Shariah Banking to Reach 5% of Market Share in Q2: Bank Indonesia
Bali. Bank Indonesia, the country’s central bank, expects the market share of Shariah banking to reach 5 percent in the second quarter of this year, its chief said on Thursday.
“Five percent of market share is expected to be reached in this quarter,” Bank Indonesia Governor Agus Martowardojo said during the opening of the 3rd Bank Indonesia International Seminar on Islamic Finance in Nusa Dua, Bali, on Thursday.
Based on the central bank’s record, the assets of Shariah banks had grown 35 percent from 2011 to 2012 to total Rp 214 trillion ($21.8 billion).
Agus said Bank Indonesia believed that progressive Shariah banking and financial development needed to be managed strategically. With the development of a blueprint, the growth of Shariah banking would be more significant, he said.
Agus said several strategies in the blueprint started with arranging proper incentive regulations and infrastructures developments. Moreover, he said, there must be infrastructure to distribute the information to the market, education and protection for consumers, and also product development to facilitate many types of transactions.
“To increase the financing contribution of Shariah banking toward the economy, it is important to develop a strong and comprehensive Shariah financial system. That includes Shariah banking, non-Shariah banking and a Shariah stock market,” Agus said.
The former finance minister added that there is a strong tie between Shariah banking, the takaful industry, or Islamic insurers, and Shariah stock markets.
Bank Indonesia Deputy Governor Halim Alamsyah previously said the financing of Shariah banking is 70 percent to 80 percent dominated by lending to micro, small and medium enterprises. He added that the financing activity of Shariah banks is relatively active with funding and saving ratios above 90 percent.
Islamic lenders comply with the Shariah law that prohibits the receipt of interest payments, by instead receiving a pre-arranged percentage of revenue to repay a loan.
Bank Indonesia is targeting an increase of as much as 58 percent this year in banking assets that comply with Islam’s ban on interest. Currently, 4.6 percent of holdings in the country are Shariah-compliant, compared with around 20 percent in Malaysia, central bank data show. An expanding Islamic banking industry supports the issuance of sukuk as it creates more demand for the debt.