Sharia Banking and the Financial Industry

The government plans to sell Rp 1 trillion (US$100.4 million) of Islamic bonds (sukuk) next month through an auction mechanism, the Finance Ministry’s debt management office stated.
The bonds auction will be held every month throughout this year, but the amount issued will likely depend on the market. In mid-August, the government will auction the sukuk at a reasonable level of Rp 1 trillion. and the auction mechanism would be more efficient than the bookbuilding method – in which an underwriter attempts to determine the amount of shares investors want and the price they are willing to pay. The government want to show the auction is more transparent.
Through the auction, the debt management office also expects to create the benchmark series of sukuk, which will be useful to determine the yield and price of Islamic bonds to be issued in the future. The government first sold Islamic bonds in August 2008, amounting to Rp 4.7 trillion. It then issued its first retail sukuk in February, with an order of Rp 5.56 trillion. The first-ever international sale of dollar-denominated sukuk was carried out in April, raising US$650 million, with a yield of 8.8 percent for the five-year Islamic bonds maturing in 2014.
The government earlier this year launched a new type of sukuk, dubbed the Indonesian Haj Funds Sukuk (SDHI), designated to tap the Haj and Ummah Trust funds that are vulnerable to embezzlement by corrupt officials of the Religious Affairs Ministry.
Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said the auction mechanism would help the government obtain a more favorable yield, which would reduce the cost of borrowing. The auction method will be more dynamic. It will create a more favorable yield for the government.

Saudi and other GCC (Gulf Cooperation Council) investors who are interested in diversifying their investment portfolios to include opportunities in the emerging markets of East Asia, especially Mainland China, now have access to an innovative multicurrency open-ended Islamic wholesale fund which will invest exclusively in a select Shariah-compliant stock universe comprising some of the most sought-after companies in China. This follows the recent launch in Kuala Lumpur in the presence of Zarinah Anwar, chairman of the Securities Commission of Malaysia, the capital markets regulator, of a pioneering Islamic investment fund by HwangDBS Investment Management Berhad and Asian Islamic Investment Management Sdn. Bhd. (AIIMAN) that is aimed at giving investors direct access to the highly restricted and lucrative China A-share market. (more…)

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PT Bank Central Asia (BCA), one of Indonesia major banks, launched on Monday a sharia-based banking unit to reach out to the country’s large Muslim population, with an ambitious target of 35 percent growth a year. BCA Syariah is targeting to have 35 percent growth, in assets, financing and third-party funds. BCA sharia unit will use BCA’s nationwide network to support the new bank’s services and if the consumers cannot find BCA Syariah branches, they still can do transactions in BCA branches.
BCA Syariah currently has 11 branches: nine branches are in Jakarta and the other two are in Surabaya, East Java. BCA Syariah expects to be able to achieve an annual growth of 35 percent both for consumers’ funds and financing. So far the bank has Rp 776 billion in total assets.
BCA acquired PT Bank IUB in October last year for about US$248.3 billion from the Tjahyadikarta family and later converted it to BCA Syariah to reach out to the country’s large Muslim population, which account for about 85 percent of the country’s total population.
Currently BCA Syariah has Rp 776 billion in assets and Rp 296 billion in working capital. It also has another Rp 230 billion in additional financing and Rp 420 billion in consumers’ funds.
Based on central bank data in March 2009, Indonesia already has seven sharia banks and 26 conventional banks with sharia units. They include PT Bank Syariah Mandiri, the largest by assets, PT Bank Syariah Muamalat Indonesia and PT Bank Syariah Mega Indonesia and PT Bank Syariah BRI, PT Bank Syariah Bukopin, PT Panin Syariah and PT Bank Victoria Syariah.
Assets held by banks complying with Islamic finance requirements forbidding interest payments rose to Rp 67.4 trillion at the end of last year from Rp 49.6 trillion at the end of 2008, amounting to between 2 and 3 percent of total bank assets.

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