Muhammadiyah, an Indonesian Islamic NGO, has completed the conversion of Bank Matahari Artadaya into Bank Syariah Matahari (BSM), now its only Islamic economic bank in Jakarta, as
part of efforts to align its financial operations with its religious mandate. BSM may be positioned to possibly become Muhammadiyah’s first Islamic commercial bank. RADHIKA DAS finds out.
Indonesia’s Financial Services Authority, or Otoritas Jasa Keuangan (OJK), approved the conversion of Bank
Matahari Artadaya into BSM in June 2025, granting it a license to operate as a Shariah economic bank – a financial institution that operates with a narrower scope than commercial banks, primarily focusing on savings, term deposits and financing for MSMEs, without offering direct giro or full foreign exchange services.
BSM’s conversion checks off a longstanding requirement under Muhammadiyah’s 2006 Fatwa prohibiting Riba and mandating Shariah compliance across all its financial institutions. The bank was first established in 1989, prior to this Fatwa and remained conventional due to delays under previous management, which lacked expertise in Islamic finance. Current leadership has prioritized this conversion to ensure the NGO’s financial
activities fully align with its religious principles.
Bank Matahari Artadaya was the one conventional bank under Muhammadiyah that had not yet been converted to Islamic. “This is the first Islamic economic bank under Muhammadiyah to convert from conventional to Islamic and the only Islamic economic bank under Muhammadiyah in the Jabodetabek region,” Dr Muhammad Iman Mihajat, the CEO of BSM told IFN.
While BSM currently operates as a Shariah economic bank, Muhammadiyah intends to gradually develop it into a full-fledged Islamic commercial bank. This would mark the NGO’s first such move, however, there is no official
timeline for this transformation. BSM’s unique position within Muhammadiyah’s network of 17-18 Islamic economic banks across Indonesia is that it is the only Muhammadiyah Islamic economic bank located in Jakarta, which is home to ‘big’ hospitals, universities, clinics and schools, possibly
giving it access to a larger market and strategic partnerships.
“Each Islamic economic bank will serve as a central pillar that can offer strategic direction, shared resources and innovation to uplift the overall performance and outreach of Muhammadiyah’s financial institutions,” Dr Iman explained. The group is assessing how best to coordinate these units to align with its broader Islamic finance vision. Consolidation of these banks may be explored over a five- to 10-year period.
The Shariah bank’s focus will be on serving Muhammadiyah’s extensive ecosystem including education, healthcare, cooperatives, MSMEs and underserved Muslim communities in both urban and rural areas. BSM’s “entry into Islamic banking is part of Muhammadiyah’s broader mission to reduce financial inequality,” said Dr
Iman.
BSM begins operations with IDR10.5 billion (US$647,005) in committed capital, with a phased capital injection plan to reach IDR100 billion (US$6.16 million), in line with regulatory requirements. Digital innovation will also be a part of BSM’s growth strategy. The bank is developing mobile banking solutions to improve access to Shariah compliant services, particularly for micro and small enterprises that go unbanked. The bank aims to offer a digital-first, ethical banking model for Indonesia’s excluded and underbanked populations. Prior to this shift, in July 2024, IFN clarified Muhammadiyah’s interest in acquiring KB Bank Syariah. Dr Iman confirmed this had been explored but ultimately dropped. “However, after careful consideration of multiple factors such as institutional alignment, regulatory processes and long-term sustainability, the organization decided to pursue the organic transformation of an existing Muhammadiyah-owned institution,” he noted. While future mergers and acquisitions remain a possibility, Muhammadiyah’s current focus is on establishing a strong operational and capital foundation for BSM.
These moves align with ongoing regulatory efforts to expand Indonesia’s Islamic banking sector, with OJK continuing to push for the spin-off of Islamic banking units into standalone commercial banks to develop the sector.
