IslamicFinance.de

Even though Indonesia has the world's largest Muslim population, it is hardly present on the Islamic finance scene in contrast to its neighbour Malaysia. This is a problem that needs to be worked on becuase Islamic finance can be a perfect means of solving two significant financial challenges. The first one is funding infrastructure and the second - reducing its dependency on foreign borrowing. Indonesia should take advantage of Malaysia's experience in Islamic financing and develop its own Islamic capital markets. It would be even possible to exploit the deep liquidity pool created by Malaysia.

More on: http://www.reuters.com/article/2012/09/19/indonesia-islamic-finance-idUS...

On monday, Islamic Development Bank (IDB) Group opened its office of business forum (thiqah) at the Investment Coordinating Board (BKPM) in Jakarta. Since this is the bank's first office beyond the boundaries of Saudi Arabia, it is expexted that it will contribute to IDB's expansion and mobilization of its resources and promotion of Indonesia as a major investment destination for IDB's members. This move will enable a connection between Indonesia and investors from other Muslim countries, thus taking advantage of the rapidly growing Islamic economy.

More on: http://www.thejakartapost.com/news/2012/09/18/jeddah-based-idb-sets-busi...

Regulators changed the rules on non Islamic loans for the purchase of motor vehicles like cars and motorcycles in favour of Islamic loans. As a result, consumer-finance companies in Indonesia increasingly consider Shariah-compliant lending. PT Adira Dinamika Multi Finance, which recently started Shariah-compliant business, expects for it to make up 20% of its overall operations. Other Shariah lenders clain that Islamic loans will grow as fast as 30% a year in the near future.

A report by Standard and Poor says that Islamic financing could support Indonesia to fulfill its infrastructure plans. Islamic financing would be able to bridge gaps in funding major infrastructure development projects. The same strategy was used by Malaysia. The situation in Indonesia is explained by the country's large needs to develop the infrastructure, the willingness of the government to attract private capital to fund these investments, and the increasing demand for investable assets of a growing domestic Islamic finance market.

Sharia banks in the country will soon be subject to Bank Indonesia’s new policy regulating minimum down payments for housing and automotive loans. However, a deputy governor for the central bank says that they may have different limits than those for commercial banks. This month, BI said that sharia banks would soon be included in its policy to restrict loans to value in automotive and housing lending. These had entered into effect for Indonesian commercial banks in June.

According to a statement by Fitch Ratings, Indonesia's consumer finance will probably see an improvement in the underwriting quality and regulatory consistency. The precondition is that Bank Indonesia harmonises prudential rules for sharia-compliant products with the ones for mainstream consumer loan products. Applying tougher loan to value (LTV) regulations to sharia products would make the competition with non-sharia products even. Moreover, asset quality diverging within the consumer finance sector would be prevented.

According to Bank Negara Malaysia’s Shariah Advisory Council, there is a skill shortage in the Islamic finance Industry. In order to prevent it from hindering the growth of the Islamic Finance, Southeast Asian universities are adding Islamic finance courses. The new programmes will start at universitas Muhammadiyah in Malang, Indonesia and Kuala Lumpur-based International Centre for Education in Islamic Finance (INCEIF). The new courses shall bridge the gap between what was formerly taught and what is requred by employers.

Indonesian central bank plans to strengthen payments on housing and automotive loans at Shariah banks. New requirements will be similar to those of conventional lenders for housing and vehicle loans issued on March 15. Due to new regulation, which took effect on June 15, it will be necessary to pay 25 percent for two-wheeled vehicles and 30 percent for four-wheeled vehicles as down payment.

Indonesia plans to let Shariah-compliant banks hedge against exchange-rate movements. This way, the growth in Islamic financial assets will be stimulated and the gap with Malaysia’s industry will be narrowed. The instruments, available in Malaysia since 2006, have been approved by the Bank Indonesia, the National Shariah Board and the Indonesia Institute of Accountants. As a result of hedging, Bank Muamalat Indonesia will be able to hold more global bonds and issue more dollar loans.

S&P Indices made an anouncement that a new Index will be launched due to increase in the demand for a shariah-compliant benchmark in Islamic countries. The new S&P/OIC COMCEC 50 Shariah Index will measure the performance of 50 leading Shariah-compliant companies from members of the Organisation of Islamic Cooperation (OIC). Eligible countries and territories for the Index are: Bahrain, Bangladesh, Côte d'Ivoire, Egypt, Indonesia, Jordan, Kazakhstan, Kuwait, Lebanon, Malaysia, Morocco, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

In a sukuk auction which took place on Tuesday, Indonesia as able to raise 460 billion rupiah ($48.65 million). Accourding to the debt office, the price was below the goal of 500 billion rupiah. The sukuk was a 25-year project-based bond at a weighted average yield of 6.69 percent. There were no winning bids for the rest of the sukuks in the auction.

