continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 106
Accelerating Islamic Banking Growth in Indonesia (continued...)
However, some measures to enhance Islamic banking
profi le through acceleration of Islamic banking growth will
be more effective with regulatory support that provides
legal certainty for investment activities through Islamic
instruments. Therefore, Bank Indonesia will continuously
support ratifi cation of the Islamic banking law, tax law and
regulation on Islamic bonds (Sukuk). The enactment of
these laws would enhance legal certainty, which is expected
to improve the competitiveness of Islamic banking products
and Islamic market instruments that hitherto are troubled
by double tax imposition.
Apart from supporting the effi ciency and competitiveness
of Islamic banks, Bank Indonesia will complete and reaffi rm
related regulations on risk management and evaluation
of the soundness of Islamic banks, evaluation of asset
quality and contracts of fund collection and distribution
by considering prudent principles of bank management
and Islamic principles. With this, it is expected that the
development of Islamic banking industry will be much
better.
Acceleration Program 2007-08
The development of the Islamic banking system from time
to time seems to show good performance. There has been
improvement in some Islamic banks followed by impressive
and high-quality growth of business volume. With all
advantages attached to Islamic banking, all parties involved
certainly have to make a concerted effort in order for Islamic
banks to grow signifi cantly.
The market share of Islamic banks over national banks is
still small, only 1.5% with total assets amounting to IDR25.6
trillion (US$2.77 million) (as at October 2006). The number
of Islamic banks so far comprising three Islamic commercial
banks, 19 Shariah units of Islamic commercial banks and
105 BPRS (Islamic rural banks) that covers 600 offi ce
networks are insuffi cient compared to potential market and
existing current opportunities.
An analysis of research preferences shows high public
awareness of the existence of fi nancial industry and Islamic
banks. The growth of Islamic banking internationally is in
a rapid phase so it provides opportunities as fi nancing
resources for the development of Indonesian economy
in general and the growth of Islamic fi nancial industry
in Indonesia in particular. The existence of voluntary
sector funds (either resulting from business of banks or
from third party funds) is a potential avenue for Islamic
banks to channel it to related parties. This fact certainly
will contribute to value-added on the existence of Islamic
banking industry when Islamic banks become effectively
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involved in the linkage program and function as funds
distributor to SME development.
Afterwards, the share of Islamic banks will increase in the
national banks and it will contribute positively to support the
development of qualifi ed national economic growth (quality
of growth) through the achievement of social, material and
spiritual (falah) objectives based on the principle of falah
which advocates justice, balance and public benefi t.
In order to enhance the role of Islamic banks, this calls for
an acceleration program that involves all components of
stakeholders and positioning of Islamic banks not only as
complementary but also as national assets. During 2007-
08, it is expected that the portion of Islamic banks can be
raised to 5% by the end of 2008 by maintaining prudent
principles and Shariah compliance.
With reference to systematic policy and strategic initiatives
in the blueprint of national Islamic banking development,
the acceleration program in 2007-08 will be focused more
on the quantitative target achievement through policy
packages and initiatives that will contribute to signifi cant
growth within a short period. The effort to push for faster
development from the supply and demand side in turn
will demand the commitment of and synergic cooperation
from all stakeholders of Islamic banks, including the
government.
Projected growth
Taking into account the result of assessment on the
fundamental conditions of the Islamic banking industry,
assumptions such as there would be several new banks
established in various forms (BUS, UUS or BPRS),
endorsement of Islamic banking, tax and Islamic bond
laws, as well as required policy response during 2008,
the projection of Islamic banking development for 2008
basically will be the same as that for 2006, which calculated
5% share of Islamic banking.
With the implementation of consistent acceleration
program and support from the stakeholders of Islamic
banks, national Islamic banking growth can be pushed
much faster. Thus, the expected achievement of market
share 5% in 2008 is plausible.
Ali Sakti is a bank researcher and Nasirwan Ilyas is a senior bank
researcher with the Islamic banking directorate at the Central
Bank of Indonesia. They can be contacted via email at a_sakti@
bi.go.id and nasirwan@bi.go.id respectively.