One of the puzzles of Islamic finance is how Indonesia, the world’s most populous Muslim nation, has been so utterly left behind in its development. Nearby Malaysia has evolved the most sophisticated regulatory environment for Islamic finance anywhere in the world and, after building an admirable domestic base, has now opened its doors to foreign entrants. Several Gulf states, notably Bahrain, have built centres of excellence around Shariah-compliant finance; and even less-developed nations such as Pakistan are making up for a slow start and witnessing a boom in this growing area.
So where is Indonesia? According to Bank Indonesia, the country’s Islamic banks have assets of Rp42 trillion ($4.5 billion), which is barely 2% of...
