Strengthening the Islamic Capital Market as an Investment Instrument Based on Islamic Principles in Indonesia

Abstract

The Islamic capital market is an important component of Indonesia’s Islamic financial system, providing investment and financing instruments that are expected to comply with Islamic principles. This article examines the development of the Islamic capital market in Indonesia, the principles that govern its operation, and the opportunities and challenges involved in strengthening it as a credible investment alternative. It employs a qualitative library research design and a descriptive content-analysis approach. The review draws on 22 scholarly references listed in the manuscript, published between 2022 and 2026, alongside relevant discussions of Islamic stocks, sukuk, Islamic mutual funds, financial literacy, investor behaviour, digitalisation, and sharia compliance. The literature points to three interconnected findings. First, the availability and accessibility of Islamic capital-market instruments have expanded, but access alone does not ensure sound investment decisions. Second, sharia financial literacy, risk perception, religiosity, and herding behaviour are associated with investment interest and decision-making, particularly among younger investors. Third, confidence in the market depends not only on product innovation and digital access but also on transparent information and consistent implementation of sharia standards. The article contributes an integrated synthesis linking market development, investor capability, and institutional assurance. It recommends coordinated investor education, clearer risk communication, responsible digital outreach, product innovation, and sustained sharia-compliance oversight.