Launch Partners

Launch Partners

Country Analysis: Indonesia 

Key highlights 

  • Central banks worldwide halt interest rate hikes due to concerns of sluggish growth, relieving some pressure on the rupiah. 
  • Market capitalization increased by 23% (US$748 billion) in 2023. 
  • IFN Investor database reports US$145.1 million (6.59%) increase in assets under management for Q1 2024. 


Indonesia is the largest ASEAN economy and is poised to be a leading emerging economy over the next decade, with S&P projecting its GDP to grow to US$4.1 trillion by 2035 from US$1.3 trillion in 2022. Private consumption was the main growth driver for the Republic’s economy, commanding about 53% of total GDP and expanding 5.1% year-on-year (y-o-y) in Q3 2023; Indonesia’s GDP is estimated to have increased about 5% y-o-y, and analysts are predicting a similar momentum this year, supported by private consumption and fixed investment.

The world’s largest Muslim population welcomed a new president this year, Prabowo Subianto, who has committed to pursuing improving investment attractiveness. With its new administrative capital on Borneo Island set to be inaugurated come the 17th August this year to mark its renewed vision, the country is promoting growth toward sectors which require better minerals reprocessing and is building infrastructure for such purpose.  

However, concerns remain as Bank Central Asia, the largest private bank in Indonesia, reported that the government failed to achieve its deficit target in 2023, which would have provided more fiscal spending to boost the economy. As a result, Ciptadana, a financial service provider and asset manager, projected an increase in government expenditures in 2024. Consequently, tax revenues are expected to climb with the increase of fiscal stimulus and better projected growth.   

This comes against the backdrop of 2024, which has seen most central banks worldwide halt interest rate hikes due to concerns of sluggish growth, relieving some pressure on the rupiah. With ASEAN nations adopting less hawkish monetary policies, foreign exchange rates still pose a big challenge for the central bank of Indonesia, Bank Indonesia (BI). The Indonesian government actively intervenes in the foreign exchange market to minimize its impact on the rupiah and maintain stability; this measure however has been costly to BI’s foreign reserves and investors are reallocating their money elsewhere to seek better returns. 

Indonesia continues to enjoy high commodity trading prices, better than that of pre-pandemic levels. However, the main importer of these commodities, China, is shifting focus toward manufacturing. This points the recovery trend of Indonesia to muddy waters, which questions the sustainability of a commodity-dependent economic revival, in conjunction with worsening terms of trade. 

Lastly, Ciptadana reported private consumption continues to serve as the country’s backbone throughout 2023 and into 2024. Private consumption is poised to grow at 5.3% y-o-y. International trade is also expected to improve in 2024, albeit with lower commodity prices such as coal and palm oil and poorer exchange rates, which changes the net effect it has on the balance of payment. 

Regulatory framework 

Indonesia has a relatively robust regulatory environment for Islamic finance. Governed by Otoritas Jasa Keuangan (OJK), the regulator has issued policies covering Shariah banking, insurance and investments.

Potentially the most pressing imminent regulatory requirement is for conventional insurers to spin off their Shariah business by 2026.

In 2019, the National Committee for Islamic Economy and Finance released the 2019–24 Shariah Economy Master Plan to bolster the country’s Islamic finance industry and Halal economy through, among others, developing its banking sector, capital markets, non-bank Islamic finance sector and social funds. The following year, OJK released its 2020–25 Shariah Banking Development Roadmap.

Capital market 

In recent years, the Indonesia Stock Exchange has witnessed a steady increase. Annual market capitalization has seen a consistent rise, averaging a 12% growth since 2015, owing to efforts to develop the domestic capital markets including Sukuk and bonds as well as stocks to reduce reliance on foreign investment. Notably, there was a surge of 23% in market cap in the year 2023, hitting an all-time high of US$748 billion. This was highly supported by two significant IPOs (Amman Mineral Internasional and Barito Renewables).

Indonesia has an impressive Islamic capital market track record. It is one of the largest manufacturers of Sukuk globally, thanks to its sovereign issuances, and has performed better than its global peers at involving the retail market in participating in Islamic investments through both retail Sukuk offerings and Islamic stock markets.

Asset management 

As at the end of Q1 2024, Indonesia is the home to 172 Islamic mutual funds, with 65 being equity funds and 105 heavily invested in the money market, Sukuk, fixed income or a combination of the three asset classes, according to the IFN Investor Fund Database. Over the same period, Islamic fund assets under management grew by 6.59% or US$145.1 million, compared with its neighbor Malaysia which increased by 2.56%.


Indonesia seeks to become a global Halal economic center, creating vast investment opportunities. The deputy governor of Bank Indonesia, Juda Agung, anticipates a growth of between 4.7% and 5.5% y-o-y for the Shariah economy and finance in 2024. This expansion is expected to be driven by the projected 10–12% y-o-y increase in Islamic finance provided by Islamic banks.

This report was produced by Elliot Yip and Aravinth Rajendran, financial data analysts at IFN Investor.


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