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The Islamic Financial Services Board (IFSB), Bank Indonesia and the Financial Services Authority of Indonesia (OJK) organised an Industry Engagement Session. The event was entitled "The Global Islamic Finance Industry and the IFSB" and took place on 2 October in Jakarta. Anwar Bashori, Head of Islamic Finance at Bank Indonesia, shared his optimism that there is strong potential for further growth of this sector in Indonesia. He also touched on the importance of Halal tourism and food industry, and the various challenges and opportunities related to Fintech. In the panel discussion Prof. Volker Nienhaus commented on the emerging trend which is expected to enhance financial inclusion through the greater use of fintech. Ahmad Buchori shared the current issues of Islamic finance in Indonesia. Dr. Rifki Ismal’s presentation focused on developing the Islamic social sector to enhance the Indonesian economy. The session ended with discussions between the participants, where the industry players reaffirmed the important role of regulators. There was a request for more platforms to address and discuss key issues and concerns of the Islamic finance players.

In an effort to boost the industry, Bank Indonesia has decided to work with Islamic boarding schools known as pesantren. Anwar Basori, Bank Indonesia's head of Islamic Finance and Economy, said there is a lot of potential in the 27,000 pesantren, which have about 3.6 million students. The central bank said it is finalizing a roadmap for the program under which it will work with the Religious Affairs Ministry to help the business units of pesantren to become financially independent. The schools operate in various business areas, including mini-markets and cattle farms, and provide extracurricular entrepreneurship and Islamic finance education to students. Anwar said that the roadmap would be implemented in early 2017, starting with a pilot project.

Highlights and Performance
Bloomberg Malaysia Sukuk
Bloomberg Malaysia Sukuk Ex-MYR Total Return and Dow Jones Sukuk Total Return indices ended relatively flat at 103.9 (+0.02%) and 159.8 +0.01%) respectively, with yields tightened marginally by 0.6bps to 2.470%. Combined with the Fed‘s dovish meeting (June 15), uncertainty over the Brexit referendum jitters (June 23) and mixed signals from China over slowing economy bring the risk-adverse sentiment. The top performers over the week were INDOIS 3/26 and GS 9/19, which moved -11bps to -13bps; while the underperformers were dominated by banking papers — EIB 1/17, Noor Bank B3T1 and DIB B2T1 which widened 12bps each.
Bank Indonesia
Bank Indonesia cuts key policy rates by 25bps in a surprise move, with the BI rate, deposit facility rate and 7-day reverse repo rate now stand at 6.50%, 4.50% and 5.25% respectively. In addition to the rate cut, BI also raised the minimum threshold on loan-to-funding ratio to 80% from 78%. Indonesia risk premiums widened 1.5bps to 196.0bps.

Bank Indonesia holds The 3rd Bank Indonesia International Seminar on Islamic Finance on 30-31 May 2013, in Bali. The seminar's theme is, "A New Phase of Islamic Finance: Capturing the Untapped Area to Improve the Quality of Economic Development".The seminar is expected to revisit the essense and purpose of the Islamic finance, and explore new sources of growth to maintain the current high level of growth in the Islamic finance industry. The area of discussion includes shariah norms in the economy, the application of Islamic finance in the government sector, the promotion of inclusive growth, and the implementation of macroprudential policies in Islamic finance. The seminar is attended bymore than 200 participants representing regulators, practitioners, and scholars in Islamic banking and finance, both domesticand international.

Just in time for the beginning of 2013, Bank Indonesia (BI) introduced several new regulations serving to improve banks’ competitive and operating efficiencies, maintain stability via capital enhancement and ensure long-term sustainable growth among other things. Some of the rulings are higher CAR for higher-risk profiled banks, limitation in banking activities based on banks’ tier I capital, and productive loans with minimum MSME to limit credit risk.

Islamic Banks expect rapid growth in 2013. According to a central bankier, Indonesian banks will register higher profits in upcoming year despite more stringent rules imposed by the Indonesian central bank. The total amount of Islamic assets including Islamic-compliant rural banks grew up by 37 percent comparing to last year, a deputy governor of Bank Indonesia said. He expects that the amount of Islamic assets will continue growing in the next year.

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.

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.

The 25th Board of Directors meeting of the International Islamic Financial Market (IIFM) took place on December 11 at Islamic Development Bank (IDB) offices in Jeddah. Present at the meeting were senior representatives from IDB, Central Bank of Bahrain, Central Bank of Sudan, Autoriti Monetari Brunei Darussalam, Labuan Financial Services Authority (Malaysia), Bank Indonesia, State Bank of Pakistan, ABC Islamic Bank - Bahrain, Bank Islam Malaysia Berhad, Kuwait Finance House-Bahrain.
Mr. Khalid Hamad Abdul Rahman Hamad, Executive Director-Banking Supervision, Central Bank of Bahrain & Chairman of IIFM, welcomed the Board members and thanked them for their foresightedness and guidance which has been influential in IIFM’s focus on standardized documentation & products for the Islamic Capital & Money Market.

