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.
Britain's Bank of London and the Middle East (BLME) is aiming to grow its assets by 15% this year following the significant rise in Islamic finance activity in the Gulf region.
The London-based Shariah compliant bank is targeting more business from the Middle East, in its capital markets and wealth management divisions, with the opening of a Dubai office later in 2013.
Its new office will be housed in the Dubai International Financial Centre.
The total assets of BLME that was set up six years ago and owned primarily by Kuwaiti shareholders, increased to more than £1bn ($1.52bn, €1.18bn) at the end of 2012.
The UK's largest standalone Islamic bank plans to attract more business from neighbouring countries such as Qatar and Saudi Arabia with its presence in the United Arab Emirates, BLME's CEO Humphrey Percy told Reuters in an interview.
As Turkey seeks to boost political and commercial ties with the Gulf and diversify its borrowing, one of the Muslim world’s most dynamic economies is developing an Islamic finance industry which could rival current volumes in Malaysia - the world’s top sukuk issuer - within a decade.
The new rules, which were sent to Turkish Prime Minister Recep Tayyip Erdoğan’s office for approval this week, will allow Turkish corporates and banks, as well as the Treasury, to issue the world’s most widely used types of sukuk, giving them access to a wider pool of investors via a global market estimated at more than $100 billion.
“Islamic finance is just like halal food, there may be two reasons to choose it,” said Mustafa Cetin, head of financial institutions at the Turkish arm of Bahrain-based Islamic lender Al Baraka.
“Either you prefer interest-free products or you find the cost of borrowing, the taste, attractive.”
Turkey’s islamic banks are known locally as ‘participation banks’ in part reflecting public sensitivities. But nervousness about Islamic finance has eased in recent years, helped by growth of the sector in Western economies. Just over a year after its debut dollar-denominated sukuk issue, Turkey’s Capital Markets Authority (SPK) is finalising regulations on five new types of Islamic bond as the country aims to become a major issuer of Islamic debt.
Turkey aims to turn its economic and cultural capital Istanbul into a major financial centre. It foresees $350 billion of infrastructure spending on the project, with Islamic finance expected to be one of the major sources.
Turkey has begun to open the doors to giving new banking licenses after the 2001 banking crisis, with no exception for interest-free Islamic banks, called participation banks.
As of now four banks have operated in the participation banking industry: Bank Asya, Türkiye Finans, Albaraka Türk and Kuveyt Türk. They constitute 5.3 percent of the Turkish banking industry. The state-run banks, Ziraat Bank and Halkbank, will also establish new participation banks.
Borsa Istanbul (BIST) aims to become one of the most prominent centers that work in accordance with the principles of participation banking in the Middle East, Europe and Africa, BIST head İbrahim Turan said on May 31.
Turan stated that they had introduced their studies with the Islamic Cooperation Organization during the meeting of the Islamic Financial Services Board (IFSB) held in Malaysia, noting that Malaysia was the most important center in East Asia in the non-interest financing field.
“We want to make Istanbul the most important center [in the non-interest financing field] of Wester and Eastern Europe, the Middle East and North Africa. We had talks about this issue in the framework of cooperation,” he said. Turan reminded that Capital Markets Board (SPK) had prepared a regulation on non-interest financing tools. SPK is finalizing regulations on five new types of Islamic bond, as the country aims to become a major issuer of Islamic debt. The new rules, which were sent to Prime Minister’s office for approval this week, will allow Turkish corporate and banks, as well as the Treasury, to issue the world’s most widely used types of sukuk, giving them access to a wider pool of investors via a global market estimated at more than $100 billion.
Turan said they had started an initiative to allow companies from 60 countries, chosen according to BIST’s vision of “Istanbul International Finance Center,” to sell their capital market tools in Istanbul and also to buy and sale of tools which are already sold.
Turan also said they had held talks to develop cooperation with Singapore Bourse, which is one of Asia’s most important centers in capital markets, during his visit to the country.
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