Sharia Banking and the Financial Industry

Bank Indonesia (BI) will soon issue a regulation to limit the pawning of gold at sharia banks, as most of bank customers tend to use the service for speculation, the central bank’s senior executive said in Jakarta on Thursday. BI sharia banking director Mulya Siregar said that it is not appropriate for sharia banks If deposits from the public are used to fund people speculating on rising gold prices. In certain circumstances gold prices are not rising, they’re going down. Mulya said customers traditionally pawned their gold at sharia banks in the hope of securing necessary short-term financing. Now, however, many sharia lenders are making profits from customers pawning gold as an investment to seek higher returns, a practice that is a radical departure from the spirit of sharia financing, which is supposed to fund people’s immediate needs or the real economy. The price of gold at state gold miner Aneka Tambang (Antam) has dropped Rp 61,000 per gram, or 12.3 percent, in the past four months to Rp 555,500 on Thursday. Global gold prices have also fallen by about 17 percent during the same period to trade at US$1,610 per ounce. BI will limit the transaction-value per customer and determine a specific financing to value ratio to avoid speculation. The regulation would be issued later this month in the form of a circular letter to sharia banks and business units that provided gold-pawning services. The financing-to-value (FTV) ratio would be set at a maximum of 80 percent, meaning customers would have to provide gold worth 20 percent of the amount of funds they borrowed, while the value of transaction for financing would be limited to Rp 100 million per customer. BI has recently urged the four sharia banks and four sharia units to limit their gold-pawning services to those standards. Of the total 11 sharia banks and 24 sharia business units, only eight of them engage in gold-pawning.

Funding of cheap funds (savings and current accounts) and expensive funds (deposits) in BNI Syariah still predicted to grow by 30 percent. This growth will be supported from the increasing public interest in cheap funds of sharia banks. Value of funding or the Third Party Funds (TPF) in targeted next year could increase from 2 to 2.5 trillion USD. While BNI Syariah deposits as of end November 2011 reached Rp 7 trillion. Director of Business BNI Syariah, Bambang Widjanarko stated that public interest is now growing steadily, more and more interest to cheap funds. Growth funding, he added, will be supported by strong domestic economy. Europe’s debt crisis is predicted to be relatively minor in the country. In addition, the rise in Indonesia’s debt rating to be worth the investment would create stronger economic conditions. As for financing, BNI Syariah 40-50 percent growth target. Financing that has been distributed as of November 2011 has reached USD 6 trillion. Bank ready for next year will still focus on the retail sector and consumer financing. Retail and consumer finance sector will rely on two products that is housing Griya iB Hasanah Hasanah and card financing. Next year, BNI Syariah targeting can channel Griya Hasanah financing of up to Rp 3 trillion. As for the card Hasanah, BNI Syariah targeting could raise up to 150 thousand cards. Of that amount, outstanding financing is estimated to reach Rp 278 billion. While in late November 2011, the value of card transactions Hasanah has reached Rp 516 billion. In addition to these sectors, BNI Syariah will serve commercial financing with no value will be more than 20 percent of the financing portfolio. Commercial financing channeled into infrastructure sector is still dominated with a ceiling of more than Rp 10 billion. By the end of November 2011, commercial financing channeled reach USD 1 trillion.

Muamalat targeting can raise funds from share-e savings account $ 1 trillion at the end of this year. Achievements are supported by the growth of share-e gold card. Director of Compliance and Risk Management Muamalat, Andi Buchori said the growth of share-e gold has exceeded 100 thousand cards within one year. This growth increased the number of share-e card owners that have penetrated more than 1 million holders. Muamalat to increase the share of e-gold continue to increase savings by increasing services such as cooperation with the various merchants. Share of services in e-gold is currently provided by the various advantages such as providing discounts at certain restaurants. The cards also can be used for international transactions because there is a visa service. Share-e card features will be enhanced by utilizing a variety of co-operation. To increase share-e savings account, Muamalat to add to your office network next year. Targeted additional 100 branches supported by 500 Automated Teller Machine (ATM). Shopping places targeted for the addition of ATM Bank Muamalat. The addition of Muamalat network will be focused in the country. Bank Muamalat already had offices in Malaysia Kuala Lumpur but the addition of a branch office in Malaysia may not be done in the near future. It is because the performance of the transaction in Malaysia branch is not optimal. Transactions at the branch office in Malaysia are still limited. Bank Muamalat non-ringgit transactions is limited and regulation is still rigid (tight). However, there are a number of U.S. dollar transactions with a capacity large enough value in Malaysia. Muamalat asset value as of November 2011 has reached Rp 28 trillion. This number grew 46.9 percent compared to last year, while total funding has reached Rp 21.4 trillion.

