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Indonesia's Islamic insurance market will be reshaped over the next decade by a new law that requires conventional firms to spin off their syariah-compliant units, while encouraging more foreign investors to enter the market. The new law, which came in force last month, requires insurers to spin off their windows within 10 years. Moreover, the law maintains an 80 per cent limit to foreign ownership, which will keep the market open to new players, while closing some loopholes that allowed foreign firms to have full control of their operations. The rules will also require larger and better trained sales forces since the spin-offs will require separate agents for conventional and takaful products.

Indonesia has much work to do in improving infrastructure and regulations to support an Islamic-compliant economy. Thomson Reuters’ Islamic Finance Development Report 2014 showed Malaysia topped the list, scoring 93 (on a scale of 100), far higher than Indonesia which ranked 12 with a score of 28. However, the 10th World Islamic Economic Forum (WIEF) in Dubai, revealed growing interest from many governments. South Korea was one of the many non-Muslim countries that looked eager to develop the Islamic economic industry. Besides, the halal industry won great attention over the past decade as the volume of the industry reached more than US$2.1 trillion. Moreover, there's growing demand for Muslim-friendly tourism.

Indonesia’s Islamic insurance market will be reshaped over the next decade by a new law that requires conventional firms to spin off their sharia-compliant units, while encouraging more foreign investors to enter the market. The takaful market in Indonesia is dominated by so-called “windows”. The new law, which came in force last month, requires insurers to spin off their windows within 10 years. Most firms are likely to meet the spin-off requirement as late as possible and they will first expand their sharia units to ensure they are big enough to be spun off easily. The rules are expected to spur consolidation among conventional firms.

In response to the slow growth of Islamic banking and finance, OJK organized the seventh Islamic Finance Research Forum. It was held from Oct. 14 to 16 at the IPB campus, and brought together students, scholars and practitioners of Islamic finance industry to exchange new ideas to help propel the sector’s performance. Among the causes of Islamic finance’s slow growth are the lack of capitalization driven by a paucity of high-quality human capital and a shortage of innovation and creativity. The OJK disclosed that the root problems can be solved by, inter alia, sound research and development activities, which are still lacking in the Islamic finance industry.

BIMB Holdings Bhd (BHB), which owns Bank Islam Bhd, is still keen to acquire a stake or even have a management control in Bank Syariah Indonesia as part of its expansion plan. Its group managing director and chief executive officer Johan Abdullah said the talks were still at a preliminary stage, and there was still no material development. Due to the regulatory uncertainty in Indonesia, Johan said that the group would engage the Indonesian authorities before making any decision to acquire a stake in the bank. At the firm's EGM, shareholders gave their nod to the proposed dividend reinvestment plan (DRP) that would provide shareholders with the option to elect to reinvest in whole or in part of their cash dividend with the new ordinary shares of RM1 each in BHB.

Sukuk issuance and investing is expanding outside of the Islamic world. The asset holders range from sovereign wealth funds and high-net-worth-individuals in the Arab Gulf, to retail investors in other Muslim majority countries such as Turkey, Pakistan and Indonesia. According to Moody’s Investors Service, Malaysia at present dominates the sukuk market when it comes to both sovereign and corporate issuance. Other major issuers include the governments of Indonesia and Gulf states including Saudi Arabia, Qatar and the United Arab Emirates. The overall outstanding amount of sukuk will probably reach around $115 billion this year.

Indonesia's financial services authority, Otoritas Jasa Keuangan (OJK) is preparing a five-year blueprint aimed at industry issues such as sector consolidation, a lack of scale and foreign ownership limits. OJK said it was now preparing draft regulations for Islamic pension funds, after Indonesia's national sharia council issued a ruling approving the overall concept in November last year. Under a "moderate" scenario, the OJK projects Islamic banking assets will grow by 14.4 percent in 2014, down from 24.2 percent in 2013 and 34 percent in 2012, although these figures would remain above those for conventional banks. The OJK said challenges faced by Islamic banks were mainly internal, rather than related to external pressures such as falling commodity prices or lower export demand.

