BI prepares four steps to develop sharia economy

bi bank syariah



BANK Indonesia (BI) is preparing four steps to expedite the development of sharia economy, hoping the public will find its products increasingly attractive.

In this way, it will contribute towards better performance of the national economy.

“We must take collective steps which support the sharia economy andfinance to develop into a global pillar,” Bank Indonesia Deputy Governor Perry Warjiyo told a seminar on “Sharia financial education for entrepreneurs” here on Wednesday (28/10/15).

The seminar is part of a series of activities under the Indonesia Sharia Economic Festival (ISEF) 2015 being held in the East Java provincial capital of Surabaya from October 27 to November 1, 2015.

Perry Warjiyo

                            Perry Warjiyo

Warjiyo said the steps included preparing regulations and policies supporting sharia finance and economy and improving bankers’ and business agents’ knowledge about sharia economy and finance.

“We need pro-sharia financial economy regulations and education to close the knowledge gap about sharia economy. Let us close the gap together to develop the sharia economy,” he said.

The other step is preparing the models of sharia economic and financialfinancing and realizing various international initiatives such as alms and benefaction core principles which will be launched this year, he said.

The models of community-based sharia economic and financialbusinesses are appropriate models to develop micro, small and mediumbusinesses, including thwarting efforts by foreign micro, small and medium businesses to penetrate, due to the ASEAN liberal market, he said.

“This is the new trend of business models which are fit not only for the sharia economy but also others in Indonesia,” he said.


Thursday, 29 October 2015

bi b syarie

Indonesia prays for Islamic banking boom


Sam Reeves


INDONESIAN teacher Nina Ramadhaniah hopes for “blessings from Allah” by opening a sharia bank account — the sort of pious customer the world’s most-populous Muslim-majority country is praying for as it launches an Islamic finance drive.

Indonesia, Southeast Asia’s biggest economy, has a Muslim population of around 225 million but this huge number of faithful has not translated into success for sharia banks, institutions required to do business in line with Islamic principles.

Now regulators have launched a plan aimed at growing the sector, which currently accounts for less than five percent of banking assets, compared to a quarter in neighbouring, more developed Muslim-majority Malaysia and around half in Saudi Arabia.

Authorities believe it is a good moment, with many Indonesians getting wealthier after years of strong economic growth and an increasing trend towards piety across broad sections of society.

Many of those without bank accounts, estimated at about 40 percent of the population, are soon expected to open one.

“The situation is an opportunity for the Islamic banking business to get bigger,” said Nasirwan Ilyas, a senior official from the Islamic banking division of the Financial Services Authority (OJK).

The OJK is spearheading the drive, and unveiled a five-year roadmap earlier this year that included plans to educate the public about sharia lenders and the establishment of an Islamic finance committee to better manage the sector.

‘Interest is haram’

Key features of sharia banking include the prohibition of interest on loans or customer deposits, and a ban on investing in “non-Islamic” businesses, such as those involving pork or alcohol.

For teacher Ramadhaniah, who has an account with Indonesia’s biggest Islamic lender, Bank Syariah Mandiri, the ban on interest is a key attraction.

“Charging interest is haram (against Islam), ill-gotten gains that will not bring me any blessings from Allah,” the 44-year-old told AFP. “I don’t want to live in sin.”

Sharia accounts often work on a “profit-and-loss sharing” model, meaning customers get a windfall when the bank does well but can lose out when it does badly.

There are obvious disadvantages. Sharia lenders generally offer lower returns on investments and their modest size often means they provide fewer services than larger, conventional peers — many shops are not equipped to accept their debit cards.

Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 percent a year between 2008 and 2012, according to the OJK.

The growth came after laws were changed to make it easier to establish an Islamic bank, and there are now a plethora of standalone sharia lenders, Islamic banking units attached to conventional banks, and smaller Islamic financial institutions in the countryside.

Growth in the sector has lost steam due to a broader slowdown in the economy, which is expanding at six-year lows — giving authorities another reason to launch their drive.

Islamic mega-bank

Central to the overhaul is a plan to set up a National Islamic Finance Committee this year, to oversee the sector by bringing together representatives from different government agencies and act as a contact point for potential foreign investors.

Currently responsibility for the sector is spread around different bodies, such as the OJK, the central bank and the finance ministry, according to the OJK’s Ilyas.

It is modelled after similar bodies in other countries, such as the International Islamic Financial Centre in Malaysia, where the sector is already far more developed as the government started supporting it some years ago.

In addition to the OJK roadmap, the government has announced plans to merge the Islamic banking subsidiaries of four state-owned banks to create an Islamic mega-bank, which should be able to provide better services than the current Islamic lenders.

While observers have broadly welcomed the plans, they concede that many difficulties remain.

Khalid Howladar, Moody’s global head of Islamic finance, said it would be “quite a challenge” to grow the sector to a substantial level.

“The market is growing faster than conventional but from a very low base,” he said, adding Islamic banks in Indonesia did not offer “substantive competition” to their non-sharia peers.

