The Jakarta Post

Sharia compliance in deposit insurance

In #Indonesia deposit insurance is an integral part of the financial fractional-reserve banking system. This structure was put into place twelve years ago through the enactment of the Indonesia Deposit Insurance Act 2004. Islamic deposit insurance has become more relevant of late due to the worldwide development of Islamic finance. Related to the implementation of the fractional banking reserve system in Islamic banking institutions (IBIs), there are issues to do with the reserve structure that is incompatible with sharia principles. Deposit insurance does involve the exchange of money for money and the exchange occurs with different values and at different times. Hence, some sharia scholars would argue that it is an interest-based transaction and therefore non-permissible.

Major breakthrough sought to propel sharia banking industry

In #Indonesia the Islamic banks’ market share has remained below 5% for the last several years, despite having existed since the 1990s. Now the State-Owned Enterprises Ministry is mulling a proposal to allow Islamic lender subsidiaries owned by the four state-run banks to be merged into two new entities. The ministry’s assistant Gatot Trihargo said the state would still control the two new sharia lenders as majority shareholders. He added that at least two of the four sharia banks should be merged in order to become a BUKU III lender, which has capital between Rp 5 trillion and Rp 30 trillion. Bank Aceh, a regional development bank, is currently in the process of being converted into an Islamic lender, while Bank Syariah Mandiri is seeking strategic investors from the Middle East.

#Crowdfunding: Learning from US regulations

Crowdfunding is a way to connect ordinary individuals with the innovative projects they support. It is possible for retail investors to become venture capitalists and probably own shares in the next giant tech company. In Indonesia, however, this method of raising money might face some challenges. Firstly, Indonesians have trust issues with money transactions carried out over the internet. Secondly, there is a lack of crowdfunding education among retail investors. The government needs to undertake supervisory and regulatory functions to respond to the problems.

OJK speeds up Islamic #REITs to attract Middle East investors

The Financial Services Authority (OJK) is considering providing a legal basis for Islamic real estate investment trustees (REITs), hoping that it will attract more property investors, especially from the Middle East. OJK deputy director of sharia market Muhammad Touriq said Takaful companies are interested in investing in the REITs, but have failed to do so as the existing REITs are not sharia-compliant. The Indonesian government is working on an incentive for the Islamic REITs that allows investors to pay only 0.5% income tax. So far 11 developers have expressed their interest including Ciputra, Summarecon and Ciptadana Asset Management.

ISEI, Kadin eye 1 million farmers to join sustainable agriculture scheme

The Indonesian Economist Association (ISEI) and the Indonesia Chamber of Commerce and Industry (Kadin) have drafted a new scheme to improve the income of 1 mn farmers in various commodity industries by 2020. PISAgro, which stands for Partnership for Indonesia's Sustainable Agriculture, aims to reach more than 445,000 farmers in 2016. ISEI chairman Muliaman Hadad said farmers were currently experiencing stagnant productivity from inadequate access to finance, as well as good quality seeds and fertilizers. Kadin chairman Rosan Roeslani said the program would give support in plantation infrastructure, provision of seeds and fertilizers, mentoring and the strict implementation of good farming practices.

IDB’s $5.2b loan pledge until 2020 to aid RI’s priority projects

The Islamic Development Bank (IDB) has committed US$5.2 billion worth of loans until 2020 to aid Indonesia’s priority development projects. Finance Minister Bambang Brodjonegoro said the prioritized sectors include energy, transportation, urban development, higher education and skills development, private sector development and Islamic financial broadening. The IDB will work with other lenders, including the World Bank, the Asian Development Bank (ADB) and China-backed Asian Infrastructure Investment Bank (AIIB). Going forward, the IDB will prioritize efforts to shift away from dependency on commodities.

IDB eyes establishment of Islamic Infrastructure Bank in 2016

The Islamic Development Bank (IDB) is planning to establish the Islamic Infrastructure Bank, which would be led by Indonesia and Turkey. Indonesia plans to spend US$300 mn on equity participation in the project. However, Turkey has committed to surpass Indonesia’s capital in a bid to bring the new bank’s headquarters to Ankara. Indonesian Vice President Jusuf Kalla expressed his support for the Islamic Infrastructure Bank. The IDB has recently elected Bandar bin Mohammed bin Hamza Asaad Al Hajjar as its new president, following the retirement of Ahmad Mohamed Ali. Bandar will hold the position for a five-year term.

