Sharia Economic and Finance Development Strategies M. Anwar Bashori Head of Sharia Economic and Finance Department International Program for Islamic Economics and Finance (IPIEF) UMY, Yogyakarta 28th of December 2017
Outline 1. VUCA and the changing world... 2. Industrial Revolution v4.0 and Indonesia Sharia Economy and Finance... 3. The Strategic Framework to reach the goal... 2
the VUCA world... Digitalization also increases interconnectedness... Highly volatile market as one of the consequences of the digital technology... Industrial Revolution v4.0 The unprecedented impacts brought by digitalization... - higher productivity? - wider inequality? Uncertain world political situations... 3
Changing world... Digitalization Source: Adopted from Simio.com 1780 1870 1969 2000s 4
Digital world characteristics... In 2010 1.2 zettabytes (trillion gigabytes) is created a year, compare to 35 zettabytes in 2020 [Cisco] 500 million tweets per day, 3.5 billion google search queries per day, 205 billion emails sent per day [internetlivestats] Multimedia (Image, Audio, Video) Volume Velocity VALUE Variety Veracity Social Media Currently, there are 2.7 billion smartphones users & 20 billion network connections worldwide that will generate data at a very high rate [Ericsson] 1 in 3 business leaders don t trust the information they use to make decisions [IBM] 5
Digitalization has changed the way we live our life... Source: Bank Indonesia, Fintech Office
Shifting in financial technology innovations originator... From bank driven to costumer driven... Source: Bank Indonesia, Fintech Office 7
Industrial Revolution v 4.0 The Potentials for Indonesia Sharia Economic and Finance... benefit Dynamic Halal Supply Chain 1. Top market of halal food serving own market is necessary Indonesia to ROW Indonesia Islamic market as advantage 2. Top 10 player Islamic Finance enlarging outreach is necessary Financial Technology cost greater inequality 3. Most millennial engagement increasing online education is powerful within Indonesia Massive Open Online Courses ZISWAF as powerful solution optimizing this sector is necessary Online ZISWAF Payment benefit Source: World Economic Forum 2016 Source: Global Islamic Economy Report 2016/2017 8
Islamic Finance Opportunities with FinTech One of fintech s characteristics that in accordance with Islamic Finance principle - No Gharar : transparent, minimizing asymmetric information broader and quicker access to market and information Indonesia is among countries with competitive fintech initiatives (15 initiatives in crowdfunding, banking software, payments, P2P finance). Islamic banks can benefits from fintech: more efficient with wider and deeper (more inclusive) coverage. 14 18 Landscape of World Islamic FinTech (Fintech firms offering Sharia compliant products) 15 21 Source: IFN FINTECH, as of 20 December 2017 9
Islamic Economy and Finance initiatives... Key Success Factors: 1. Full government support. 2. National programme. 3. Special dedicated institution. 4. Focus on competitive advantage. 5. Dedicated National Strategic. London as Islamic Finance Hub of the West Dubai Vision: the Capital of Islamic Economy Highest modest clothing export to the Middle East ($28 bio) Visioning to become the main destination of Halal tourism Aiming Halal industry as key economic contributor by 2020 Visioning to be Halal Kitchen of the world Saudi 2030 Vision: the Heart of Islamic World Visioning to be Global Halal and Islamic Finance Hub by 2020 Largest supplier of halal poultry to the Middle East Largest supplier of halal beef to the Middle East 10
Where we are in the Global Halal Industries... Bangladesh INDONESIA 1. The biggest market for Halal Food. 2. Top 10 Expenditure rank for all industries, but not for Player rank. 3. The urgency for a comprehensive national strategic framework in developing Sharia Economy and Finance. Sudan 2015 2016 Source: Global Islamic Economy Indicator Report 2016/2017 and 2017/2018, recalculated 11
A Dedicated Strategy Focuses on Sharia Economy 01 Abundant natural resources as production base Halal Supply Chains for wider coverage 04 02 Demographic factor that potentially leads to biggest global halal industry markets Sharia finance specific characteristic money follow the trade 03 12
The Sharia Economic and Finance Strategic Framework Center of World Islamic Economy and Finance Achievement Targets Sharia Business Asset Growth Sharia Financing Financial Market Depth Level Level of Literation International Standing Main Indicators Annual Sharia Business Asset Growth (%) Share of Sharia Financing to Tot. Econ. Financing (%) Share of Outstanding Sharia Liquidity Market (% PDB) Literation Index International Initiations Core Strategies Sharia Economic Empowerement Sharia Financial Market Deepening Strenghtening Research Capacity & Education Main Work Programmes Halal Supply Chain Institutions Supporting Infrastructure Regulation Infrastructure Instrument Investor Based Research & Assessment Education Foundational Strategies Regional Policies National Policies International Policies Human Capital Data and Information Coordination 13
Possible transmission mechanism to strenghten stability and resilience... Developing Halal Value Chains Number of Business Domestic Supply Demand for Import Imported inflation Price Stability Price elasticity of supply Price Stability Developing Halal Value Chains Number of Business Concentration Risk Robust CAR Systemic Risk Financial sector stability Financing Intermediation Profitability 14
Collaboration is necessary... Pillar 1 Pillar 3 Kemenag Kemenko Perekonomian Pillar 1 Pillar 2 Pillar 3 Pillar 1 Pillar 2 Pillar 3 Pillar 1 Pillar 2 Pillar 3 MUI Kemenkop dan UMKM Pillar Pilar 1 Pillar Pilar 2 Pillar 3 Pillar 1 Pillar 2 Kemenkeu KNKS Pillar 1 Pillar 2 Pillar 3 Bappenas Pillar 2 Pillar 3 Pillar 1 Pillar 2 Pillar 3 Pillar 1 Pillar 2 Pillar 3 Kemendikbud Pertanian BPN ESDM Kemenpar Kemendes Pillar 1 Pillar 2 Pillar 3 Collaboration with People Association ICMI PKES Pillar 1 Pillar 2 Pillar 3 Pillar 1 Pillar 2 Pillar 3 15
How Islam ensure the economic flows... MAYSIR TAX : PBB, PKB Zakat drives wealth to flow productively ZAKAT MAAL Z Z 1 Zakat redistributes income Poor 2 WEALTH Gold, properties, etc. MONEY Rich PAD Nisab RIBA INCOME 3 G I Prohibition of maysir (gambling) Riba obstructs productive investment ISWaf 5 C Z 4 Social participation (ISWaf) for public needs P R O D U C T I O N APBD/N MARKET MARKET Y MARKET MARKET Source: Majelis Ulama Indonesia and Bank Indonesia 6 Economic activities in accordance to sharia principles in muamalah transaction C O N S U M P T I O N 16
Key messages... 1. VUCA world is the reality for everyone, not to exclude Indonesia as a country with the highest Muslim population. 2. Industrial Revolution v4.0, with its digitalization, has fundamentally altered the way we live, work, and relate to one another with unprecedented scale, scope, & complexity. 3. Islamic economic system provides mechanism to mitigate those challanges through Islamic Social Finance (ZISWaf) which guarantee economic inclusiveness and deliver economic buffer and automatic safety net into the system. 17