Indonesia: BI urges Islamic finance industry to enhance human capital

Bank Indonesia ( BI ) has urged Islamic financial institutions to enhance their human capital in order to improve competitiveness and sustain the industry’s rapid growth.

"If we want to see the Islamic financial sector on par with its conventional counterpart, it is relevant to improve the human capital," BI deputy governor Hendar told a seminar on human capital development held at BI’s offices in Jakarta on Friday.

Hendar added that Islamic financial institutions had achieved significant growth, surpassing the growth of conventional financial institutions even during the global economic crisis.

Despite this achievement, the industry was still facing a low quality of human capital, resulting in relatively low operational efficiency and poor product knowledge, he said.

"We should pay more attention to the low quality of human resources. This unfortunate phenomenon has affected many countries, including Indonesia," he said.

To enhance human capital, industry players needed to address crucial factors. Universities needed to provide teaching materials that combined Islamic and regular education with technology-based development and needed to build strong cooperation with global institutions.

Meanwhile, Ali Ghufron Mukti, director general for science, technology and higher education at the Research and Technology and Higher Education Ministry, added that to achieve global competitiveness, industry players needed to improve technological readiness, innovation and higher education.

"In the era of ASEAN Economic Community, human resources, undoubtedly, play an important role to enhance the competitiveness of the country. Hence, the ministry encourages individuals and organizations to conceptualize and make strategies to enhance human capital," he said, adding that vocational education was necessary beside academic education.

He said priority sectors to focus on were energy and renewable energy, health care, transportation, defense and maritime industries.

(The Jakarta Post / 13 May 2016)

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Indonesia lacks commitment to develop Islamic finance

Indonesia lacks the political commitment needed to develop Islamic finance, causing it to lag behind Malaysia in that area, experts have said.

"In Malaysia, there is a top-down approach, the government aims to be the global Islamic financial hub," Senior economist for the British Embassy in Jakarta, Edi Wiyono, told thejakartapost.com on Tuesday.

Meanwhile, in Indonesia, Islamic finance has grown from the bottom-up, with the public-initiated establishment of Bank Muamalat, the first sharia bank in Indonesia, he added.

Indonesian sharia bank assets accounted for 5 percent of conventional banking assets in 2015. In the terms of sukuk, Indonesia only had 4 percent while Malaysian shares reached 67 percent.

However, Indonesia is still the biggest retail sharia market in the world but the contributions of sharia finance in big projects, such as infrastructure, are still lacking.

 "The government must give tax incentives to corporations to issue more sukuk in the market. Because technically the rating process and the sharia ratification are more complicated and thus more expensive compared to the conventional bonds," University of East London professor of Islamic Finance, Siraj Sait said.

Along with a more complicated rating process, sharia experts were needed to speed up sukuk issuance.

"Getting a pool of talent is important, if the ambition of Indonesia is to move from the 5 percent trap, it needs to prioritize human development. The challenge that Indonesia faces is in the area of human capital," Siraj said. 

(The Jakarta Post / 07 April 2016)

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Indonesia $2.5b dollar sukuk 3.1 times oversubscribed

Jakarta: Indonesia raised $2.5 billion (Dh9.2 billion) from its sale of dollar Islamic bonds and got orders for 3.1 times the amount offered, according to a person familiar with the issuance.

The Southeast Asian nation sold $750 million of five-year sukuk and $1.75 billion of 10-year notes priced at 3.4 per cent and 4.55 per cent, respectively, said the person, who isn’t authorised to speak publicly and declined to be identified. Bids totaled $7.7 billion. Indonesia sold $2 billion of such debt due in 2025 at its previous offering last year at a coupon rate of 4.325 per cent and received orders for $6.8 billion, or 3.4 times the offer.

The Southeast Asian nation’s bonds have attracted more than $3 billion of inflows this quarter as the Federal Reserve said it’s only likely to raise interest rates twice in 2016 instead of the four previously envisaged, helping retain Indonesia’s yield advantage over US debt. The rupiah is also turning into a regional top performer after a more than 10 per cent slump in 2015 that pushed it beyond 14,000 a dollar for the first time since the Asian financial crisis.

“Indonesia timed its sukuk issuance to perfection as it comes after the dovish Fed’s statement,” said Hasif Murad, an investment manager at Kuala Lumpur-based Aberdeen Islamic Asset Management, whose parent company oversees the equivalent of $2.9 billion.The fact that Indonesia is the darling of Asia also helps.

A Bloomberg index of emerging-market dollar bonds has climbed 5.5 per cent this quarter, set for the biggest three-month gain since September 2012. And with Malaysia said to be planning another global sukuk, the outlook for Islamic note sales worldwide is already looking brighter than last year.

Issuance to date is $10.2 billion, exceeding last quarter’s $9.9 billion, based on Bloomberg-compiled data. Total offerings for all of 2015 dropped 29 per cent to $35.4 billion in the poorest showing since 2010.

The yield on Indonesia’s 2025 Islamic bonds issued last year rose one basis point to 4.41 per cent as of 11:39 am in Jakarta, less than the 4.95 per cent they were paying at the end of last year, data compiled by Bloomberg show. There’s no pricing available yet for either of the two new notes. The rupiah has appreciated 4.7 per cent versus the dollar in 2016, second only to a 6.6 per cent gain in Malaysia’s ringgit among Southeast Asia’s most-traded currencies.

(Gulf News Market / 23 March 2016)

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Indonesia raises 31.5t rupiah from retail sukuk

Indonesia's finance ministry raised 31.5 trillion rupiah (S$3.33 billion) in retail shariah bonds, the largest issuance of its kind since the government started selling in 2009, the ministry said in a statement on Monday.

