Indonesia is adopting innovative financial strategies rooted in religious values to achieve the Sustainable Development Goals (SDGs).

With an estimated $4.2 trillion needed to meet all 17 SDG targets, the country faces a financing gap of $1.7 trillion.

Putut Hari Satyaka, Deputy Minister for Development Financing and Investment at Indonesia’s Ministry of National Development Planning (Bappenas), highlighted the need for an integrated and transformative approach.

“We must enhance the use of public finances to be more efficient, resilient and transparent… and we need to scale up the existing innovative financing methods and explore new ones,” he told UN News.

Sharia Principles Drive Financing Innovation

Faith-based financing in Indonesia is grounded in religious principles, primarily Sharia law. With Muslims making up 85 per cent of the population, practices like zakat (mandatory almsgiving) and waqf (charitable endowments) are well established.

“What is new is the allocation of these instruments towards the SDGs,” said Satyaka.

The government has incorporated Sharia-compliant financial tools into its inclusive growth strategy.

Sharia finance is currently growing at a rate of 14 per cent annually, surpassing conventional finance growth.

Green Sukuk Leads Environmental Finance

Indonesia issued the world’s first sovereign green sukuk in 2018, raising $1.25 billion for renewable energy and climate adaptation projects.

Between 2019 and 2023, an additional $1.4 billion was raised through domestic retail green sukuk, involving individual investors in climate-related financing.

“We are also championing scaling-up green sukuk, which is a Sharia-compliant bond specifically issued to finance environmentally friendly projects,” said Satyaka.

These instruments reflect Indonesia’s commitment to a sustainable and inclusive financial ecosystem.

Unlocking the Potential of Islamic Social Finance

Indonesia’s annual zakat potential is estimated at between $18 billion and $25 billion. However, current collections remain below five per cent of that potential.

This reveals significant opportunities to strengthen the impact of Islamic social finance.

“There is a vast opportunity to strengthen social finance,” Satyaka noted, emphasizing the importance of raising awareness and ensuring public participation through a better understanding of how the funds are used.

Coordination and Public Trust Are Key

Satyaka pointed to the need for better coordination among stakeholders, especially at the subnational level.

“Overlaps are unavoidable without proper coordination,” he said, adding that there is room for improvement in scaling up faith-based financing.

He stressed the importance of building public trust. “Faith-based financing relies heavily on public confidence, both in the institutions managing the funds and in how the funds are used”.

Transparency, accountability, and consistent communication are essential to sustaining that trust.

PHOTO: FREEPIK

This article was created with AI assistance.