential and Macroeconomy Policies The characteristics of Islamic financial system differs from the financial system in general as it removes elements of usury, maysir, and gharar in business practices. These are the government’s concerns and it forms the basis for the development of frameworks and indicators in order to realize the stability of Islamic financial systems. The development of the framework and indicators in question includes macroprudential, macroeconomic and monetary policies. One of them is by making the 416 Indonesia Islamic Economic Masterplan 2019-2024 real sector index as a reference for determining the amount of profit sharing for Islamic banks. Until now, institutions and industries in the Islamic financial system are still implementing the framework by referring to conventional economic indicators. Therefore, it is hoped that this strategy can enable the Islamic financial system to function effectively and efficiently, and can internalize Islamic values​​ comprehensively. The five main programs are to be implemented starting from 2019 to 2024, with details of the various work plans in the following table:
  421. No . Year Program 2019 2020 2021 2022 2023 2024 8 Stakeholders 1 Consolidation and planning for the establishment of the National Halal Fund 2 Formulation of the policy of establishing the National Halal Fund 3 Operational arrangements of the National Halal Fund 4 Infrastructure development for the operational mechanism of the National Halal Fund 5 Socialization with stakeholders Bappenas, Ministry of Finance, BI, OJK, LPS, MUI, Ministry of BUMN, Islamic Banking and other Financial Industries Inauguration of the National Halal Fund Program 2: Establishing Islamic Inclusive Financial Board (IIFSB) 1 Consolidation and planning of IIFSB 2 Formulation of policies for IIFSB 3 IIFSB operational settings 4 Infrastructure construction of IIFSB operational mechanisms 5 Socialization with stakeholders 6 Inauguration of IIFSB Ministry of Religion, BWI, BAZNAS, BI, OJK, Ministry of Cooperatives and SMEs, Ministry of Finance, KNKS, Bappenas Program 3: Integrating ZISWAF, Fiscal and Commercial Sectors 1 Design model and feasibility study for the integration of ZISWAF, Fiscal, and other Commercial Industries 2 Policy compilation and integration model settings 3 Launch of the integration instrument 4 Socialization dan promotion Bappenas, Ministry of Economic Affairs, BAZNAS, BWI, Ministry of Finance, BI, OJK, Islamic Financial Industry (Banks, Capital Markets, IKNB) Program 4: Establishing Islamic BUMN Bank 1 Consolidation and planning for the establishment of Islamic BUMN Banks 2 Formulation of policies for establishing Islamic BUMN Banks 3 Operational arrangements of Islamic BUMN Banks 4 Construction of operational mechanism infrastructure for Islamic BUMN Banks 5 Socialization with stakeholders 6 Inauguration of Islamic BUMN Bank Ministry of BUMN, Ministry of Finance, Bank Bank Indonesia, OJK, LPS, Bappenas, Program 5: Developing Framework and Indicators for Monetary, Macroprudential and Macroeconomy Policies 1 Development of concepts for the real sector index 2 Development of frameworks and indicators for monetary, macroprudential and other macroeconomic policies. BI, Ministry of Economic Affairs, Ministry of Finance, Bappenas Indonesia Islamic Economic Masterplan 2019-2024 417 Conclusion and Recommendation Program 1: Establishing National Halal Fund
  422. Micro , Small and Medium Enterprises (MSMEs) Main Programs There are three main programs to strengthen the MSMEs in Indonesia, namely: 1. Educational Programs for Micro Entrepreneurs Educational programs for micro-enterprises are important because even if the increase in the scale of business for micro-enterprises is small, the impact on employment and GDP growth of the Islamic financial institutions to contribute productive waqf funds. Whereas for small and medium-sized businesses, it can be done with capital-based financing with stock investments in the form of advanced technology marketplaces (example: Blockchain). 3. MSMEs Database country is positive. From the foregoing description, The MSMEs database is also included in the it is indicated that if 2.8% of the total micro business priority given the important role of data for the units convert into small businesses, there is a development of MSMEs. In Indonesia, MSMEs are potential for employment of as many as 10 million large in numbers but does not have sufficient data. people with a potential contribution of 2,700 trillion Data collection must begin by defining what and GDP. However, research needs to be conducted who belongs to MSME businesses and continues on the form and scope of educational programs to register through the smallest community unit needed by micro-entrepreneurs to be able to convert i.e. the Neighborhood Unit (RT). Data collection and their businesses. From the results of the research, validation are supported by the collaboration with stakeholders will be able to gauge provisions for parties related to community data storage such as education, including education on halal lifestyle and the General Election Commission (KPU), Central Islamic finance. Statistics Agency (BPS), Social Security Organizing 2. Integrating Financing Facilities for MSMEs Given the breadth of the business scale of MSMEs and the importance of financing for MSMEs, the main program in this cluster is integrating financing facilities because different businesses calls for different channels and financing. For micro and small businesses, the existing financing subsidy program (KUR, LPDB) can be continued and accompanied by Islamic-based peerto-peer lending, extending to other regions with internet access. Small and Medium Enterprises receives financing facilities through synergies between Islamic financial institutions and Indonesian waqf bodies, supported by regulations that allow 418 Indonesia Islamic Economic Masterplan 2019-2024 Agency (BPJS), and other national data providers. In parallel, the creation of a database platform where MSME businesses that are in need of funds or additional funds can be met with ZISWAF institutions that have available productive funds or accommodate productive funds. The Islamic Financial Institutions can contribute by analyzing business feasibility and distributing productive funds as business capital.
