Sharia Banking and the Financial Industry

The country’s major Islamic lender PT Bank Muamalat is studying the possibility of issuing dollar-denominated sukuk, or Islamic bonds, next year to help expand its credit business. Bank Muamalat as the nation’s first full-fledged Shariah bank, which is partly owned by Islamic Development Bank, had postponed its planned Rp 1 trillion ($111 million) rights issue to June after foreign investors expressed interest in buying a stake in the bank. The share sale had been planned for May. Several firms, including property companies PT Lippo Karawaci and PT Bakrieland Development, this year expressed interest in raising debt denominated in foreign currencies, capitalizing on strong gains in the rupiah and low interest rates offshore. Company director also stated that investor from investment bank in Bahrain eager to buy sukuk issue denominated in foreign currency.

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The government sold Rp 4.25 trillion (US$467.5 million) worth of sukuk (Islamic bonds) Monday  (May1 7, 2010) in a private placement method to the Religious-Affairs-Ministry-managed Haj fund, the Finance Ministry said in a statement. The sale is one part of the government’s servicing of the national budget deficit, estimated to reach Rp 133.7 trillion or 2.1 percent of the gross domestic product, based on the 2010 state budget revision.
The placement was a follow-up of the memorandum of understanding signed between the Religious Affairs Ministry and the Finance Ministry on April 22 last year. The sukuk have a 7.55 percent coupon per year, and will mature on May 17, 2013. They cannot be traded. Assuming that 700,000 potential pilgrims are on waiting list, there will be about Rp 16 trillion deposited in banks, yielding massive interest, he said. Speculations were rife the fund may be used to finance the Haj pilgrimages of ministry officials. Religious Affairs Minister Suryadharma Ali said the interest would be used for passport and visa services, Haj accommodation and transportation and the embarkation and food needs of pilgrims. He said he would follow-up the issue within the month, and that it would take two years to improve such weaknesses.

At least 98 property developers from 108 selected projects and nine leading sharia banks are slated to take part in a property exhibition, the Indonesian Real Estate Developers Association (REI) Expo 2010 in Hall A of the Jakarta Covention Centre (JCC). Supported by Bank Indonesia, iB sharia bank will occupy “House of iB” at the REI Expo 2010. Sharia banks participating in this year’s REI Expo are BNI Syariah, BRI Syariah, Bank Muamalat Indonesia, Bank Syariah Mandiri, CIMB Niaga Syariah, Permata Syariah, Bank Syariah Bukopin, BTN Syariah and HSBC Amanah. In this expo public can learn about iB Home Financing (KPR) extended by sharia banks offfering various benefits, such as fixed  installments, financing terms of up to 15 years and penalty exemption for early KPR settlement. To speed up the application process,”House of iB” is also supported by Bank Indonesia, which provides Sistem Informasi debitur (SID) or debtor Information System for members of the public who are eager to learn about their credit rating. Visitors to the REI Expo 2010 will also have access to various other iB producers in “House of ib’ such as iB Savings, iB Deposit, ib Wealth Management, iB Credit card and iB Multi Years. They can also look forward to other educative programs at “House of iB”. Sharia banking is becoming increasingly populer in Indonesia but many Indonesians remain unaware of the benefits it offers.

Indonesia is seeking to further develop its Islamic banking sector, looking to tap into the growing market for sharia-compliant financial instruments, though it still has some way to go before being able to match the major players in the segment. In late January, Bank Indonesia officials laid out their plans and projections for the coming year, including a four-point program to strengthen the country’s banking sector and promote growth across the economy.

Along with initiatives to enhance banking resilience, reinforce the supervisory regime, build a better platform for bank intermediation through the improvement of regulation, develop and strengthen rural banks’ roles in micro-finance, there was also the key objective of raising the profile of Islamic banking in the economy. Currently, Islamic banking assets represent only a fraction of the total within the country’s banking sector, with the central bank estimating the year-end figure to be around US$7.6 billion, equivalent to between 2 and 3 percent of total bank assets. While asset levels in the sharia-compliant banking institutions remain low, there has been greater movement in another segment.

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