The Islamic Financial Services Board (IFSB) held a ‘Seminar on Enhancing Financial Inclusion through Islamic Finance’ on 31 March 2015 in Jakarta, Indonesia. The event took place on the sidelines of IFSB Annual Meetings and Side Events 2015, which was hosted by long time AFI member, Bank Indonesia. The one day agenda covered how Islamic Finance models could work in support of microfinance, SMEs, and microtakāful as well as the role of policymakers and regulators in this process.

Opening remarks were heard from H.E. Dr. Halim Alamsyah, Deputy Governor, Bank Indonesia, Mr. Jaseem Ahmed, Secretary-General, IFSB, H.E. Agus D.W. Martowardojo, Governor, Bank Indonesia, H.E. Dr. Muliaman D. Hadad, Chairman, Indonesia Financial Services Authority (OJK)and H.E. Agus D.W. Martowardojo, Governor, Bank Indonesia. All speakers emphasized financial inclusion as an important aspect of Islamic finance’s future development and highlighted how the rapid advance of digital technology has created unprecedented opportunities for Islamic financial products and outreach.

The first session of the seminar, ‘Promoting Financial Inclusion through Islamic Finance: Core Issues’ was chaired by Mr. Alfred Hannig, Executive Director, Alliance for Financial Inclusion (AFI). The discussion panel featured representatives from across Indonesia including Dr. E. Mulya Siregar, Deputy Commissioner of Banking Supervision Indonesia Financial Services Authority (OJK), Dr. Pungky P. Wibowo, Head of Electronification and Financial Inclusion Programme, Bank Indonesia Transformation Office, and Dr. Abdul Ghafar Ismail, Head, Research Division, IRTI – Islamic Development Bank Group.

The session proved to be a fascinating insight into the challenges and opportunities that financial inclusion that Islamic finance faces in the country. “Fully 80% of the Muslim population in Indonesia remains under-banked”, noted Dr. Pungky P. Wibowo during his presentation, “this represents a huge untapped resource.” The panel agreed that outreach efforts for Islamic financial products, business models that fit customers’ needs, and financial education programs are among the main challenges in Indonesia. To overcome these challenges, the panel agreed that coordination among key stakeholders, including government, regulatory and private sector leaders as well as Islamic financial institutions would be essential to the success of implementing financial inclusion action plans.

Different strategies for the promotion financial inclusion through Islamic Finance, and the support of consumer protection through financial education were debated at length.  In particular, the work of the Standard Setting Bodies (SSBs) and other relevant global bodies in financial inclusion was highlighted as potential way to ensure the stability of the Islamic financial services industry. However, the panelists cautioned that to have an impact SSBs must allow for sufficient flexibility to ensure that unique aspects of Islamic finance are recognized, respected and supported.

At the conclusion of the session Mr. Hannig emphasized that inclusive and sustainable growth starts with financial inclusion and suggested that for Islamic Finance three overarching questions remained: How do you leverage technology in a Sharia-compliant way to boost financial inclusion? What are the main, proven policy solutions that drive inclusive Islamic finance? What are concrete impediments of global standards, SSBs for the actual roll-out of Islamic finance?

Islamic Finance and its relationship with financial inclusion policy has been discussed within the AFI network for many years, and its profile continues to grow. The three questions raised by Mr. Hannig along with other global issues revolving around Islamic Finance and financial inclusion will be further addressed at this year’s AFI Global Policy Forum in Maputo, Mozambique.