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

Islamic finance needs to venture into corporate banking

Mustafa Adil, presenting his keynote presentation titled The State of the Islamic Economy

Mustafa Adil, presenting his keynote presentation titled The State of the Islamic Economy

Koo Jin Shen

THE Islamic finance industry needs to offer more than retail based products by expanding its current portfolio into the corporate sector.

“Islamic banking and finance had been a predominantly retail-driven industry,” said Mustafa Adil, head of research and product development for Islamic finance at global intelligence firm Thomson Reuters.

In a recent interview with The Brunei Times, Mustafa said Islamic finance is a relatively-new segment of the banking and finance industry. But over the years, it had gain a lot of traction among consumers, with Islamic banks usually offering retail products.

“It has helped developed financial inclusion in the sense that a lot of consumers had come from outside the banking space into this segment,” he said.

But Mustafa said Islamic finance has barely touched on corporate banking. This is because corporations distinguish less between Islamic and non-Islamic finance than retail customers.

He said most Islamic banks focus on taking deposits and giving financing to consumers. But Mustafa said some funds are now going to the corporate side which help grow small and medium enterprises.

Mustafa said there’s also a need to align Islamic finance with other sectors of the Islamic economy.

He said Islamic finance had came into an established industry where some activities are not syariah-compliant.

“It had been a harder sell for people to accept that something may or may not be syariah-compliant and this other alternative (Islamic finance) should be. But halal food for example was simply standardising existing centuries old practice,” he said.

The Brunei Times
Monday, June 8, 2015

RPT-Indonesia, Turkey, IDB to form sharia infrastructure megabank

AIIB founding members
Hidayat Setiaji

INDONESIA is prepared to contribute at least $300 million to a new Islamic infrastructure bank that the Southeast Asian nation will co-found with Turkey and a Saudi-based multilateral lender, the country’s finance minister said on Tuesday.

The idea for the proposed bank comes as Asian nations seek to boost cross-border lending for infrastructure, with China taking the lead with its Asian Infrastructure Investment Bank (AIIB).

Improving Indonesia’s creaking infrastructure is one of President Joko Widodo’s main priorities. In his first budget in February, Widodo allocated 290 trillion rupiah ($21.96 billion) for capital spending.

“It will be like an infrastructure bank, but with a sharia approach, with the republic of Indonesia, Turkey and the Islamic Development Bank (IDB) as founding members,” Indonesia’s Finance Minister Bambang Brodjonegoro told reporters.

Sumantri Brodjonegoro

Sumantri Brodjonegoro

Both Indonesia and Turkey have pledged to put at least $300 million into the bank. It was not immediately clear how much the IDB would contribute.

Turkey’s Deputy Prime Minister Ali Babacan said the bank would be a “megabank”, the country’s state Anadolu Agency reported last week.

Ali Babacan

Ali Babacan

Indonesia has said it needs $455 billion during Widodo’s five-year term to upgrade dilapidated facilities, and multilateral lenders have offered to provide more funds to the country.

On a visit to Jakarta last week, World Bank President Jim Yong Kim offered up to $12 billion in new financing to 2019.

Indonesia also plans to form a separate state-owned infrastructure bank, and it wants to play a big role at the AIIB, from which the country is expected to receive major funds.

The AIIB is also discussing with the IDB the use of Islamic financing as part of its lending tools, the IDB’s president Ahmad Mohamed Ali told Reuters.

($1 = 13,205.0000 rupiah) (Additional reporting by Bernardo Vizcaino; Writing by Gayatri Suroyo; Editing by Nicholas Owen and Shri Navaratnam)

Tue, May 26, 2015

aiib ind tur

The homework of Indonesia sharia economics

econ syar gerak

Satria Kartika Yudha/Niken Paramita Wulandari/c37


THE DEVELOPMENT of the Islamic financial industry in Indonesia has entered its third decade. There are many developments that has occurred during 30 years.

Vice President Jusuf Kalla (JK) asked Islamic economic institutions to be more competitive in order to compete with conventional banks. To win the competition, according to JK, Islamic economics should be inexpensive and fast. This value will attract businessmen, not only the Muslim one but also non-Muslims.

Vice President Jusuf Kalla

Vice President Jusuf Kalla”

How Islamic financial system becomes more competitive into a system that not only talk halal and haram,” said JK, during the third Congress of the Association of Indonesian Sharia Economics Expert in Dhanapala Building, Ministry of Finance, on Thursday, April 30.

In the same event, Minister of Finance, Bambang Brodjonegoro, said that the first decade was marked by the establishment of the first Sharia bank, Bank Muamalat in 1991. Then followed by Takaful two years later.

Then, added Bambang, entering the second decade in 2000, Indonesia Stock Exchange launched the Jakarta Islamic Index as a guide for capital market investors in selecting a portfolio of stocks that were not contrary to Sharia principles.

Minister of Finance Bambang Brodjonegoro

Minister of Finance Bambang Brodjonegoro

“The decade also marked by the first sharia bond issuance by corporations,” said Bambang.

Still in the second decade precisely in 2008, the government passed Law no. 19 of 2008 on the state sharia securities (SBSN) which is followed by the issuance of sukuk.

In the third decade, Bambang said, Indonesia ranked third worldwide in terms of number of institutional sharia finance industry. But in terms of total assets, Indonesia ranks ninth with total assets of 34.63 billion USD.

“This is equivalent to 2.1 percent of the world market share,” he said.