But for Ramadhaniah and a growing army of devout Indonesians with new-found spending power, Islamic banks remain the only choice.

“I really don’t care that I’m not earning anything or getting lower returns on my investments,” she said. “I can live in peace.”

AFP/Busines Insider

Sunday, Sep. 27, 2015

bank muamalat

Indonesia regulator may ease foreign ownership rules for Islamic banks

Eveline Danubrata and Bernardo Vizcaino

INDONESIA’s financial regulator said it may ease foreign ownership restrictions for Islamic banks – a move that could attract Middle Eastern lenders such as Bahrain’s Al Baraka Banking Group.

Under a 2012 rule introduced amid calls by nationalist politicians to limit foreign ownership, an overseas bank can only own up to 40 percent of an Indonesian lender.

Nelson Tampubolon, banking supervisor at Indonesia Financial Services Authority, said the regulator is looking at relaxing overseas ownership requirements in cases where a foreign bank plans to convert an Indonesian commercial lender to an Islamic one.

But certain conditions would apply, such as whether Indonesia already has a market access agreement with the foreign country and whether the foreign bank can bring in the expertise that local lenders lack, Tampubolon told Reuters in a text message.

His comments follow remarks earlier this month that China Construction Bank Corp would be permitted to own more than 40 percent of a merged Indonesian bank should it buy stakes in two separate lenders and combine them into a single entity.

Middle Eastern banks have shown “pretty strong” interest to expand in the world’s most populous Muslim country, Tampubolon added.

A relaxation of the rule would help Bahrain-based Al Baraka with its plans to enter Indonesia’s Islamic banking sector by as early as 2016, Chief Executive Adnan Ahmed Yousif told Reuters by email.

Al Baraka opened a representative office in Jakarta in 2008, which it has used to explore potential acquisition targets.

Last year Dubai Islamic Bank said it was seeking to raise its holding in PT Bank Panin Syariah Tbk to 40 percent from 24.9 percent. (Reporting by Eveline Danubrata and Bernardo Vizcaino; Editing by Edwina Gibbs)

Indonesia looks to new roadmap for Islamic finance boost

Nicholas Owen, Fransiska Nangoy and Klara Virencia

INDONESIA’S capital market regulator has published a five-year strategy for the Islamic finance industry, its latest effort to shake the sector out of its niche status in the world’s most populous Muslim country.

The roadmap from Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK), charts an extensive agenda ranging from reducing fees on sharia-compliant products to developing education and training programmes.

It aims to encourage an Islamic finance market that lags behind Indonesia’s peers: Islamic banks hold roughly 5 percent of total banking assets in the country, compared with more than 20 percent for neighbour Malaysia and well behind the 50 percent in Saudi Arabia.

Authorities want Indonesia’s Islamic banks to hold at least 15 percent of the market by 2023, an ambitious target considering the sector’s growth is stalling.

“Its difficult to see how they would achieve that target without substantial reforms within the Islamic banking space,” said Khalid Howladar, Moody’s global head of Islamic finance.

“Overall globally, its still a positive growth story. Indonesia in particular has a lot of potential, but it’s had a lot of potential for a long time.”

Part of the problem lies with low financial literacy among the public, with Islamic finance further behind, according to a nationwide survey commissioned by the OJK.

The roadmap would expand on education and promotion activities, while developing rules and industry certification for religious experts that endorse Islamic financial products.

Rules on rights and obligations regarding underlying assets of Islamic bonds (sukuk) would be developed this year, while a law on Islamic securities would be drafted by 2017.

The OJK will also speed up the registration of Islamic securities and relax limits on holdings by Islamic mutual funds.

It will also publish rules on sharia-compliant versions of margin trading, repurchase agreements and hedging.

Coordination among the various government bodies is also set to increase, including the central bank and the ministry for national development planning.

With the exception of Malaysia, a lack of coordination in most majority-Muslim countries has been a persistent drag on the industry’s development, Howladar said.

“If these new developments represent a change in that thinking, then we think that would be positive for the sector.”

In November, the OJK signed an agreement with the country’s national sharia board to strengthen oversight of the Islamic finance industry, supporting a centralised approach being favoured elsewhere around the globe. (Reporting by Nicholas Owen, Fransiska Nangoy and Klara Virencia; Writing by Bernardo Vizcaino; Editing by Eric Meijer)

10 June 2015

ojk con

Indonesia revises Islamic banking rules as industry growth slides

ibBernardo Vizcaino and Gayatri Suroyo

INDONESIA’s regulator has issued revised Islamic banking rules covering asset quality and capital adequacy to help clarify market practices, while industry growth has now dropped to single-digits.

Authorities want to encourage a wider product range to help Islamic banks grab a bigger share of the Indonesian market, a sector which remains behind more mature markets in Malaysia and the Middle East.

Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK), announced the move on Wednesday as part of a package of 20 new rules, which range from corporate governance to microfinance.

