Boosting awareness among middle-income households to stir Islamic banking growth

In a crucial move earlier this year, Indonesia’s Financial Services Authority launched a five-year roadmap to boost sharia banking growth in Indonesia – a country inhabited by the largest Muslim population in the world. And yet, sharia banking is not as popular among consumers as it could be, in part attributed to an overall large unbanked population.

The roadmap sets out to provide an all-encompassing push to the sector, with an ambitious aim to boost the market share of Islamic banks three times, to 15% by 2023. Along with strengthening the industry with consolidation of state-owned and commercial sharia banks, the plan is to make grass-root efforts by making sharia banking products more attractive for consumers, such as by reducing fees as well as by increasing their awareness through educational programs.

National campaigns such as ‘I love sharia finance program’, inaugurated by President Jokowi is one such example, to expand the number of sharia banking customers, which now stands at about 18 million accounts, according to OJK data.

One of the highlights of the event was B. Simpel iB, a Sharia saving account for students in a bid to encourage saving at early age. MarkPlus Insight data supports the endeavour to reach out to students, as a Kataanda online survey held in August this year showed that up to 70% of the students held a conventional savings bank account. In fact, 21.6% of the students even owned a sharia savings account. On an average, sharia savings account ownership among youth aged between 15 and 34 year olds stood at 23.7%. The survey included 254 youth respondents, and 290 in total.

Further, based on SEC, the survey showed an average sharia savings account ownership of 15% among lower income households, with monthly expenses below IDR 1 million. Among the middle-come households, with monthly expenses up to 6 million, sharia account ownership stood at an average of 27%. However, average sharia deposit ownership among middle income households stood as low as 7%.

The government, with its branchless banking program and Islamic microfinance schemes, is striving hard to improve financial inclusion among lower-income Indonesian households. At the same time, middle to upper income consumers, with greater disposable incomes as well as an emerging trend for sharia-based product adoption, appear to be an attractive target segment for Islamic banking players.

For products such as credit cards, the conventional banking players are highly competitive and consumers pay greater attention towards convenience and promotional offers. However, for deposits and savings accounts, sharia banks, even the smaller players, can expect to benefit considerably with rising awareness as consumers begin to increasingly look at these products as potential secondary savings products. 

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