The current annual growth rate for Indonesia’s Islamic finance market is 16.5 percent, down from 24.2 percent in 2013, and 49.2 percent in 2011. A large part of this decline can be attributed to the most recognisable instrument of Islamic finance, sukuk. The OJK is now preparing a new blueprint due at the end of the year to expand Islamic finance in Southeast Asia’s biggest economy. It says the new blueprint may include additional benefits to current fee and tax incentives to revive the domestic sukuk market, and also said it was considering extending the beneficial issuance fee for sukuk to issuance of sharia-compliant securities. The document will also address issues in Islamic finance including lack of economies of scale, consolidation opportunities, and the role of foreign ownership.

Indonesia raised $1.5 billion from the sale of dollar-denominated sukuk on Tuesday, which is to help finance the country’s budget deficit. Foreign investors submitted $10 billion worth of bids on Tuesday, or six times the amount offered. The government awarded 35 percent of the sukuk to Middle East and Islamic funds, 30 percent to investors based in Asia, including Indonesia, 20 percent to US funds and 15 percent to European investors. The 10-year Islamic bonds were sold at 4.35 percent yields, as compared with 6.125 percent paid on notes maturing in 5.5 years in September 2013 and the record-low 3.3 percent on 10-year sukuk sold in 2012. Foreign holdings of the country’s bonds increased to Rp 437.4 trillion as of Sept 2, accounting for some 37 percent of the total debt.

An eight-month rally in Islamic bonds showed its resilience as an Indonesian sukuk drew record bids before debuts by Luxembourg, Hong Kong and South Africa. A Bloomberg index tracking dollar-denominated Shariah-compliant debt from 43 sovereign and corporate issuers rose to an all-time high this week, as supply was limited amid the worst quarter for new issuance since 2010. Luxembourg and Hong Kong have hired arrangers for their sales planned for September. South Africa has hired banks for its debut offering of Shariah-compliant notes, while Bangladesh and Tatarstan are also planning maiden sales. While the average yield on debt that complies with Muslim tenets has dropped to a three-month low, it’s almost twice that available on U.S. Treasuries.

The Indonesian government raised $1.5 billion worth of Islamic bonds on Tuesday, attracting the largest order book ever achieved for a sovereign sukuk from southeast Asia. The 10-year sukuk drew strong investor demand - order books were worth $10.2 billion - helping reduce the yield of sukuk which had originally started in the vicinity of 4.625 percent on Monday, before being trimmed to 4.35 percent. Indonesia's sukuk kickstarts what looks to be a busy month for sovereign issuance, with Luxembourg, Hong Kong and South Africa conducting investor meetings ahead of their respective transactions. Indonesia's sukuk was rated Baa3 by Moody's. CIMB, Emirates NBD Capital, HSBC and Standard Chartered acted as lead managers.

Dubai Islamic Bank has ruled out seeking a controlling stake in Bank Panin Syariah, and its plans are limited to raising its stake in the Indonesian lender to 40 percent from 25 percent now, its chief executive Adnan Chilwan said. Dubai Islamic bought 2.42 billion shares in the listed sharia-compliant lender in June, its first foray into southeast Asia. In May, the bank said it hoped to reach 40 percent before the end of the year, using its own cash to fund the purchase. Under Indonesian rules, foreign ownership of local lenders requires regulatory approval to go above 40 percent. Last month, Indonesia's financial services authority said it was preparing a five-year industry blueprint that would address foreign ownership limits.

Dubai Islamic Bank (DIB) has officially submitted a request to Indonesia’s Financial Services Authority (OJK) to up its stake in Jakarta-listed Bank Panin Syariah (PNBS). It has expressed its intention to increase its ownership in Panin Syariah to 40 percent. DIB currently owns a 24.9 percent stake in Panin Syariah, a subsidiary of private lender Panin Bank (PNBN). The United Arab Emirates lender acquired Panin Syariah’s shares, reportedly worth Rp 251.79 billion (US$21.7 million), in two stages in May this year. The rest of Panin Syariah’s shares are controlled by Panin Bank with 52.5 percent, Hesti Femi Nugraheni with 5.4 percent and the public with 17.2 percent. The OJK expects to complete the talks and issue approval for DIB later this year.