Mandiri Bank is studying the micro lending, especially in agriculture. The lack of experience makes the bank conduct a study to foray into this segment. According to Credit Officer in Mandiri Bank, ccompared to plantations, aagriculture sector is a segment of a bit difficult to be financing. Unlike the plantations that already have a nucleus estate and entrepreneurs engaged in business, agriculture does not have this type of debtor. In agriculture, business forms (including employers) a lot of small and micro sector, therefore, Officer examine carefully in order to work on this segment with the maximum effort. For example, the agricultural sector in East Nusa Tenggara (NTT) and West Nusa Tenggara (NTB), has huge prospects for cultivation. It is related to agriculture for livestock food or other food crops such as corn. Other than the eastern region, such as Papua and Maluku, West Nusa Tenggara showed significant interest on micro finance. In November of this new credit in the agricultural sector reached 14 percent, of total lending in 2011. According to BI, agricultural credit banks still around eight percent. Independently recorded total credit has penetrated Rp 264 trillion or an increase of Rp 4 trillion, from the position in October, Rp 260 trillion where the micro sector, commercial and corporate became a major supporter. Mandiri bank optimistic until the end of the year total growth will penetrate 25 percent or rises above the target that only 23 percent. However, for foreign currency loans, it was accidentally put a halt to lending due to the global crisis situation uncertain. Meanwhile, for the bank’s business plan (RBB) in 2012, he said sure the bank will continue to grow above the industry average. “Several bank officers said that their banks may grow up to two percent, of the national market that grew 18 to 20 percent”.
Bank Mandiri officer said that in all probability, bank would be able to boost credit 20 to 22 percent. This figure increased from the previously mentioned prediction that in 19 percent.

Prime reverse repo auction of sharia securities was to assist in the deepening of financial markets in sharia banking industries. The auction was absorbed Rp100 billion. Director of the Directorate of Monetary Management of Bank Indonesia, Hendar said that from this auction prime interest of Islamic banks is quite good, because the bid price was greater than the ceiling price. Target of Rp100 billion from incoming bid reached Rp110 billion. However, the central bank won the auction for 100 billion from the offering. Yields are given, by 4.6% with a period of 1 month. BI deputy governor Halim Alamsyah said earlier in the reverse repo Islamic financial markets need to encourage sharia banks, especially in managing liquidity through monetary operations. Reverse repo is used to describe the occurrence of reverse repo transactions. If the sale of securities with repurchase agreements called repo transactions, then the reverse repo is the purchase of securities offered in the transaction for resale. These terms can be called a buy / sell back, because the reverse repo is a repo sale transaction when viewed from the standpoint of the buyer. In order to smooth out the plan’s central bank reverse repo Islamic Bank to revise Regulation (PBI) No.13/24/PBI/2011 about the Second Amendment to Bank Indonesia Regulation Number 10/36/PBI/2008 on Monetary Operations Sharia. This PBI was made in improving the effectiveness of monetary control and fulfillment Shariah principles in the execution of transactions, especially transactions which have the second leg. The provision is mainly in the context of improving the provision of Sharia Monetary Operations (CSO); especially Article 18 on sanctions related to the operation of monetary transaction is declared void sharia. In terms of the transaction CSO canceled, participants subject to additional sanctions. In a reverse repo, BI scheme was to repo / sell securities sharia state (SBSN) owned to the bank (first leg) with the promise of buying back at a later date (second leg) at a price that was agreed upon. If the price of first leg in December 100 and agreed a month longer to be repurchased on the second leg with a price of 100 at repo rate 4.7%. On the second leg in January SBSN price to 120, but his bank could not return to BI SBSN means the bank defaults and there was outright sale to the bank, the central bank will impose additional sanctions to the bank for the difference in price is 20.

Sukuk is not only able to manage traffic economy but also potentially as a financing instrument. In addition, sukuk also has the potential to become an instrument to manage excess liquidity mismatch. T-Bill Syariah or SPN-S who has just published in early August 2011 is now reaching the monetary area. During this monetary instrument the spirit of sukuk presence is to perform a partial migration of the monetary instruments the central bank to the Ministry of Finance. Starting last August, the government has issued securities sharia state (SBSN), or sukuk, a new type of state to respond demand the central bank to provide liquidity instruments that support the management of Islamic banks. In the same period, the government immediately issued two series in a row. SPN-S Series 03022012 issued August 4 and mature on February 3, 2012 managed to raise funds amounting to Rp570 billion. Then, NES 24022012-S series, published August 25 and will mature February 24, 2012 managed to raise funds Rp330 billion. It cannot be denied, the needs of a large market for sukuk based on the availability of monetary instruments having tenors below one year to make SPN-S has a strategic value than certificates of Bank Indonesia Sharia (SBIS) that existed before. Even more monumental when the government publishes global sukuk of U.S. $ 1 billion in mid-November 2011 occurred oversubscribed (excess supply) to 6.5 times. From the government pegged the indicative target of U.S. $ 1 billion, the amount of incoming order book reached U.S. $ 6.5 billion. The global sukuk will mature seven years with a fixed coupon of 4% using the ijara structure. Pricing 4% yield is the lowest achievement in the history of publishing SBN international capital markets and even the lowest in the global sukuk issuance of global bonds and tenured seven years by countries in Asia. In comparison, global bonds issued Bahrain which is not much different from Indonesia sukuk set yield 6.25%. This means that there is a spread of up to 225 basis points (bps). Although Bahrain has signed investment grade with a BBB rating. Indonesia, still has a rating of “junk” or below investment grade. This illustrates how the global sukuk product Indonesia as the largest Muslim country in the world with an economy that is really attractive to the market. The biggest share held by investors is 32% Asia, the Middle East 30%, Europe 18%, and U.S. 8% and 12% local. This happens because the alien does not have a huge selection of safe investments. Indonesia already has a higher position in foreign currencies by providing a lower yield than the same bond issue several years ago. Since its inaugural publication in 2008, the function of the state sukuk is still not moved far from its existence as a fiscal instrument.