  423. No . Year Programs 2019 2020 2021 2022 2023 2024 Stakeholders Strategy 1: Educational programs for micro entrepreneurs 1. Conduct research on the shape and scope of educational programs for micro entrepreneurs 2. Synergize with stakeholders in micro business education efforts 3. Halal lifestyle education program for micro businesses 4. Islamic finance education program for micro businesses OJK, Bank Indonesia, KUKM Ministry Strategy 2: Integrating Financing Facilities for MSMEs 1. The government funding subsidy program is accompanied by Islamic financing peer-to-peer lending for micro and small businesses 2. Synergy between Islamic financial institutions supported by productive waqf is on target for small and medium enterprises 3. Facilitating capital-based financing by providing advanced technology-based marketplace stock investments (example: Blockchain) for the exit strategy of the initial investors for small and mediumsized businesses to conduct IPOs, while creating secondary markets that fulfill shariah requirements, so as to meet the halal value chain needs of SMEs shariah-based capital KUKM Ministry, OJK, Bank Indonesia, Ministry of Communication and Information, Indonesian Waqf Agency, DPR-RI, DSN-MUI, Indonesia Stock Exchange Strategy 3: MSMEs Database 1. Define and record MSME businesses with the smallest community units 2. Creating a database platform where MSME businesses that are in need of funds or additional funds can be provided by ZISWAF institutions that have available productive funds can or accommodate productive funds 3. Collaboration with Islamic financial institutions to analyze business feasibility and channel productive funds as business capital Ministry of KUKM, Ministry of Home Affairs, General Election Commission, BPJS Kesehatan, BPJS Employment, Central Bureau of Statistics, National Zakat Agency, Indonesian Waqf Agency, OJK, Bank Indonesia Indonesia Islamic Economic Masterplan 2019-2024 419 Conclusion and Recommendation 8
  424. Digital Economy Main Program Development of appropriate and up-to-date technology to improve the efficiency of halal products , for example through halal marketplace and Islamic payment systems: 1. Developing appropriate and up-to-date technology to improve the efficiency of halal products and encourage MSMEs digital transformation Increasing the consumption of domestic halal products through the digital economy can be done through the development of halal marketplaces and Islamic payment systems. The use of e-commerce and fintech is primarily aimed at facilitating small and medium scale businesses by enabling the industry to conduct online marketing. The Islamic payment systems are used to facilitate the community to use Shariah compliant fintech platforms or applications for daily transactional needs. 2. Establishing incubator facilities to facilitate the growth of startup companies that can strengthen the national halal value chain with global coverage This program aims to facilitate startups to develop their businesses so that it can grow efficiently and globally. In addition, this incubator also provide information regarding digital business models that are appropriate with Shariah to enable the startup to carry out proper digital transformation. 420 Indonesia Islamic Economic Masterplan 2019-2024 3. Integrating information system for halal products’ traceability Traceability is an aspect needed to ensure halal product components to increase market confidence in the halal certification process, especially consumer products such as food and cosmetics. Traceability is used to verify halal products, starting from the acquisition of raw material components, production processes, to logistics and product distribution that are carried out systematically. An integrated information system enables the traceability process to be carried out more easily, namely by creating a database that contains information on components and production processes as long as the Value Chain of halal products is transparently accessible. By using information systems, traceability for halal products in Indonesia is expected to be more efficient and reliable. With credible traceability, halal products from Indonesia will be able to compete better at the global level.
