How creating an empowered institution will bolster Indonesia’s Islamic economy
Indonesia’s ambition to deepen its presence and lead the global Islamic economy has long been established on strategy documents, national roadmaps, and high-level vision statements. Execution, however, remains the real test.
The planned transformation of the National Committee for Sharia Economy and Finance, more commonly known as KNEKS, into Badan Ekonomi Syariah or Shariah Economy Agency is now visible on the horizon, with a draft under inter-ministerial discussion and expectations of being signed in the near term.
This shift is not new. Analysts and stakeholders have long advocated that Indonesia’s nascent Shariah governance architecture should evolve beyond a coordinating committee to an empowered institutional body with stronger legal standing. But as final legal instruments progress toward issuance, the practical implications of this transition and its stakes deserve careful examination.
KNEKS was established under Presidential Regulation No. 28 of 2020, expanding its predecessor’s mandate from a finance-only focus to encompass broader economic and financial dimensions of halal ecosystems.
Over the last several years, it has played a critical role in aligning cross-sector priorities, from halal industry development to Sharia finance expansion and MSME ecosystem support, helping build a more cohesive narrative around Indonesia’s economic Islam agenda.
Yet today’s committee remains largely coordination-oriented, with limited authority to enforce policy decisions or manage execution in a sustained and autonomous way.
This institutional limitation reflects a broader challenge in Indonesia’s governance: committees can align intentions and foster dialogue, but they are structurally constrained when it comes to execution authority, budget autonomy, and strategic oversight.
KNEKS has often had to rely on persuasion rather than authority to bridge inter-ministerial and institutional differences, slowing down implementation and weakening accountability for outcomes.
That is why the planned upgrade to a Badan Ekonomi Syariah is significant, if it is designed to empower action rather than merely rebrand the institution. The legal elevation could strengthen four strategic capacities that matter most for converting policy into impact:
- Decision authority: A badan model is expected to provide a clearer and more authoritative mechanism for resolving inter-ministerial trade-offs in policy design and execution, something that committees traditionally struggle to do. This is especially crucial for a multi-sectoral agenda such as Economic Islam, which inherently intersects finance, trade, industry, certification, and social finance domains.
- Budget control: KNEKS’ coordination has historically depended on ministries’ internal budgets and priorities. An empowered Badan Ekonomi Syariah, by contrast, could manage dedicated funds or influence budget planning more effectively, enabling sustained programs across data infrastructure, market access initiatives, capacity building, and MSME support.
- Staffing and professional capacity: Building a competitive Islamic economy requires more than technical recommendations; it requires operational talent, program managers, policy specialists, and execution units. Transitioning to a badan structure could support the retention of in-house expertise rather than episodic secondments and fragmented resourcing.
- Policy influence: A more authoritative institution can ensure policy coherence across ministries and regulators, reducing fragmented incentives and regulatory disjoints that often weaken implementation chains.
Reports suggest that the new body will have evaluation powers nearly equivalent to a coordinating ministry, even while execution remains with technical ministries.
Timing matters. Indonesia is already ranked among the top three global markets in the Islamic economy, yet its governance approach has not evolved at the same pace as its ecosystem maturity. Institutional reforms like this signal to investors, industry players, and global partners that Indonesia is serious about not just crafting strategy but also operationalizing it in ways that deliver measurable outcomes.
The implications of this shift will be felt across the entire ecosystem once the structure is formalized.
For the government and regulators, a stronger institutional backbone should reduce fragmentation and provide clearer lines of accountability. An empowered body could bridge gaps where policy intentions historically dissipated into stovepipes, enabling more agile responses to emerging opportunities and crises alike.
For the industry and investors, clarity of governance translates into confidence. An empowered Badan Ekonomi Syariah has the potential to act as a single-entry point for national priorities, helping streamline public-private partnerships, align incentives, and present a more predictable landscape for capital deployment.
For MSMEs and halal entrepreneurs, the upgrade holds the promise of more integrated support, from financing access to certification pathways and market linkages, reducing the administrative friction that many small business owners continue to face.
However, institutional upgrades always carry risks, especially in transition periods. If a badan is formalized with overlapping mandates or unclear jurisdiction, it could inadvertently become another bureaucratic layer rather than a force multiplier, precisely the outcome critics caution against. Without careful design, there is also a risk that bureaucracy grows heavier and less agile, undermining the very agility the reform seeks to achieve.
Finally, this transition matters not just for the Sharia economy, but also for Indonesia’s broader political and economic narrative. The Badan Ekonomi Syariah could become a defining institutional legacy of the Prabowo administration, signaling a shift toward governance models that prioritize execution power, cross-sector coherence, and structural modernization.
In an era where economic growth models worldwide are being rethought, shelving fragmented planning for empowered implementation.
Indonesia does not need another institution for the sake of having one. It needs an institution capable of turning ambition into compounding, measurable progress. The elevation of KNEKS into a Badan Ekonomi Syariah, if executed thoughtfully, could mark that turning point.
What remains critical now is how this opportunity is shaped, resourced, and brought to life beyond the ceremonial signing of a regulation.
Rianovel Mare is a consultant and project manager at DinarStandard
Also read: Can Indonesia’s new wealth fund lift or sink its economy?
Rianovel Mare