#Indonesia a leading #sukuk issuer : Minister

Indonesia has become one of the leading sukuk issuers in the world, with issuance totaling Rp 503 trillion (US$38 bn) since its debut in 2008. Finance Minister Bambang Brodjonegoro said total outstanding sukuk was at Rp 380 trillion ($29 bn), which accounts for 15% of total government securities. He added that the latest dollar sukuk, issued in March, received a very good response from investors. For the $2.5 bn issuance, total subscription reached $8.6 bn or around 3.5 times.

Achieving SDGs through #Islamicfinance

The issue of sustainable development goals (SDGs) was discussed intensely at the annual meeting of the Islamic Development Bank (IDB) in Jakarta. Finance Minister Bambang Brodjonegoro said many aspects of the SDGs were covered by Islamic finance, arguing that most customers served by Islamic micro-finance were poor people who were not in the banking system. Bank Indonesia Governor Agus Martowardojo added the size of Islamic finance is still very small, representing only 1% of total global finance.

Indonesia lacks commitment to develop Islamic finance: Experts

Indonesia lacks the political commitment needed to develop Islamic finance, causing it to lag behind Malaysia in that area, experts have said. In Malaysia, there is a top-down approach, the government aims to be the global Islamic financial hub," Senior economist for the British Embassy in Jakarta, Edi Wiyono said. Meanwhile, in Indonesia, Islamic finance has grown from the bottom-up, with the public-initiated establishment of Bank Muamalat, the first sharia bank in Indonesia, he added. Indonesia is still the biggest retail sharia market in the world but the contributions of sharia finance in big projects, such as infrastructure, are still lacking.

IDX to lure sharia investors through expo

The Indonesia Stock Exchange (IDX) will hold a Sharia Capital Market Exhibition at the IDX building in Jakarta from March 30 to April 2, as part of an effort to attract more investors to sharia products in the capital market. IDX development director Nicky Horgan said the exhibition was aimed at increasing people's knowledge about capital market products, especially sharia-compliant stocks. The IDX aims for 5,000 new sharia investors this year, a 100 percent increase from 2014. The four-day festival supported by the Financial Services Authority (OJK) will feature 44 companies, including sharia and sukuk issuers, investment managers and securities companies, and is expected to attract 6,000 visitors.

Islamic banks’ market share persistently low

The market share of Indonesia’s Islamic banks has remained low at less than 5 percent in the past several years despite efforts to promote sharia financial services to the mostly Muslim Indonesian population. Indonesians are still reluctant to open accounts or carry out transactions through sharia-compliant banks as they are mostly still unaware of the advantages of Islamic banking services, Islamic finance expert Irfan Syauqi Beik said. Another factor that has caused the sharia banks’ stagnant low market share is their weak financing capacity, he said. Moreover, most of the existing Islamic banks are undercapitalized so that they are unable to expand their business rapidly.

Trust issues may hamper RI financial inclusion campaign

The government’s joint effort with banking institutions to promote financial inclusion across the archipelago is facing a major hurdle as most people from low-income households are reluctant to let individual agents take care of their savings under the government-endorsed branchless banking program, a recent study has revealed. The Financial Services Authority’s (OJK) branchless banking program, locally known as Laku Pandai, offers banking and financial services to all Indonesian citizens through the help of other parties, including individual and institutional agents, whose work is supported by cellphones and other IT facilities.

Indonesia likely to defeat Turkey to host IDB's HQ

Indonesia is likely to defeat Turkey to host the Islamic Development Bank’s (IDB) headquarters, a spokesman of the bank has said. Indonesia's strategic position and role during the Organization of Islamic Cooperation (OIC) summit were two driving factors behind the decision. IDB Indonesia country director Ibrahim Shoukry said the bank had committed to investing US$1.2 billion on projects in Indonesia over five years. Indonesia, he further said, had some advantages over Turkey due to its prospective market in Asia, which is healthier than Turkey's main market, Europe. Indonesia’s market will be broader due to the ASEAN Economic Community.