Indonesian two-year sukuk dropped last month, raising up yields by the most since September, as Standard & Poor's.
S&P didn’t associate with Moody’s Investors Service and Fitch Ratings, which have allowed Indonesia investment-grade status in the past five months, declaring the nation at risk from “policy slippages” such as the failure to reduce the fuel subsidies.

The data from Capital Market and Financial Supervisory Agency shows that Indonesia’s Shariah-compliant insurance assets increased by 32 percent to 9.2 trillion rupiah ($1 billion) in 2011 comparing to the year before.
The agency stated that takaful has grown by 50 percent on average in the last five year.
Moreover, it seems that Mayban Ageas and Syarikat Takaful Malaysia Bhd. plan to develop in Indonesia to take advantage of the growth rate.

Malaysia’s biggest Islamic insurers plan to develop in Indonesia, taking advantage of industry growth that is almost three times the pace of their home market and ampplyfying the wealth in the world’s most populous Muslim country.
It seems that Mayban Ageas, the nation’s largest insurer, is thinking about an acquisition in Indonesia. Syarikat Takaful Malaysia, the second-biggest, forsees its Indonesian unit generating 50% of its profits, from less than 10% now.

Green Faith got together over 100 people to debate religiously inspired eco-consciousness and interfaith activism around environmental issues.
The evening began with a short video clip and discussion by UW-Madison Associate Professor Anna M. Gade on the tradition of Muslims conserving natural resources in Indonesia, the world’s most populous Muslim-majority nation. She underlined models for embracing inter-religious cooperation that draw on the Qur’an, values that are highly influential in Indonesia’s religiously pluralistic society nowadays.

It seems that Bank Negara Indonesia (BNI) is currently searching for a partner to further tap growth opportunities in Shariah banking.
BNI also follows some potential acquisition targets to help the bank make inroads into the micro-finance market. Furthermore, the bank intends to strengthen its headcount in Indonesia, in part to catch opportunities arising from higher foreign direct investments into the country.

Islamic bonds are falling behind developing-nation debt for a second quarter as investors search for higher yields in non-investment grade securities.
According to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, Shariah-compliant notes returned 1.5 % this year and non-Islamic bonds in emerging-market countries gained 4.1 %.
Sales of Islamic debt are intensified in Indonesia, Malaysia and the GCC, while lower-rated nations such as Egypt and the Philippines are still planning issuance.

CALL FOR PAPERS - Islamic capital markets, Deadline: Submission of Abstract: March 15, 2012
Islamic Research and Training Istitute – Islamic Development Bank, Jeddah, Saudi Arabia

Islamic capital markets are to become an important part of the Islamic financial system. While new products are steadily coming into the market and the Islamic investment instrument are growing, Islamic capital markets still constitute a very small niche. For a discernible impact on the investment promotion, market stability, and equitable socio-economic development there is a growing need to accelerate the process of product development, to create conducive regulatory environment and to improve the market practices. This task requires development of new human capital and knowledge base.

With this larger objective, the immediate focus of this conference is on three issues:
• Design and use of Islamic financial products for Islamic capital markets.
• Identification of the needs for and the implications of market regulations for development of Islamic capital market.

Indonesia’s Islamic finance industry is attracting investment from Middle Eastern and European banks as regulator is searching to double Shariah-compliant assets to 10% of the total this decade.
According to Mudassir Amray, the head of wholesale banking in Kuala Lumpur, Al Rajhi Bank is pursueing investment banking business in Indonesia and may open branches when the right time comes.
Moreoever, Bank Indonesia is proposing tax breaks to raise the industry, which has grown an average 38% annually over the past five years.

After Indonesia failed to sell the sukuk last year as investors asked for higher yields, the country plans to launch 2 trillion rupiah ($223.59 million) of project-based sukuk in the first half of this year.
Finance minister Agus Martowardojo, who gave the statement, added that the government posesses underlying assets of 5 trillion rupiah to issue project-based sukuk this year. Moreover, Indonesia is also aiming to issue a global sukuk at the end of the first half.