Indonesia Retains Spot as Third Largest Islamic Economy Worldwide

Indonesia has cemented its status as a powerhouse in the global Islamic economy, maintaining its third-place ranking in the prestigious State of the Global Islamic Economy (SGIE) 2024-2025 report. This achievement marks a significant milestone in the nation’s decade-long journey to become a leader in Sharia-compliant economic development, rising steadily from its initial 10th and 11th positions when the index was first introduced in 2014-2015.

A Decade of Strategic Growth in Islamic Economics

The latest report from DinarStandard, a leading research and advisory firm specializing in Islamic markets, reveals Indonesia’s remarkable transformation into one of the world’s top three Islamic economies. Reem El Shafaki, a partner at DinarStandard, commended Indonesia’s consistent progress during the global launch event in Jakarta, noting the country’s comprehensive approach to developing its halal economic ecosystem.

Indonesia’s ascent has been particularly impressive when viewed across the ten-year span of the SGIE reports. After hovering around 10th and 11th positions in the early years, the country made its first major leap to fifth place in the 2019-2020 report. This was followed by two consecutive years at fourth position before finally breaking into the top three in last year’s report and maintaining that standing in the current edition.

Sectoral Strengths Driving Indonesia’s Success

The SGIE report evaluates national performance across seven key sectors of the Islamic economy, and Indonesia has demonstrated particular strength in several areas that reflect its unique economic and cultural advantages.

In the modest fashion sector, Indonesia now stands as the undisputed global leader. This dominance stems from a vibrant domestic industry that combines traditional craftsmanship with contemporary design, supported by a strong manufacturing base and growing international demand for Indonesian modest wear. Major brands like Dian Pelangi and Zaskia Sungkar have gained international recognition, while smaller designers benefit from government-supported incubator programs.

The nation’s Muslim-friendly tourism sector has similarly excelled, securing second place globally. Indonesia has strategically developed its halal tourism infrastructure, with destinations like Lombok and West Nusa Tenggara receiving special certification as Muslim-friendly travel hubs. The country now boasts over 2,000 halal-certified hotels and restaurants, along with prayer facilities at all major tourist sites.

Indonesia’s pharmaceutical sector also claimed second place, reflecting significant investments in halal-certified medicines and healthcare products. Local companies like Kalbe Farma and Kimia Farma have pioneered halal pharmaceutical production, while the government has implemented strict halal certification requirements for all medicinal products.

Other notable sector rankings include fourth place in halal food production, where Indonesia has made particular strides in reducing import dependence through domestic capacity building. The Islamic finance sector, while ranked sixth, shows promising growth potential with the recent introduction of innovative fintech solutions and sukuk (Islamic bond) offerings.

Investment Boom Fuels Economic Transformation

One of the most striking aspects of Indonesia’s Islamic economic success has been its ability to attract substantial investment. In 2023 alone, the country completed 40 Islamic economy-related transactions worth $1.6 billion, surpassing all other member nations of the Organization of Islamic Cooperation (OIC).

This investment surge has been particularly evident in halal food production, where large-scale government-backed projects have significantly boosted local manufacturing capabilities. The construction of integrated halal industrial parks, such as the Modern Cikande Industrial Estate in Banten, has created end-to-end production ecosystems that combine agricultural inputs, processing facilities, and distribution networks.

The investment landscape has also seen growing participation from venture capital firms and private equity investors, particularly in halal tech startups. Companies like Blibli (e-commerce) and HijUp (modest fashion platform) have secured significant funding rounds, demonstrating investor confidence in Indonesia’s digital halal economy.

Government Policies and Institutional Support

Indonesia’s rise in the Islamic economy rankings can be largely attributed to comprehensive government policies and institutional support structures implemented over the past decade. The establishment of the Halal Product Assurance Agency (BPJPH) in 2019 created a centralized body for halal certification, streamlining what was previously a fragmented system.

The National Committee for Sharia Economics and Finance (KNEKS), chaired directly by the President, has coordinated cross-ministerial efforts to develop the Islamic economy. This high-level coordination has enabled synchronized policy implementation across various sectors, from financial services to halal industrial development.

Former Vice President Ma’ruf Amin, who attended the SGIE report launch, expressed confidence that Indonesia could claim the top position by 2028 or 2029. This optimism stems from several upcoming initiatives, including the expansion of halal industrial zones and new regulations to accelerate Islamic fintech innovation.

Challenges on the Path to Number One

Despite its impressive progress, Indonesia faces several challenges in its quest to become the world’s top Islamic economy. The Islamic finance sector, while growing, still lags behind Malaysia and Gulf states in terms of market penetration and product sophistication. Current efforts to develop more innovative Islamic banking products and expand financial inclusion could help close this gap.

Another key challenge lies in halal certification for small and medium enterprises (SMEs). While large corporations can easily absorb certification costs, many smaller businesses struggle with the expense and complexity of the process. The government has begun addressing this through subsidized certification programs and simplified procedures for micro-enterprises.

Global branding and marketing present another area for improvement. While Indonesia produces high-quality halal products across various sectors, many lack strong international recognition compared to competitors from Malaysia or the Middle East. Enhanced trade promotion and participation in international halal expos could help raise Indonesia’s profile.

Future Outlook and Emerging Opportunities

Looking ahead, several trends suggest continued growth potential for Indonesia’s Islamic economy. The digital transformation of halal commerce, particularly through social commerce and live streaming platforms, is creating new avenues for product distribution. Islamic fintech innovations like sharia-compliant buy-now-pay-later services are gaining traction among younger consumers.

The sustainable and ethical dimensions of the halal economy are also gaining prominence, aligning with global environmental, social, and governance (ESG) trends. Indonesian companies that can combine halal certification with strong sustainability credentials may find particular success in international markets.

As the global Islamic economy continues its rapid expansion—projected to exceed $3 trillion in the coming years—Indonesia’s strategic position, large domestic market, and consistent policy support make it well-positioned for further advancement. With continued focus on innovation, SME support, and international engagement, the nation’s ambition to claim the top spot appears increasingly attainable.