27 November 2014
This insight aims to
highlight new rules governing the Islamic finance sector in Indonesia and the
enhanced role of the National Shariah Board, to set out the current state of
the market including opportunities for foreign INVESTMENT
and to trace the roots
of the industry in the country with the world’s largest Muslim population.
and to trace the roots
of the industry in the country with the world’s largest Muslim population.
New stress test rules
for Islamic financial institutions
On 19 November 2014, the
Indonesian Financial Services Authority (OJK) issued new rules regarding the
development of Islamic finance in the country. This followed an August 2014
initiative to encourage coordination in Islamic finance among government bodies
and the private sector in order to help Islamic banks navigate a range of local
and federal regulations.
·
Indonesian Islamic banks (not Islamic business units of
conventional banks) are to hold increasing levels of capital calculated
according to a risk assessment process (those banks with the highest risk
profile need to comply with a capital adequacy requirement of 14%; the previous
highest requirement was 8%). The risk assessment process must be carried out
every six months and more often if necessary.
·
The types of capital-boosting debt that Islamic banks can issue,
which must include a loss absorption feature that allows regulators to convert
such debt into equity if a lender faces insolvency.
·
Islamic banks are required to include ratios in contracts for
common types of Islamic compliant profit-sharing financing (including mudaraba
and musharaka), calculated on a feasibility analysis of a customer's business
and cash flows.
·
Issues such as the separation of Islamic units from conventional
parents and guidance for conventional firms that want to become Shariah
compliant ones.
Conventional banks must
spin off their Islamic units and list them on the IDX (the Indonesian STOCK exchange) by 2023.
The OJK has said that it expects such listings to spur consolidation among
Islamic banks over the next few years.
exchange) by 2023.
The OJK has said that it expects such listings to spur consolidation among
Islamic banks over the next few years.
However, in August 2014,
Bank Mandiri decided to skip its plan to launch an initial public offering of
its Shariah unit (Bank Syariah Mandiri or BSM) as the unit’s growth was lower
than expected. The Bank also decided to postpone a capital injection of about
US$41m as BSM’s capital ratio of 14%-15% was considered sufficient.
OJK and National Shariah
Board cooperation
On 11 November 2014, the
OJK signed a Memorandum of Understanding (MOU) with the National Shariah Board
of Indonesian Ulema Council (DSN-MUI), laying the groundwork for cooperation in
achieving the stable and sustainable development of the Indonesian Shariah
financial services sector in accordance with Shariah principles. The role of
the DSN-MUI is to issue fatwas and oversee their implementation.
Specific objectives of
the MOU include supporting the strengthening of regulation and supervision of
the Islamic financial services industry and enhancing Islamic financial
literacy and protecting consumers in the sector. The MOU’s scope encompasses
preparing regulations, supervising the implementation of fatwas and reciprocal
consultation.
The MOU will be followed
up by a co-operation agreement.
Unlike the Gulf region,
Indonesia appears to be heading towards a centralised model to supervise
Islamic finance. Previously, many countries left Shariah boards in individual
Islamic banks and financial firms to decide whether their products and
activities obeyed religious principles. For example, in October 2014 Oman's
central bank set up a five-member Shariah board to help oversee the sultanate's
Islamic banking industry, while Pakistan's securities commission established a
nine-member Shariah board in May 2013.
As of November 2014,
DSN-MUI had already stipulated 95 fatwas relating to the Indonesian Shariah
financial services industry. They comprise 67 fatwas that relate to the Shariah
banking sector, 14 fatwas in relation to the Shariah capital markets sector,
six on Islamic compliant insurance, four on pledges for debts (Rahn), two on
Sharia multi-level marketing and two relating to Shariah financial accounting.
Key facts about Islamic
finance in Indonesia and its development to date
·
Indonesia is the fourth most populous country in the world after
China, India and the US. It is home to the world’s largest Muslim population of
approximately 210 million people (about 85% of the total population).
·
Indonesia’s entire banking system is only worth about 51% of its
2013 GDP value. That compares with 150% in Malaysia and 350% in China.
·
The first Islamic financial institutions arrived somewhat later
than they did in other Muslim-majority countries, as any conspicuous Islamic
behaviour was linked to radicalism. Only in the early 1990s were Islamic
financial institutions permitted to form. The first relevant legislation was
enacted in 1992 and amended and extended in 1998.
·
Indonesia has less than 2% of global Islamic finance assets and
only about 5% of its total domestic banking assets are Shariah compliant.
Malaysia, with less than a tenth of Indonesia’s population has become one of
the global leaders of the Islamic finance industry and Islamic banks in
Malaysia hold more than 20% of total banking assets.
·
According to statistics published by the OJK, as of September
2014, there were 11 Islamic banks in Indonesia with 2,139 offices. Two leading
banks - Bank Syariah Mandiri and Bank Muamalat - together account for at least
half of the country’s Islamic finance sector. Twenty-three conventional banks
have a Shariah “window” comprising 425 offices and there are 163 Islamic rural
banks with 433 offices.
·
Alongside Malaysia and Bahrain, Indonesia is one of the top three
countries in the world that regularly issue sovereign sukuk. As of September
2013, Indonesia had about US$16.7 billion of sukuk in issuance. The government
has issued regular rupiah sukuk issuances (once every two weeks) since 2010.