Indonesia is about to get an annual scorecard from Islamic bond investors and the signs are good. The nation’s first dollar sukuk in a year may yield 3.8 percent to 4.5 percent if the tenor is 10 years. That’s less than the 6.125 percent on 2019 global Islamic notes sold last September. Bank Indonesia has added $18 billion to currency reserves over the past year, inflation has almost halved from January and bond risk fell as Joko Widodo fended off legal challenges to his victory in July’s presidential election. Demand for Indonesia’s sukuk will be buoyed by a shortage of global Shariah-compliant securities. The nation’s dollar sukuk due November 2022 returned 17 percent this year, outpacing gains of 9.2 percent and 12 percent for similar notes from Malaysia and Dubai.

A blueprint being drawn up for Indonesia’s Islamic finance industry may include incentives to help revive the domestic market for sukuk. Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK), is preparing a five-year plan for the sector to help it expand. The document is expected to be ready for public consultation by year-end, and will address issues including a lack of scale in the industry, sector consolidation and the role of foreign ownership. The regulator is also exploring ways to revive a sukuk market, which has seen no corporate issuers so far this year. The reasons for the drop-off in activity are not clear, but may be related to higher costs involved in issuing sukuk, a lack of experience among arranging banks, or a lack of regulatory clarity.

Hong Kong, Indonesia and Pakistan are banking on pent-up investor demand as they look to raise up to a combined US$3.5bn in the fast-growing Islamic bond market. The three sovereign sukuk issues, including a planned US$1bn debut from Triple A rated Hong Kong, are set to launch before the end of September. Indonesia is Asia’s only regular in the global sukuk market, having issued annually since 2010. Pakistan has sold Islamic debt overseas only once before, in 2005, while Malaysia has typically preferred to target its own domestic market. Hong Kong, in particular, is looking to promote itself as a regional hub for Islamic financing to capitalise on growing trade links between Greater China and the Middle East.

Indonesia’s sharia banking sector has recorded slow growth as it nears the end of this year’s second quarter, compared to the same period last year, according to a recent report from the Financial Services Authority (OJK). In order to lure more customers, banks have developed their own strategies. Bank BNI Syariah, for instance, has prepared special programs for Ramadan to anticipate the rise in spending that usually accompanies the fasting month. Meanwhile, the OJK disclosed its plan to issue a revised regulation on sharia banks’ minimum capital requirement to assist lenders in the face of a wider scope of risks. The revised regulation will contain two additional indicators to measure the capital sufficiency of each bank.

Dubai Islamic Bank PJSC (DIB) has completed their first phase of accumulating shares in PT Bank Panin Syariah Tbk (Bank Panin Syariah) in Indonesia. As per the envisaged plan, DIB has completed the acquisition of 24.9% shares in Bank Panin Syariah by acquiring 2,427,750,000 shares. Afterwards, DIB will initiate formal regulatory approval process to obtain "Significant Shareholder Status" from the Financial Services Authority (OJK) to complete phase 2 of the share purchase plan by increasing its stake in Bank Panin Syariah to up to 40%. Bank Panin Syariah is currently controlled by PT Bank Panin and operates through a network of 10 branches. The bank is listed on the Indonesia stock exchange.

DIB, the oldest sharia lender in the world, has now officially acquired shares within publicly listed lender Bank Panin Syariah from owner, Panin Bank. The statement was submitted to the Indonesia Stock Exchange shows Panin’s stake declining to 64.01 percent from 87.51 percent. Panin vice president Roosniati Salihin confirmed the deal.

Indonesia's capital market regulator is preparing a five-year roadmap for Islamic finance in an effort to expand the industry. The plan will help to boost the number of Islamic capital market products and expand the industry's investor base, Otoritas Jasa Keuangan (OJK), the financial services authority, said in a statement. The OJK said it was seeking market input for the roadmap and would set up discussion groups with stakeholders including the central bank, the finance ministry, the stock exchange and the country's national sharia board. It also said it was refining rules for the issuance of Islamic securities, which it expected to be completed this year. These would include details on the settlement of Islamic financial transactions, disclosure requirements for sukuk (Islamic bonds), and guidelines for sukuk trustees.