Sharia industry needs supports, association says

Sharia industry needs supports, association says

Although Indonesia has experienced rapid growth in its sharia-based banking and financing industry, its overall market share remains fairly low.

From October last year, the total asset of sharia banks in Indonesia was 1.77 percent, or Rp 33 trillion (US$3.51 billion), of the country’s total banking assets.

This was despite a rapidly increasing number of sharia bank offices, which grew by 14.3 percent throughout the year — higher than conventional bank offices, which grew by 9.5 percent, said the Indonesian Sharia Banks Association (Asbisindo).

Speaking over the weekend at a finance event, Asbisindo chairman A. Riawan Amin said the growth was expected to further increase, eventually achieving a 5 percent market share by the end of this year, in line with the government’s target.

“The sharia banking industry is still quite small, but all stakeholders, especially the central bank, have committed to give continuous support to boost it,” Riawan said.

He was speaking at a five-day sharia economic festival, which included seminars, workshops and bazaars at the Jakarta Convention Center, Central Jakarta, which ended Sunday.

The central bank organized the event which was aimed to help speed up the growth of the industry.

Another move taken by the central bank to help develop the industry is called office channeling, Riawan said, which allows a sharia bank to be owned by a conventional bank.

For example, Bank Mandiri, the country’s largest bank by assets, owns Bank Syariah Mandiri, which in November 2007 had a 36.06 percent market share in sharia banking assets.

Bank Indonesia deputy governor Siti Ch Fadjrijah said while still holding a less-than-significant market share, sharia banking had developed rapidly.

The growth would be faster still if the country managed to lure cash-abundant Middle East investors, who are now looking to invest in countries where a sharia banking and financing system has been put in place, she said.

But for this to be realized, Siti said the country needed a sharia banking law, a draft of which was scheduled to be submitted to the House of Representatives this week.

Some House members said they would deliberate the draft together with the sukuk bill, which has now been with the House for discussion for some two years.

The sukuk bill originally aimed to provide a legal basis for the issuance of sharia bonds.

Anis Baridwan, head of the accounting and openness bureau at the Financial Institutions and Capital Market Supervisory Agency (Bapepam-LK), said through the sharia banking and sukuk laws, the country could become an Islamic finance hub in Asia, attracting investors from Europe, Middle East and the United States.

The central bank has said it would push the amendment of some related laws later this year to help accelerate the growth of sharia banking system in the country.