Indonesia has the world’s biggest Muslim population but its Islamic finance market only holds a 4.5 percent of total banking assets in the country as of September, the latest central bank data showed.

Authorities want Islamic banks to hold at least 15 percent of the market by 2023, but the sector’s growth is stalling.

As of September, there were 11 full-fledged Islamic banks and 23 Islamic business units in Indonesia with combined assets of 244 trillion rupiah ($20.1 billion), representing a 7.2 percent growth year-on-year.

This remains above the 3.7 percent growth of conventional banks, although the OJK had projected Islamic banking assets would grow by 14.4 percent in 2014 under a moderate scenario, down from 24.2 percent in 2013 and 34.1 percent in 2012.


ib regUnder the revised rules, Islamic banks must hold increasing levels of capital depending on their risk profile, with regulators outlining four such categories.

The previous capital adequacy requirement for Islamic banks was 8 percent, while the highest risk profile would require such banks to hold as much as 14 percent.

This requirements applies only to full-fledged Islamic banks and not to the Islamic units of conventional banks.

The rules also detail the types of capital-boosting debt that Islamic banks can issue, which must include a loss absorption feature that allows regulators to convert such debt into equity if a lender faces insolvency.

Asset quality requirements address profit-sharing financing such as mudaraba and musharaka, common equity-like contracts used in Islamic finance.

Banks must include the proposed profit sharing ratio in the contract, which must be calculated based on a feasibility analysis of a customer’s business and cash flows.

The rules also address issues such as the separation of Islamic units from conventional parents and guidance for conventional firms that want to become sharia-compliant ones.

Last week, the OJK signed an agreement with the country’s national sharia board to strengthen oversight of the Islamic finance industry, supporting a centralised approach being favoured elsewhere around the globe. (1 US dollar = 12,165.0000 rupiah)

Thu, Nov 20, 2014

bi ojk

BI empowers Islamic boarding school (pesantren) to achieve financial inclusion

SONY DSCSatya Festiani

BANK Indonesia (BI) empowers Indonesian Islamic boarding school, or known as pesantren, to achieve financial inclusion.

“We increase the capability through technical meeting and assistance,” Governor of BI Agus Martowardojo said during National Seminar on Empowering Pesantren in Surabaya, Wednesday, Nov 5. The assistance includes recording and managing their money. BI also educates the santri on financial access.

The financial education aims to elevate their knowledge on financial system. The santri is expected to transmit the knowledge to people so that more people enter the financial system, especially banking account. Increasing people’s investment in financial system can boost the economic growth.

Financial inclusion means that more people having access to financial system, including banking and insurance. The better financial inclusion also means economic growth will be more sustainable.

Agus Martowardoyo

Agus Martowardoyo

In Indonesia, only 48 percent of households have access to finance, based on BI survey. Martowardojo said that pesantren could increase the financial inclusion. According to composition of the country’s religion based population, 82 percent of Indonesians are Muslims. Its growing populations make pesantren develop accordingly.

Based on the data from Ministry of Religious Affairs, Indonesia had only 9.388 pesantrens with 1.771.000 students, or known as santris, in 1997. As of now, the number grows significantly. The country has 28.000 pesantren with 4 million students,

The Minister of Religious Affairs Lukman Hakim Saifuddin said the cooperation was in accordance with the mission of pesantren, which is developing people’s welfare. The cooperation with Indonesian central bank also helps pesantren deter its challenges. One of them is on managing the asset of pesantren.

“Many pesantrens are overwhelming. People trust them with wakaf. Pesantren has to use it for the benefit of people,” he said. Lukman said, BI played the role on assisting santri to manage the money and asset from wakaf.

Thu, 6 November 2014

BI sets East Java as sharia area

Women walk toward the entrance of Indonesia's central bank building in JakartaC54/Satya Festiani

BANK Indonesia (BI) sets East Java as pilot project for sharia area. Having strong pesantren culture, the province meets several requirements in order to implement Islamic economy.

Head of BI Office Regional Representative IV Dwi Pranoto said, the central bank engaged in developing East Java as the biggest sharia economic region. “Our mission is to carry out the economy based on sharia,” Pranoto said last weekend.

BI will hold Sharia Economic Festival (ISEF) 2014 from November 5-9 to accelerate the Indonesian sharia economy and finance. The event will be attended by 57 Central Banks and Monetary Authorities of Organization of the Islamic Conference (OIC) Member Countries.

The event consists of series of programs, which are Financial Services Authority (OJK) International Seminar entitled An Integrated Development of Islamic Finance Toward Financial Stability and Sustainable Economic Development, National Talk on Empowering Islamic Boarding Schools to Answer Global Challenges and Drive the Sharia Economy and Finance, OIC Experts Workshop and Meeting of Central Banks and Monetary Authorities of OIC Member Countries, National Seminar entitled Indonesia – A New Direction of the World’s Sharia Finance and National Seminar on the Role of Islamic Financial Inclusion in Driving Economic Development and Poverty Alleviation.

Tue, 3 November 2014