Shariah loans increased by almost half in the first six months of the year. The reason was the rapid expansion of Shariah banks in Indonesia.
Mulya Siregar, director of Shariah banking at Bank Indonesia, stated that Shariah loans rose 49 percent to Rp 83 trillion ($9.8 billion) through June, in comparison with the same period last year.

Central bankers from Malaysia, Indonesia have met in Jakarta on 18 July 2011 and discussed the need to improve cooperation in order to boost the development of Islamic finance in the two countries.
Governor Tan Sri Dr Zeti Akhtar Aziz of Bank Negara Malaysia and Governor Darmin Nasution of Bank Indonesia agreed on the need for joint initiatives to create an ‘enabling environment’.

The Regulation on Asset Quality Assessment for Commercial Sharia Banks and Sharia Business Units of Bank Indonesia has been launched to promote and improve the application of prudential risk management principles in the Sharia-based banking industry and to update regulations on Sharia banking business in light of the introduction of the Law on Sharia Banking (21/2008).
In conlusion, the regulation requires Sharia-compliant banks and Sharia business units to assess and supervise their own asset activities and to be proactive in ensuring the liquidity of their productive and non-productive assets.

In order to increase the Shariah-compliant banking assets by 35 percent this year, Indonesia's Foreign Ministry and central bank are seeking investment from the Persian Gulf.
Mulya Siregar, the Jakarta-based director of Islamic services at Bank Indonesia, announced that it is possible that the delegation is going to meet officials in the Middle East as soon as this month, with Saudi Arabia and Kuwait the most likely destinations.

The Islamic financial sector in Indonesia relies on a combination from infrastructure projects and regulatory reforms to convince the sharia-compliant lenders to go on with the rapid expansion.
One of the reform sugested by Bank Indonesia is is to cut taxes payable by banks and clients on income from Islamic finance accounts. Bank Indonesia is also trying to bring together a committee of experts in order to generate an approval process for new products that is efficient.

Indonesia’s central bank is speeding up the approval process for new Islamic banking products by forming a 10-member joint committee with the nation’s board of Shariah scholars.
The new group will start work in January and will have representatives from Bank Indonesia, Majelis Ulama Indonesia, which is the Shariah board, and the Indonesian Association of Accountants.

In order to reduce risks of financial transactions, member countries of the International Islamic Financial Market (IIFM) may soon enjoy a hedging facility.
IIFM member countries would sign a master agreement, called a tahawwut agreement, to accommodate the hedging facility.
The agreement, according to Mulya Siregar, Bank Indonesia’s director for sharia banking, was needed to ease the risks of currency-related transactions amid currency concerns affecting both developed and emerging economies.

The Islamic Financial Services Board will be organising two awareness programmes in December 2010. The first one is a seminar on legal issues in the Islamic financial services, while the other is a seminar on the role of Islamic finance in the development of Africa.
The two awareness programmes are open for participation by the IFSBIFSB member organisations, which currently stand at 195 organisations from 41 countries, and other interested parties. The events are described below. The details of both programmes and their registration forms are available on the IFSBIFSB website (www.ifsb.org).
Bank Indonesia is hosting the Seminar on Legal Aspects of Islamic Asset Securitisation and Insolvency Regimes. The Workshop will cover the following topics; 1) Concept and contracts of Islamic finance; 2) Structures of Islamic financial products; and 3) Overview of the IFSBIFSB Standards and Guiding Principles.

The people of West Java also showed their support by injecting Rp 106 billion into the bank. Although its business was not too bright in its early days, the bank recorded a profit of Rp 372.5 billion in the second quarter of 2009. The achievement of Bank Muamalat is proof of the great potential of sharia banking in Indonesia. Sharia banking is based on Islamic law.

Bank Indonesia data reveals there are currently five sharia banks operating in the country, namely Bank Syariah Mandiri, Bank Muamalat Indonesia, Bank Syariah Mega, Bank Syariah Bukopin and Bank Syariah BRI. Twenty-six other banks have sharia banking units, such as Bank Permata, Bank BNI, Bank CIMB-Niaga, Bank Danamon and BPD DKI.

The Acting Governor of Bank Indonesia said that banks based on Islamic law are predicted to enjoy further growth in 2010. Darmin added that sharia banks would continue to flourish due to the organic growth within existing banks and the establishment of new sharia banks and unit.

Bank Indonesia plans to reduce the capital adequacy ratio (CAR) for conventional banks wishing to set up a shariah commercial bank through a spin-off from Rp 1 trillion to Rp 500 billion as of March.

The Islamic Corporation for the Development of the Private Sector (ICD), looks into establishing an Islamic bank in Indonesia as partner.