  425. No . Strategy/Programs/Activities Target Indicators Year 2019 2020 2021 2022 2023 2024 Stakeholders Main Program 1: Developing appropriate and up-to-date technology to improve the efficiency of halal products through halal marketplace and Islamic payment systems 1 Increase production capacity by adding capital •• To increase through the fintech platform. the awareness and use of a. The use of e-commerce and fintech is domestic aimed at facilitating small and medium halal products scale businesses by enabling the industry through the to conduct marketing online digital economy b. The use of e-commerce and fintech is intended to facilitate transactional payments with a system that is shariah compliant Main Program 2: Incubator facility to facilitate startups in Halal Value Chain 1 Publishing practical guidelines for shariah •• Acceleration compliant digital business models for startups. of the implementation a. Hold sustainable digital economy and of Inclusive shariah education and provide acceleration Digital and incubator programs for strategic Economy MSMEs. Ministry of KUMN Main Program 3: Integrating information system for traceability of halal products (especially food and cosmetics) 1 a. Traceability is used to verify halal products, starting from the acquisition of raw material components, production processes, to logistics and product distribution that are carried out systematically. By using information systems, traceability for halal products in Indonesia is expected to be more efficient and reliable. •• halal products from Indonesia will be able to compete better at the global level. Indonesia Islamic Economic Masterplan 2019-2024 421 Conclusion and Recommendation 8
  426. Indonesia Islamic Economic Masterplan Quick Wins From the main programs above , several are 5. Establishing and Activating the Islamic ascertained as quick wins to be implemented within Inclusive Financial Services Board (IIFSB) 1-2 years. As for programs that are considered based in Indonesia. important but may not be implemented in the short term, preparation can be made within 1-2 years. Below are the elements of the masterplan’s quick wins: Strengthening International Economic Cooperation through the International Halal Center. This international cooperation activity can be carried out from the initiation and preparation stages of the 1. Strengthening Legal Aspects and Coordination International Halal Center, which is targeted to be 2. National ‘Halal Lifestyle’ Campaign implemented in 2022. 3. Encouraging the Management of the National Halal Fund The table below shows the outcome targets for the programs: 4. Establishing Regional Halal Hub / Halal Center for Strengthening the Domestic Halal Industry No 1 2 Process Output Strengthening Legal Aspects and Coordination •• Revisions to the zakat and waqf laws National ‘Halal Lifestyle’ Campaign •• There is socialization and education for the literacy of halal products •• Increased consumption of domestic halal products •• Campaign for domestic halal products •• Increased the Islamic Economic Business Scale Encouraging the Management of the National Halal Fund •• The establishment of a national halal fund which aims to coordinate the funding of the halal industry and strengthen the Value Chain •• Incentive Program for local and global players to invest in supporting the development of comprehensive HVC (starting from raw materials, production, distribution and promotion) •• There is an efficient financing platform 422 •• Increased realization of zakat collection •• Increased realization of waqf collection •• There are topics regarding Halal Economy and Industry in curriculums 3 Outcome Indonesia Islamic Economic Masterplan 2019-2024 •• Topics regarding Halal Economy and Industry were adopted in the curriculum •• Increased investment funds for financing domestic halal industries
  427. 4 Establishing Regional Halal Hub / Halal Center for Strengthening the Domestic Halal Industry •• Establishment of regional halal hubs / halal centesr in accordance with the comparative advantage •• Cost efficient for production of domestic halal products •• There is a halal industrial district •• Decreasing the number of imports and increasing the number of exports of halal products •• Increasing Islamic Economic Business Scale 5 6 •• The establishment of Islamic Inclusive Financial Establishing and Service Board in Indonesia Activating the Islamic Inclusive Financial •• - There is a compilation of best practices into an Services Board (IIFSB) international standard regulation based in Indonesia •• - There is leading research in terms of Islamic social finance connectivity for future production •• Indonesia is an international reference center •• Establishment of International Halal Center in 2022 Strengthening International •• G to G cooperation for the development of halal Economic Cooperation industry through the •• Indonesian halal logos are accepted abroad International Halal Center •• Increased number of exports for halal products •• Standards and technical notes that are implemented globally •• Increased foreign investment funds for financing halal industries Below are the milestones for the Islamic Economic development: 2019 2020 2021 2022 2023 2024 Strengthening legal aspect and coordination National Campaign on “Halal Life Style” Encourage the establishment of National Halal Fund Establishment of Halal Hub to strengthen domestic halal industry Establishment and activation of Islamic Inclusive Financial Services Board that based in Indonesia Strengthening cooperation of international economy through international halal center Indonesia Islamic Economic Masterplan 2019-2024 423 Conclusion and Recommendation 8
  428. 424 Indonesia Islamic Economic Masterplan 2019-2024