Shariah Banking on the Up

By ID/Gita Rossiana | Source: The Jakarta Globe

The market share of Islamic lenders in Indonesia during the first quarter of 2013 reached nearly 5 percent for the first time ever, Bank Indonesia said on Wednesday.

The market share of Shariah-compliant banks in the first quarter was 4.9 percent, mainly from Rp 214.5 trillion in assets, an increase of 37.8 percent compared to the same period in 2012.

“It is a market share in the Shariah banking industry that has never happened before,” Bank Indonesia Deputy Governor Halim Alamsyah said during his opening speech at a discussion on Islamic banking at the State Enterprises Ministry.

Halim said the assets growth of Shariah banking is higher than conventional banking, which reached 16.8 percent year on year. Moreover, he said that the growth of Islamic banking within Indonesia exceeded the global rate, which averages 15 percent to 20 percent per year.

From the operational sector, the financing of Shariah banking is 70 percent to 80 percent dominated by lending to micro, small and medium enterprises. He added that the financing activity of Shariah banks is relatively active with funding and saving ratios above 90 percent.

Islamic lenders comply with the Shariah law that prohibits the receipt of interest payments, by instead receiving a pre-arranged percentage of revenue to repay a loan.

Bank Indonesia is targeting an increase of as much as 58 percent this year in banking assets that comply with Islam’s ban on interest. Currently, 4.6 percent of holdings in the country are Shariah-compliant, compared with around 20 percent in Malaysia, central bank data show. An expanding Islamic banking industry supports the issuance of sukuk as it creates more demand for the debt.

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