Indonesia Sharia Stock Index (ISSI)

The Indonesia Sharia Stock Index (ISSI) is the benchmark index that tracks the performance of Shariacompliant equities listed on the Indonesia Stock Exchange (IDX). Launched in 2010, the ISSI provides investors with a transparent, rulesbased framework for identifying securities that meet Islamic principles, while also offering a reliable gauge of the broader shariacompliant market in Indonesia.

Why a Sharia Index Matters

Indonesia is the worlds most populous Muslimmajority country, and its financial system is increasingly catering to the growing demand for halal investment products. A dedicated sharia index helps:

• Align investment with faith: Ensures that capital is allocated to companies whose activities, financing structures, and profitdistribution practices conform to Islamic law.
• Enhance market transparency: Provides a single, objective reference point for investors, asset managers, and regulators.
• Facilitate product development: Enables the creation of indexlinked mutual funds, ETFs, and sukuk (Islamic bond) structures.

Methodology at a Glance

The ISSI follows a systematic screening process based on the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) standards and the guidance of the Indonesia Ulema Council (MUI). The methodology consists of two main steps:

1. BusinessActivity Screening

Companies are excluded if they are primarily involved in activities considered haram (forbidden), such as:

• Conventional banking and insurance
• Alcohol production, distribution, or sales
• Pornography and gambling
• Nonhalal food processing (e.g., pork, gelatin)
• Entertainment that contravenes Islamic values

2. FinancialRatio Screening

For firms that pass the businessactivity test, the following financial ratios are applied:

Companies that meet both criteria are eligible for inclusion. The index is reviewed semiannually, with rebalancing in March and September to reflect changes in market capitalization and compliance status.

Composition and Sector Breakdown

As of the latest review (2024), the ISSI comprises 78 companies representing roughly 45% of the total market capitalization of all listed equities on the IDX. The sector distribution reflects Indonesias economic structure while respecting sharia constraints:

• Consumer Goods & Services: Food & beverage (halal), textiles, cosmetics, and retail.
• Industrial & Manufacturing: Construction materials, automotive components, and machinery.
• Utilities & Infrastructure: Electricity generation (excluding coalintensive assets), water, and telecommunications.
• Financial Services: Islamic banking and takaful (Islamic insurance) providers.
• Technology & Media: Software, digital services, and halalcompliant media platforms.

Performance Snapshot

Over the past decade the ISSI has delivered a compound annual growth rate (CAGR) of roughly 78%, outpacing many conventional regional benchmarks. The indexs resilience is often credited to:

• Strong domestic consumption driven by a young, growing middle class.
• Government policies that promote halal certification and encourage investment in halal sectors.
• Relative insulation from global interestrate volatility due to its limited exposure to conventional financial services.

Investment Vehicles Linked to ISSI

Institutional and retail investors can gain exposure to the ISSI through several products:

• ISSIBased Mutual Funds: Actively managed funds that aim to replicate or beat the indexs return while staying within sharia compliance.
• ExchangeTraded Funds (ETFs): Passive funds that track the ISSI, offering lowcost, intraday tradable access.
• Separately Managed Accounts (SMAs): Custom portfolios built on the ISSI methodology for highnetworth clients.
• Sukuk Issuances: Debtlike instruments whose cash flows are linked to the performance of the ISSI companies.

Regulatory Environment

The Indonesian Financial Services Authority (OJK) and the IDX jointly oversee the integrity of sharia indices. In 2018, the OJK introduced the Sharia Capital Market Regulation, which reinforced disclosure requirements for issuers and required periodic audits of sharia compliance by independent Sharia Supervisory Boards (SSBs). This regulatory framework enhances investor confidence and aligns Indonesia with global best practices.

Challenges and Outlook

While the ISSI has shown robust growth, it faces several challenges that could shape its future trajectory:

• Liquidity Constraints: Some constituents have thin trading volumes, which can increase price volatility.
• Sector Concentration: Overweighting in consumer goods may expose the index to sectorspecific shocks.
• Global Sharia Standards: Harmonising Indonesias criteria with international standards (e.g., MSCI Islamic Index) remains an ongoing effort.

Despite these hurdles, the outlook remains positive. The governments Halal Economy roadmap aims to increase the contribution of halal sectors to GDP from 4.6% in 2022 to 10% by 2032. This strategic push is expected to broaden the universe of shariacompliant companies, improve market depth, and attract foreign Islamic investors seeking exposure to Southeast Asia.

How to Get Started

If you are considering adding the ISSI to your investment mix, follow these steps:

1. Define Your Objectives: Determine whether you seek longterm capital growth, income generation, or a blend of both.
2. Choose the Right Product: Decide between a mutual fund, ETF, or direct equity approach based on cost, liquidity, and personal expertise.
3. Assess Risk Tolerance: Review the indexs sector weights and historical volatility to gauge alignment with your risk profile.
4. Consult a Sharia Advisor: Ensure your chosen vehicle follows the latest MUI fatwas and AAOIFI standards.
5. Monitor Performance: Track the ISSIs quarterly reports and stay informed about any rebalancing changes.

Key Takeaways

• The ISSI is Indonesias leading benchmark for halal equities, representing a substantial portion of the countrys market cap.
• Its rigorous twostep screeningbusiness activity and financial ratiosensures compliance with Islamic law.
• Performance over the last decade has been strong, driven by domestic consumption and supportive government policies.
• Multiple investment vehicles, from mutual funds to ETFs, make accessing the index straightforward for both retail and institutional investors.
• Continued regulatory support and the Halal Economy initiative will likely expand the indexs depth and liquidity, enhancing its attractiveness on the global stage.

Sources: Indonesia Stock Exchange (IDX), OJK Sharia Capital Market Regulation 2018, Indonesia Ulema Council (MUI) fatwas, AAOIFI standards, market data as of June2026.