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   US-based international credit-rating agency Standard & Poor’s estimates that the global potential for Islamic financial serv- ices could be close to USd 4 trillion, and Ib- rahim sees Indonesia as especially situated for the economic expansion of Sharia bank- ing. “Indonesia has the largest Muslim pop- ulation in the world, which is approximately 240 million,” says Ibrahim “So with a huge Muslim population in Indonesia, there is a great potential demand for Islamic finance.”
Citing the World Economic Forum Re- port 2011, Ibrahim notes that with regard to competitiveness, Indonesia has moved up in rank to no. 44, which represents an improvement of 10 places. This he says makes the country an attractive destination for Foreign direct Investments (FdI). Added to this is strong government encourage- ment of FdI into such economic sectors as mining, oil and gas, shipping and telecom- munications. “This commitment is reflected in The Master Plan for The Acceleration and Expansion of Indonesia’s Economic Devel- opment 2011-2025,” notes Ibrahim, adding that out of a total investment figure of IDR 4.012 trillion in six economic corridors over the period from 2011 until 2025, IdR 1.786 trillion is targeted towards infrastructure in- vestments.
Effect of Global Crisis
Since Sharia banking in Indonesia is dominated by domestic consumption and real economic activities and has very lim- ited exposure to financing of international trade and investment activities, the global financial crisis has had no negative impact, says Ibrahim. Two thirds of Sharia banking
activities is linked to the consumer market. “Businesses are mainly concentrated on the retail sector such as mortgage financ- ing, micro financing, auto financing, and pawning services (ar-rahn). With a truly im- pressive average growth of banking assets during the last few years reaching 40% per annum, total Sharia banking in december of last year amounted to IdR 145.5 trillion. Financing growth in 2011 stood at 50.6% amounting to IdR 102.7 trillion with remark- able Third Party Funds growth of 51.8% in 2011 amounting to IdR 115.4 trillion, and a Financing to deposit Ratio of 89%. “In terms of sukuk development, 48 sukuks have been issued to support real sector development initiatives of government and
With the world’s larg- est Muslim population, and strong economic growth Indonesia offers huge potential for Islamic financial services!
Government Linked Companies (GLC) with the total sukuk issuances of IdR 7.92 trillion,” says Ibrahim.
A Smart Investment
At the same time, it should be noted that overall economic growth in the country has slowed marginally due to the financial crises in the EU. This has led to slower consump- tion growth on the part of Indonesia’s major export trading partners, the US and Japan. But, Ibrahim believes that strong domestic consumption growth, which forms 60% of Indonesian GdP, still remains robust. A stable inflation rate coupled with low inter-
est rates make Indonesia a good place to invest.
Sharia banking in Indonesia also ben- efits from a sound regulatory framework that Ibrahim says, “is very conducive to pro- mote Islamic finance industry because the development of Islamic finance industry is part of government’s agenda.” In addition to government legislation, including the Cen- tral Bank Act of 2004, Banking Act of 1998, Islamic Banking Act of 2008, Sukuk Act of 2008, and deposit Insurance Act of 2004, Islamic banks are under the regulation of Bank Indonesia with the supervision of de- partemen Perbankan Syariah (dPbS), and guided by the issuance of fatwa by the na- tional Syariah Council. Currently there are 10 foreign banks operating in Indonesia, which are allowed to offer Islamic financial services through Islamic window bank op- erations.
5-Year Growth
While Islamic financing in Indonesia presently amounts to 4% of total banking, the number of providers is continually grow- ing through the use of Islamic windows in parent banks and the establishment of stand-alone banks. “I am optimistic in re- gards to growth of Islamic finance in Indo- nesia. The Indonesian Islamic banking in- dustry will continue to record strong growth of over 40% in the next 5 years” says Ib- rahim, adding, “There will be a new face of Islamic finance regulation in Indonesia’s market as in the next 3 years a Financial Services Authority will be formed by Central Bank of Indonesia and Ministry of Finance to supervise the banking industry in a more holistic manner.”
With its ability to meet the special needs of a growing population, Islamic banking looks forward to an expanding market.
FInAnCE & BAnKInG
The Sleeping Giant Awakes
With an explosive growth rate and an estimated USD 4 trillion potential, is Sharia Banking immune to the effects of the global financial crisis?
IbrahIm haSSan
President Director, Pt. bank maybank Syariah Indonesia
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STRATEGY IndonESIA 2013














































































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