Sharia lenders must strive for service excellence: OJK

The Financial Services Authority (OJK) is encouraging sharia-compliant lenders to improve their standard of service to increase their competitiveness alongside conventional banks that have greater experience. Citing a 2008 Bank Indonesia (BI) survey, OJK sharia banking head Ahmad Buchori said customers were mostly concerned about the benefits offered by the lenders when choosing who to bank with. The 2008 survey also shows that sharia lenders’ use of verses from the Koran to market their products is not effective despite the fact that more than 80 percent of Indonesians are Muslim, he added.

Banks pledge to support green finance

The nation’s eight largest banks, representing 46 % of national banking assets, have committed to implementing sustainable financing as part of global environment goals.

Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Central Asia (BCA), Bank Negara Indonesia (BNI), Bank Muamalat, BRI Syariah, Bank Jabar Banten (BJB) and Bank Artha Graha Internasional signed the commitment with the Financial Services Authority (OJK) and the World Wildlife Fund (WWF) Indonesia on Monday. The commitment was manifested in a pilot project called “first step to becoming a sustainable bank”, marking a big move taken by the banks less than a year after the OJK launched the 2014-2019 Sustainable Financial Roadmap, according to OJK head Muliaman D. Hadad.

“I hope these eight banks, which are the prime movers in this project, can encourage other banks and financial institutions to join the country’s implementation of sustainable finance,” Muliaman said in his speech. Through the green banking pilot project, Muliaman said participating banks were expected to balance their pursuit of profits with willingness to conserve the environment, serving as examples to their peers.

Bank Indonesia says Islamic banking can help SMEs compete

Bank Indonesia (BI) has acknowledged a new challenge for the national economy – the rise of global small and medium enterprises (SME) and their increased penetration of the local domestic market. According to BI, in order to compete, local SMEs need to be strengthened through massive financing, including through Islamic banking. The challenge is getting more serious as the economy opens up with developments like the Asean Economic Community (AEC) agreement, which will come into effect soon, leading to massive corporate foreign investments that will bring foreign SMEs to Indonesia, BI deputy governor Perry Warjiyo said.

Demand for sharia insurance products on the rise: Allianz

A recent survey carried out by private life insurer Allianz Life Indonesia in Jakarta, Bandung in West Java, Padang in West Sumatra and Samarinda in East Kalimantan showed a high demand for halal insurance products. As many as 97 percent of around 300 respondents agreed that halal investments were important. Furthermore, 93 percent of the respondents felt comfortable with sharia products because they provided transparent investments and profit-sharing schemes in addition to the management, which is according to Islamic principles. 87 percent of respondents had no problem to buy sharia products and 88 percent said it was important to apply religious values, including in financial management.

Haram edict on health insurance ‘misguided’

The latest fatwa from the Indonesian Ulema Council (MUI) declaring the national health insurance (JKN) program to be in violation of sharia law is deemed to be misguided, with officials saying that the public should not worry about the program being haram. The MUI issued the edict during an open meeting in Central Java recently, saying that the way the program was run by the Healthcare and Social Security Agency (BPJS Kesehatan) involved elements that were not consistent with sharia law, such as maisir (gambling) and riba (interest). House of Representatives Commission IX overseeing health said that it was up to the government to follow up on the demand by drafting a new regulation.

RI set to join sharia infrastructure bank

Indonesia will become a founding member of a cross-border sharia-compliant infrastructure bank to help boost infrastructure development in various countries. The bank, named Islamic Investment Infrastructure Bank, will be cofounded with Turkey and the Saudi-based Islamic Development Bank (IDB), according to Finance Minister Bambang Brodjonegoro. To qualify as a founding member, Indonesia must contribute more than US$300 million. The sharia infrastructure bank is expected to be established in the second half of this year, following Indonesia’s announcement to join as one of the founding members in the upcoming China-led Asian Infrastructure Investment Bank (AIIB), which is also expected to help finance the country’s infrastructure projects.

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