IslamicFinance.de

Blossom is a fintech company that offers Sharia complaint financial services to people in countries that are predominantly Islamic. The company merges bitcoin and traditional microfinance into a single package. Blossom offers microloans for the needy in Indonesia. What sets Blossom apart from most other players is the platform. Blossom platform uses bitcoin as a background to enable investors from across the world to fund those who are looking for micro-loans. Blossom ensures that the whole process is in accordance with Sharia’s Musharakah principle and the company doesn’t support businesses involving usury, gambling, pornography and other activities which are deemed unislamic.

Indonesia has mandated four banks for its next global sukuk, which is expected to be denominated in US dollars. CIMB Group Holdings Bhd, Dubai Holdings Bhd, HSBC and JP Morgan have been hired as joint lead managers for the sukuk. Investor meetings will be held in London, the Middle East and Kuala Lumpur over the next two weeks. The issuance marks the sixth global sukuk for Indonesia. It last raised US$1.5bil in September, with a 10-year sukuk that drew over US$10bil in orders.

The make-up of Islamic banks' loan books is changing in Pakistan and Indonesia with the growing use of profit-sharing contracts that could help Islamic finance win more customers in the two largest Muslim-majority countries. Murabaha has been the workhorse of Islamic bank financing globally, but after years of dominance the structure is losing favour in some areas to profit-sharing contracts such as musharaka, istisna and salam, which are seen by many scholars as closer to the economic principles of Islam. In Indonesia, the change is more gradual as murabaha still represents over half of all financing by Islamic banks.

Four weaknesses in the financial system explain Indonesia’s capitulation to the crisis in 1998: the undercapitalisation of the banking system, a substandard regulation and supervision, the lack of inter-bank competition and the availability of cheap credit from state-owned banks with low risk which provided no incentive for the corporate sector to raise funds in the capital and bond markets. Between 1997 and 2013, the Indonesian government adopted a number of policies to rebuild and modernise Indonesia’s financial sector. It is through these policies that the Indonesian government has effectively reduced risks and moved the Indonesia financial sector from a state of collapse towards a modern financial system.

A startup that recently relocated from San Francisco to Jakarta aims to shake up micro-finance in Indonesia. Blossom‘s concept can be said to be breaking ground: it operates on Bitcoin and targets the global Muslim community. Blossom collects money from investors around the globe. Blossom does not hand down the funds to business owners directly, but via an experienced microfinance institution on the ground. After a 12-month investment cycle, Blossom collects profits from the microfinance institutions and distributes them back to the investors. Blossom expects returns in the range of 7.5 to 12.5 percent, and itself takes a 20 percent cut on the returns. All of its money transfers are based on Bitcoin.

Indonesia’s branchless banking initiative faces an uphill battle against misconceptions of financial services in the country, a survey report from consultancy firm InterMedia Indonesia revealed. Nearly half of Indonesians do not use any form of financial services, according to the firm’s Financial Inclusion Insights report. It also found that one-third of people who use informal financial services cited “an inability to afford an account” as the main reason behind their reluctance to use formal banking services. The report surveyed 6,000 people across 24 provinces in Indonesia between August and November last year.

The Islamic Financial Services Board (IFSB) successfully organised a 'Seminar on Enhancing Financial Inclusion through Islamic Finance' on 31 March 2015 in Jakarta, Indonesia. This Seminar is organised in conjunction with the IFSB Annual Meetings and Side Events 2015. The one-day Seminar aimed to explore the role of Islamic finance in supporting financial inclusion, the building blocks necessary for the development and promotion of access to finance to the uncovered population and key success factors and challenges in promoting financial inclusion for greater shared prosperity, financial stability and economic growth. The Seminar was followed by the IFSB's 8th Public Lecture on Financial Policy and Stability on 1 April 2015.

Indonesia's sharia banks expect to raise a large amount of inexpensive funds from Islamic charity foundations following the signing of a memorandum of understanding (MoU) between Bank Indonesia, the Indonesian Ulema Council (MUI) and several alms and zakat collecting bodies.Under the agreement signed in Jakarta on Monday, the central bank and the MUI's National Sharia Council (DSN) agreed to work together to encourage the Islamic charity foundations to keep their funds in the country's sharia banks.

Indonesia’s Islamic insurance industry is expanding three times as fast as Malaysia’s, prompting American International Group Inc. and Sun Life Financial Inc. to seek a broader presence in the nation. AIG is considering offering retakaful in Indonesia in two years. The initiative would complement an Islamic insurance business it started in the Southeast Asian nation in 2010. Meanwhile, PT Sun Life Financial Indonesia will add to its 35 outlets in the country, while Reinsurer PT Reasuransi Internasional Indonesia plans to make all its branches fully Shariah-compliant. As Islamic insurance becomes more prominent, that should increase demand for Shariah-compliant bonds as insurers try to match liabilities with their investments.

Indonesia's Bank Syariah Mandiri, a unit of state-owned Bank Mandiri, is targetting total assets worth 100 trillion rupiah ($7.72 billion) by 2017, up 49 percent from 67 trillion rupiah as of December, the Investor Daily newspaper reported, quoting Bank Syariah Mandiri finance director Agus Dwi Handaya.