Bank Syariah Mandiri president director Agus Sudiarto mentioned that the aggregate growth of sharia banks in Indonesia from 2000 to 2014 exceeded conventional banks. It can be seen from several indicators.

Agus said, the growth of the total assets of sharia banks, if calculated based on the compound annual growth rate (CAGR), was 43.16 percent. This growth outperformed conventional banks by 12.4 percent.

In terms of financing, said Agus, 43 percent of this growth is higher than conventional banks by 19 percent.

ekon syar book

Despite the higher aggregate growth, total assets of all new sharia banks reach 222 trillion IDR. Total assets are still lower when compared to total assets of large banks in Indonesia individually.

Though growing rapidly, said Agus, unfortunately, sharia banking industry experienced a slowdown in the last three years. One factor that inhibits the growth is the lack of human resources.

Agus said, the average need of HR in sharia banking industry per year is approximately 5,900 people. While graduates of colleges or universities with courses related to sharia banking are only 1,500 people.

“In terms of quantity we already seen that sharia banking is a shortage of human resources. This must be addressed in order to accelerate the sharia banking industry in Indonesia,” said Agus.

Agus hopes the government could take the initiative to expand further Islamic financial institute as an educational institution to promote sharia banking industry in Indonesia.

Agus added, the problem is not only related to the quantity of human resources., but also the quality. He said, not all sharia banking courses that exist today, according to the quality requirements in the industry. Finally, all that happened was just the transfer of personnel from one sharia bank to another sharia bank.


Friday, 01 May 2015

Islamic financial literacy will protect public from scams


Izzan Kassim

ISLAMIC financial literacy should be made accessible to everyone to protect members of the public from financial scams and fraud.

In a speech delivered at yesterday’s opening of the Thematic Workshop on Islamic Financial Literacy, Deputy Minister of Education Dato Seri Setia Hj Yusoff Hj Ismail said a lot of people lost their income owing to various financial and investment scams. He said financial education can help in solving this problem.

Dato Seri Setia Hj Yusoff Hj Ismail

Dato Seri Setia Hj Yusoff Hj Ismail

Dato Hj Yusoff said that the change in the socio-economic landscape as well as advances in technology is part of the reason why individuals need to equip themselves and their families with the knowledge and skills to manage their personal finance.

“As Muslims, we should be literate regarding Islamic finance,” he said.

The deputy minister added that several commitments carried out by Muslims such as almsgiving (Zakat), commerce and Syariah-compliant investment and the handling of orphans’ assets should follow the exact guidelines set by the religion.

But he said members of the public should be also be made aware and taught the concepts of Islamic finance.

“Detailed and accurate information on (Islamic finance) should be shared,” he said.

It is vital to provide a guideline for the public, said the deputy minister, adding that this will allow them to make correct decisions and choices on financial matters.

He stressed that savings, financial planning and investments should all comply with Syariah.

As a result, the public’s belief and trust on how Syariah-compliant financial institutions are should be strengthened, with more efforts put in to improve the quality and sharing of information. He added that education on Islamic financial literacy should be expanded at the school level.

“Syllabuses that are related to Islamic financial literacy should be merged more aggressively into the curriculum,” he said.

Dato Hj Yusoff said that this would require teachers to be well-versed on the subject. He suggested that it could also be implemented through a fitting co-curriculum activity.

The Brunei Times
Thursday, February 26, 2015

‘Use caution with Islamic financial institutions’: Professor

finance-talk-poster-1Nabilah Haris

CONSUMERS should be careful and knowledgeable when dealing with financial institutions even though they are Islamic in name, said a scholar from Universiti Islam Sultan Sharif Ali.

Professor Dr Mahmood Mohamed Sanusi, a professor from the Faculty of Business and Management Sciences at the Islamic university, gave the advice during a talk entitled “Does the Islamic Financial Institutions Customer Need Consumer Protection?”

“The protection of consumers is an important matter that should be taken seriously,” said Professor Dr Mahmood, adding that the practices of some Islamic financial institutions should be taken into consideration. The situation is not unique to Brunei, he said, but throughout the region.

Professor Dr Mahmood Mohamed Sanusi

Professor Dr Mahmood Mohamed Sanusi

He said that while various aspects of financial institutions, including Islamic ones, are questionable, the financial products they offer should provide some insight into whether their practices are Syariah compliant.

Claims that their practices are according to fatwas should not satisfy the consumer and may only be a form of marketing to draw consumers into practices that may lack Syariah compliance.

“The contract which spells out the relationship between the consumer and the bank will show how genuine their business is,” said Professor Dr Mahmood, adding that defects with some Islamic banks are in their legal documentation whereby they “do not distribute justice between parties”.

He said legal documentation must be Syariah compliant so that the terms of the contract and the price will be fair and equitable to consumers.

During the course of the talk, he also shared complaints from both Malaysia and Brunei that involved consumers having to deal with issues of Islamic financial institutions in civil courts.

In conclusion, Professor Dr Mahmood said Syariah scholars face a major challenge of having the Islamic financial industry accept that not all forms of conventional instruments such as options, futures and derivatives can be made Syariah compliant despite being practiced in the financial market.

“Once conformity to the Syariah is achieved, the legality of an Islamic bank’s financial products will not be a contentious issue nor be doubted by Muslims,” he said.

The talk was held yesterday at UNISSA’s Jubilee Hall.

Professor Dr Mahmood has published works in reputable academic journals, including the International Journal of Financial Services, Arab Law Quarterly, Journal of Money Laundering Control (Cambridge University) and IIUM Law Journal.

The Brunei Times
Sunday, February 1, 2015

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