Most of Indonesia’s sukuk deal flow is very short term, typically less than a
year. This is partly due to the perception that longer-term bonds would not be
liquid.
·
Indonesia is already a member of the Islamic Development Bank
(IDB), the Islamic Financial Services Board (IFSB), the International Islamic
Financial Market (IIFM) and the International Islamic Liquidity Management
Corporation (IILM) and has adopted the regulations of the IFSB and the
Accounting and Auditing Organisation for Islamic Financial Institutions
(AAOIFI).
The cultural background
Indonesian retail
banking customers have appeared to be pragmatic and to make economic decisions
based on non-religious reasoning. Thus Shariah compliant “windows” of
conventional banks tend to be more popular than all-Islamic banks.
In 2013, as much as 40%
of all loan-type arrangements through Islamic compliant banks were projected to
be for the purchase of cars, motorbikes and household goods.
Compliant credit cards
are offered, for example by Bank Danamon Syariah.
Real estate mortgage
products are increasing but at a slow pace. This may be due to the Indonesian
government’s traditionally cautious approach to real estate mortgage loans in
general.
The nature of INVESTMENT
OPPORTUNITIES in Indonesia tends
to favour infrastructure and project financing. The new Indonesian president,
Joko Widodo, took office in October 2014. During his early campaigning days, he
said that rapid infrastructure and improvement would be a key pillar of his
presidency. Islamic finance also fits in with the activities of the small and
medium-sized enterprises which account for more than 98% of Indonesian
businesses.
in Indonesia tends
to favour infrastructure and project financing. The new Indonesian president,
Joko Widodo, took office in October 2014. During his early campaigning days, he
said that rapid infrastructure and improvement would be a key pillar of his
presidency. Islamic finance also fits in with the activities of the small and
medium-sized enterprises which account for more than 98% of Indonesian
businesses.
Islamic banking may now
be nearing the limits of expansion in its core customer base: people who value
Shariah compliance above all other factors.
Foreign INVESTMENT in the Indonesian
Islamic finance industry
in the Indonesian
Islamic finance industry
Bank Muamalat is jointly
owned by the IDB, Boubyan Bank of Kuwait, Atwill Holdings, National Bank of
Kuwait and other smaller shareholders.
In June 2014, Dubai
Islamic Bank (DIB) acquired a 24.9% stake in Bank Panin Syariah (BPS). The OJK
has received a proposal from DIB to increase its stake in BPS to 40%.
Indonesia holds
attractions to INVESTORS from other
countries with much larger Islamic banking systems, especially in those Arab
countries that continue to experience political and social unrest. For example,
Al Baraka Islamic Bank, headquartered in Bahrain, chose Indonesia as one of 12
countries in which it operates. The Al Baraka representative office in
Indonesia was established in 2008. According to its website, the office serves
as a base for Al Baraka to conduct research on local banks and their potential
for acquisition and for assessing the business potential of Indonesia and also
generates leads for the other parts of the Al Baraka group.
from other
countries with much larger Islamic banking systems, especially in those Arab
countries that continue to experience political and social unrest. For example,
Al Baraka Islamic Bank, headquartered in Bahrain, chose Indonesia as one of 12
countries in which it operates. The Al Baraka representative office in
Indonesia was established in 2008. According to its website, the office serves
as a base for Al Baraka to conduct research on local banks and their potential
for acquisition and for assessing the business potential of Indonesia and also
generates leads for the other parts of the Al Baraka group.
In September 2014,
Indonesia successfully marketed a US dollar denominated 10-year sovereign
sukuk. It was almost seven times oversubscribed despite offering a modest yield
on a US$1.5 billion issuance. Investors in the US and Europe were allocated 35%
and another 35% was allocated to those in the Middle East.
The attraction of
foreign INVESTOR inflows is
undoubtedly a driving force behind the latest reforms. Given the current
fragmented nature of the Islamic banking offering in the country, consolidation
appears inevitable.
inflows is
undoubtedly a driving force behind the latest reforms. Given the current
fragmented nature of the Islamic banking offering in the country, consolidation
appears inevitable.
Foreign institutions
must seek regulatory approval to raise their stakes in Indonesian banks above a
40% threshold to a maximum of 99%.
Key themes regarding the
Indonesian government’s approach to Islamic finance to date
·
Islamic finance should be a credible alternative to conventional
finance and open to all Indonesians.
·
Aim to reduce speculative transactions.
·
Contribute to the achievement of mid- to long-term price
stability.
·
Support larger-scale strategic planning and development.
·
Branding Islamic finance as “beyond banking”.
Conclusion
Driven by government
influence and foreign INVESTOR interest, Islamic
finance looks set to become a more meaningful part of Indonesia’s financial
industry. It will help maximise the number of people the government can bring
into the financial net. The Islamic finance model that is developed in
Indonesia is likely to be a hybrid between the Malaysian and Middle Eastern
approaches.
interest, Islamic
finance looks set to become a more meaningful part of Indonesia’s financial
industry. It will help maximise the number of people the government can bring
into the financial net. The Islamic finance model that is developed in
Indonesia is likely to be a hybrid between the Malaysian and Middle Eastern
approaches.
0 komentar