Eid Clothes in the Frame of Sharia Economics

Together with Muslim-friendly tourism, agriculture, halal food and beverages, the HVC sector last year grew 3.93 percent year on year (yoy), which was slightly restrained compared to last year previously (5.53 percent yoy).

Also read: After Four Years of Pandemic, the Indonesian Muslim Fashion Business is Back in Spirit

In contrast to the composition of Muslim-friendly tourism which tends to increase due to the easing of post-pandemic activities, Muslim fashion shows a downward trend from 2022 to the third quarter of 2023. The Muslim fashion sector last year contracted by minus 1.69 percent yoy, in contrast to the achievement in 2022 which was able to grow 9.34 percent yoy.

The reasons include weakening demand from trading partner countries due to increasing tensions, global uncertainty, and geopolitical fragmentation. The same thing is shown from Muslim fashion transactions in the domestic market. Throughout 2023, the trade value is considered less strong for the Indonesian market.

2022 is the peak of Muslim fashion transactions with a transaction value of around IDR 10 trillion, this value will continue to shrink until 2023, which is only around IDR 2 trillion. If demand from outside is still not strong, domestic consumption during Eid is expected to be able to improve one of HVC's leading sectors.

The belief is justified by referring to data from Bank Indonesia on the demand side, that domestic consumers are confident that the economy will remain strong, both now and for the next six months. Last February, the Consumer Confidence Index (IKK) remained in the optimistic zone (above 100), at 123.1, although it was slightly held back compared to January, which was 125.

From one of its constituent components, namely the purchase of durable goods (furniture, fashion, etc.), consumers remained optimistic at 112.1, an increase compared to last month's 110.6. We can at least use this as a premise for domestic consumption, especially when HBKN will strengthen.

2022 will be the peak of Muslim fashion transactions with a transaction value of around IDR 10 trillion.

Policy makers should pay attention to HVC given that the entire leading HVC sector contributes 23 percent to the national economy. This figure has grown compared to the previous year's 21.9 percent.

This growth rate means that the Islamic financial economy can become a new source of economic growth and at the same time can become the focus of accelerating growth when other components of gross domestic product (GDP) are stalled.

Muslim "fashion" goes up a notch

Who would have thought that the development of Muslim fashion would actually have a correlation with the mandate given to BI, namely controlling inflation and stability of the financial system. From here, an ecosystem was designed from upstream to downstream sectors with an effort to have an impact on economic growth and resilience, starting from providing locally sourced raw materials, quality and production curation supported by designer certification, access to local and foreign markets. , up to intermediation of funding sources.

Efforts to improve the root cause are being carried out through mapping the local potential of textile producers who are capable of producing goods that are almost similar to those produced by China, India, or Turkey (import substitution efforts). To improve the quality of finished products, selection, curation, and mentoring are undertaken in collaboration with the Creative Industry Association for Sharia (IKRA).

During 2023, in packaging branded by the Indonesia International Modest Fashion Festival, this breakthrough will be able to push Muslim fashion into 16 fashion exhibitions throughout the world. The selection of products in the high-end and premium categories sourced from Indonesian waste is a source of confidence that Indonesian Muslim fashion will become a world reference.

Also read: Muslim Fashion Has No Borders

Intermediation of funding sources continues to be encouraged so that the Muslim fashion industry develops in a sustainable manner, one of which is by BI making policies that are pro-sharia financial economics. For your information only, sharia financing continues its high growth of 15.89 percent (yoy) in February 2024, greater than general credit growth of 11.28 percent (yoy).

In terms of the HVC sector, financing for Muslim fashion is growing well, although not as fast as other sectors (halal tourism, food and agriculture). Likewise with the health level of sharia financing or non-performing financing (NPF), where the Muslim fashion sector is still outside the safe level (threshold 5 percent) due to weak domestic demand and global.

To overcome this, especially for the Muslim MSME fashion sector, BI issued improvements to the macroprudential inclusive financing ratio (RPIM) policy for sharia banking, sharia and conventional business units. The goal is one, namely to encourage financing or banking credit for this sector, as well as supporting national economic recovery.

The realization of RPIM 2023 reached 33.55 percent, an increase compared to 2022 which was 32.74 percent. The higher the ratio, the more it reflects the seriousness of the banking industry in providing financing for MSMEs.

Apart from the RPIM policy, banks which are considered to play an active role in channeling financing or credit to sectors with multiple effects or MSMEs also receive incentives through the macroprudential liquidity incentive (KLM) policy scheme. Data as of December 2023 states that KLM's realization has reached IDR 163 trillion, an increase compared to October 2023 of IDR 137 trillion.

It is ironic that basic religious needs, such as prayer garments, Ihram clothing, prayer rugs, and prayer beads, are still being sourced from China and other OIC countries.

This value, of course, can add to the liquidity of the banking sector through relaxation of the minimum mandatory reserve requirement (GWM) at BI. It is hoped that this relaxation will provide additional liquidity that will be channeled back into the banking sector in the form of loans or financing.

The domestic Muslim fashion industry should be king in its own country. Considering that Indonesia is a country with the largest Muslim population, the fulfillment of Muslim fashion should also be domestically produced.

It would be ironic if basic needs for worship, such as mukenas, ihram cloth, prayer mats, and prayer beads, are still supplied from China and other OIC countries. Policy support and other concrete actions across sectors are needed to improve the upstream and downstream of the domestic Muslim fashion industry in order to, at least, reduce dependence on imports.

Wahyu Nugroho, Bank Indonesia Communications Department Analyst