Indonesia:Sharia banking to moderately grow in 2014

Bank Indonesia (BI) estimates that the sharia banking industry’s total assets will grow by almost 20 percent to reach Rp 283.57 trillion (US$23.42 billion) next year. 

It is also prepared to roll out two new regulations on business leveraging that will help the industry achieve the target.

In a seminar on sharia banking held by BI on Monday, BI Governor Agus Martowardojo expressed his optimism that sharia banking would finally account for at least 5 percent of the total national banking assets by the end of 2014. 

Currently, sharia banking accounts for 4.8 percent.

“Sharia has proven to be quite resistant to economic crisis as shown right now with its CAR [capital adequacy ratio] of 14.19 percent and gross NPF [non-performing financing] ratio of 2.96 percent. This shows that its performance has been well-maintained even though our domestic economy faced challenges,” he said in his remarks.

The central bank actually set three growth schemes for the industry; “pessimistic” with growth rate of 7.4 percent; “moderate” with 19.4 percent; and “optimistic” with 31.3 percent.

According to Edy Setiadi, BI’s outgoing sharia banking executive director, BI opted for the moderate scheme, supported by the transition of haj funds from commercial banks to sharia banks and the expected capital increase within the sharia lenders.

“They can generate funds for capital from a rights issue or they can get capital injection from shareholders,” said Edy, who would start overseeing sharia banking at the Financial Services Authority (OJK) in January.

He added that the country would see the “pessimistic” scheme realized if external pressures, such as current account and foreign exchange, continued to hamper the country’s real sector, to which sharia was closely related.

On the other hand, the improvement in the real sector and the creation of the long awaited state-owned sharia lender would support the realization of the “optimistic” scheme, Edy said.

As previously reported, the government plans to establish a new, state-owned sharia lender, with an end goal of boosting the country’s Islamic banking market.

Several options are available for its establishment, including the consolidation of existing sharia banks (Bank Syariah Mandiri, BNI Syariah, BRI Syariah) and a sharia business unit of BTN.

State-Owned Enterprises Ministry deputy for business services Gatot Trihargo, who was present during the seminar, said the ministry was still assessing all the options, without offering further details.

To assist banks in reaching the moderate target, BI will introduce two new regulations before the year-end, according to Edy. The regulations, made separately for sharia banks and sharia banking units, will enable them to immediately use the outlets of their commercial parent banks in an effort to reach a wider market.

“They will not be required to establish their own branch office in those regions. That way they will not have to increase their capital as stipulated by the current regulation,” he said.

(Jakarta Post / 17 Dec 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Libya says aims to run economy, banking system on Islamic lines

(Reuters) - Libya will transform its banking and economic system to comply fully with Islamic law that bans interest payments, the economy minister and other officials said on Monday, but they gave scant details on how the plans would be implemented.

Under Muammar Gaddafi, who was overthrown in 2011, the growth of Islamic banking was not encouraged and four state-controlled institutions dominated the relatively undeveloped financial sector of the OPEC oil producer.

Two years after Gaddafi's ouster, Prime Minister Ali Zeidan's government says it wants to attract foreign investment and develop the non-oil sector of the economy but is struggling to assert its authority against heavily-armed tribesmen and militias and parts of the country remain outside its control.

It has also been weakened by political wrangling with Islamists who dominate the parliament, the General National Congress (GNC), which strongly backs the plans to introduce Islamic law into the economy.

Economy Minister Mustafa Abu Fanas said experts would now study how best to apply Islamic Sharia law in the economy.

"Regarding a starting date, this will need studies ... to see how and when we will transform," he told reporters on the sidelines of a conference organized by his ministry to explore ways to introduce Islamic law.

"I can't give an exact start date," Fanas said.

"STRONG ECONOMY"

When asked whether banks could retain conventional business models, he said: "Many researchers say there could be a gradual transformation by the Islamic and other banks towards an Islamic system, but in the long-term it is in our interest to have it ... to build up a strong economy."

Some banking officials, technocrats and liberals privately fear a hasty transformation might add to the political turmoil in Libya, where militias use weapons seized in the 2011 uprising to lay siege to ministries or oil facilities to press their financial and political demands.

Fanas said the GNC had given the government time to ban interest payments, with the change to be in force by the start of 2015.

Salah Makhzoum, deputy head of the GNC, told the conference that Libya would be joining a growing international trend as more and more states turned to Islamic law following banking crises in the United States and Europe.

"The world is moving towards an Islamic economy," he said.

Libya has about 16 mostly conventional banks, which have few ties with the outside world, a legacy of its long isolation under Gaddafi.

As well as banning interest payments, Islamic law also forbids investment in the gambling industry and in firms producing alcoholic drinks or pornography.

Fanas said Libya had become too dependent on its oil sector and said the government wanted to boost investment to upgrade infrastructure including hospitals and universities. It is also overhauling a foreign investment law from the Gaddafi era.

(Reuters / 06 Jan 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com