Indonesia seems to push ahead with its plans to create a new $8bn Islamic bank that would mainly arise from the merger of three large domestic Shariah-compliant lenders. According to the chairman of Indonesia’s Financial Services Authority, Muliaman Hadad, the merger between the Islamic finance units of government-controlled Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, as well as a small unit of Bank Tabungan Negara, could happen as early as this year. The idea behind the mega-merger is to create an Islamic banking institution that would be able to face the growing foreign competition, as well as to boost the currently quite small market share of Islamic finance in the country. The new Islamic mega-bank would also be a catalyst for new products for retail customers and businesses.

Indonesian and Malaysian Islamic bonds are diverging as cheaper oil has opposite impacts on fiscal budgets. The yield on Indonesia’s US dollar Sukuk due 2022 fell to a 21-month low of 3.72 per cent in February, while Malaysia’s 2021 debt yield climbed to 3.05 per cent. Default risk for Indonesia has dropped nine basis points this year to 148, while that for Malaysia rose 15 to 121 just as both nations plan US currency global offerings before the Federal Reserve starts raising interest rates. Barclays Plc forecast a sovereign credit upgrade for Indonesia after an overhaul of a decades-old fuel-subsidy program last month. Malaysia, the region’s only major crude exporter, is contending with a drop in revenue and a higher budget-deficit target, prompting Fitch Ratings to warn of a possible rating downgrade.

Indonesian authorities are pushing ahead with a plan to create an $8 billion Islamic megabank, even after a similar proposal fell through in Malaysia. A potential merger of the shariah-compliant units of government-controlled Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia could happen as soon as this year, Financial Services Authority (OJK) chairman Muliaman Hadad said. Talks are ongoing with the State-Owned Enterprises Ministry, which first proposed the merger in May 2013. The megabank could help drive a quadrupling in Islamic banks’ market share to 20 percent by 2018, compared with 10 percent without it.

The first sukuk auction this year, held on Tuesday, attracted incoming bids of Rp 13.7 trillion (US$1.1 billion), representing a more than sixfold oversubscription, with the government having set an issuance target of Rp 2 trillion. In comparison, incoming bids in the previous sukuk auction on Oct. 21 barely reached Rp 3.5 trillion. In response to the high demand, the Finance Ministry then decided to upsize the issuance, selling Rp 6.8 trillion of sukuk bonds. Nevertheless, the government will first assess upcoming auction results before deciding to raise more financing from sukuk this year. The high demand could be a seasonal phenomenon due to the market’s long closure for the year-end holiday.

A plan to merge state-owned sharia banks into one large lender is one of the Financial Services Authority’s main projects this year, as part of a broader commitment to consolidate the Indonesian overall banking industry. Chairman Muliaman Hadad said he had held talks with the State-Owned Enterprises Ministry regarding the consolidation and that they were currently developing a “mechanism” to integrate the three lenders and one business unit. The current three state-run sharia banks are Bank Mandiri’s Syariah Mandiri, Bank Rakyat Indonesia’s BRISyariah and Bank Negara Indonesia’s BNI Syariah and a sharia business unit under Bank Tabungan Negara.

Indonesia is ramping up financing for new President Joko Widodo’s US$439 billion (RM1.52 trillion) development programme, planning an almost fivefold increase in sales of project sukuk. The government is seeking to raise 7.14 trillion rupiah (RM196 billion) from notes that will fund construction ventures next year, compared with 1.5 trillion rupiah this year. That will help finance its estimated spending of about 5,519 trillion rupiah from next year to 2019 to build roads, railways and power plants. Indonesia is diversifying its sukuk to help boost syariah-compliant banking assets as a share of the total from 4.7 per cent, less than a fifth of Malaysia’s.

Indonesia's Islamic banks say new rules acknowledging the lower risk of profit-sharing loans will help revive industry growth from the slowest pace on record. The Financial Services Authority (FSA) is introducing reserves ratios that will vary depending on banks’ risk profiles and setting more flexible guidelines for assessing the quality of syariah-compliant assets. While the rules will mean higher ratios for some lenders, the overall impact is positive as loans that use profit-sharing structures will be deemed less risky. Lenders have until 2016 to comply with the new capital-adequacy ratios that will range from eight to 14 per cent.

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. Driven by government influence and foreign investor interest, Islamic finance looks set to become a more meaningful part of Indonesia’s financial industry. The Islamic finance model that is developed in Indonesia is likely to be a hybrid between the Malaysian and Middle Eastern approaches.

The Islamic Research & Training Institute (IRTI) of the Islamic Development Bank (IDB) Group, and CIMB Islamic Bank Bhd of Malaysia signed a memorandum of understanding towards developing Islamic Finance Country Reports (IFCR) on Malaysia and Indonesia. The IFCR is expected to provide in-depth information, and independent due diligence to facilitate the growth and development of the Islamic finance industry in IDB Group member countries and encourage investment by enhancing transparency. Through this combined initiative, the two institutions aim to facilitate access to information that is currently not available to stakeholders.

Indonesia's regulator has issued revised Islamic banking rules covering asset quality and capital adequacy to help clarify market practices, while industry growth has now dropped to single-digits. Indonesia's financial services authority, Otoritas Jasa Keuangan (OJK), announced the move on Wednesday as part of a package of 20 new rules, which range from corporate governance to microfinance. Authorities want Islamic banks to hold at least 15 percent of the market by 2023, but the sector's growth is stalling. As of September, there were 11 full-fledged Islamic banks and 23 Islamic business units in Indonesia with combined assets of 244 trillion rupiah ($20.1 billion), representing a 7.2 percent growth year-on-year.