The retail sukuk, maturing March 10, 2019, has a fixed coupon of 8.30 per cent, slightly higher than the 8.25 per cent coupon set for the retail sukuk in 2015.

The government raised 21.97 trillion rupiah in retail sukuk last year.

Retail sukuk are offered to individual Indonesians and can be traded in the secondary market after a one-month holding period.

Indonesia will sell more sovereign bonds to local individual investors this year, officials said last month, as it tries to lower its dependence on foreign funds and deepen the local financial market.

(Banking And Finance / 07 March 2016)

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Hong Kong Closes on Indonesia in Dollar Sukuk as Silk Road Alive

Hong Kong’s possible third Islamic global bond in three years brings it closer to Indonesia and Malaysia in terms of sovereign sukuk presence, a boost to the market that coincides with China’s Silk Road revival.

The finance center has already raised $2 billion from sales in 2014 and 2015, which attracted $6.7 billion in total orders, while Indonesia plans to tap investors for the sixth year running and Malaysia is returning for its seventh offering. While the city only has 270,000 people following the teachings of the Koran, it’s positioning itself as a vital port and financing hub for China’s ‘One Belt One Road’ policy announced by President Xi Jinping in 2013.

“The announcement is a great sign of Hong Kong’s continued wish to be at the center of people’s minds when it comes to Islamic financing in Asia, particularly as momentum builds around China’s belt and road initiative,” said Davide Barzilai, Hong Kong-based head of Islamic Finance for Asia Pacific at law firm Norton Rose Fulbright. "We will find that Islamic-compliant investors will see the attractions.”

Hong Kong, which is losing its role as a gateway to China as Shanghai’s financial market opens, is keen to become the launchpad for the global ambitions of Chinese companies, including building roads, railways and ports along the traditional Silk Road to the Middle East, Africa and Europe. While the ex-British colony is making progress after putting in legislation for Shariah-compliant bonds in 2013, Singapore’s aspirations are stalling, highlighting the difficulties posed to countries or cities with small Muslim communities.

The city is considering selling a third sukuk, Financial Secretary John Tsang said in budget comments, brightening the outlook after a 29 percent slump in global issuance in 2015 from $49.6 billion the previous year, when the U.K., Luxembourg and Hong Kong sold such debt for the first time.

2016 is off to a better start, with $5 billion in worldwide sales compared with $1.8 billion a year earlier, data compiled by Bloomberg show. Kenya, Nigeria, Ghana and Morocco are also planning debuts. Offerings climbed to a record $51.6 billion in 2012.

Singapore’s DBS Group Holdings Ltd. closed its Islamic unit last year and despite introducing laws for Shariah-compliant bonds in 2006, sales have so far been limited to energy company Swiber Holdings Ltd., Sabana Shariah-Compliant Industrial REIT, the central bank and home builder City Developments Ltd.

In a sign the ancient Silk Road is coming back to life, the first cargo train from China to Iran completed its journey in February following the lifting of international economic sanctions. President Xi toured Saudi Arabia, Egypt and Iran in January to discuss energy cooperation, industrial parks and diversifying trade. To fund its global push, China is setting up the Asian Infrastructure Investment Bank, pushing for the yuan to be included in global reserves and opening its bond market to foreign investors.

China’s road policy offers opportunities for Islamic financing and sukuk, said Barzilai at Norton Rose Fulbright. While Hong Kong is in a strategic position to access China’s large Muslim population, it needs stronger efforts to harness investor demand and improve liquidity, said Angus Salim Amran, the Kuala Lumpur-based head of markets at RHB Investment Bank Bhd., Malaysia’s second-biggest Islamic bond arranger.

“There is no doubt that Hong Kong is positioning itself as the gateway to China as currently sukuk investors have limited opportunities to tap into China’s potential,” said Johar Amat, head of Treasury at OCBC Al-Amin Bank Bhd., the Shariah-compliant unit of Singapore’s second-largest lender. “The diversity in demand for sukuk as a financing instrument is crucial for the growth of Islamic finance worldwide.

(Breaking News / 01 March 2016)

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Jury Out on Jokowi Committee as Indonesia Islamic Finance Stalls

The jury is out on whether a group helmed by President Joko Widodo can revive stalled growth in Indonesia’s Islamic finance industry.

The head of the world’s biggest Muslim population is chairing a new committee tasked with bringing fragmented regulations under one roof and taking action to spur the market, according to the Cabinet Secretariat. Shariah-compliant banking assets increased less than 1 percent in the first 10 months of 2015, compared with 6.8 percent overall.

“The fact that it’s being led by Jokowi demonstrates the seriousness,” said Raj Mohamad, managing director at Singapore-based consultancy Five Pillars Pte. “But as they say, the devil is in the details, as we have yet to see the blueprint.”

Indonesia’s ambition to rival Malaysia as a regional hub for finance catering to Muslims is being hindered by a lack of progress in scrapping double taxation on sukuk and a delay in creating an Islamic megabank. The success of the new oversight body may test Jokowi’s credentials after he faced opposition in parliament over reforms since taking office in 2014.

Financial products governed by religious tenets currently have to comply with the regulations of Bank Indonesia, the Financial Services Authority and the National Ulema Council of Shariah scholars. The heads of those institutions will also be part of the new committee, which will be charged with encouraging development, improving endowment mechanisms and raising public awareness, National Planning Minister Sofyan Djalil told reporters in Jakarta on Jan. 5.

Indonesia’s Islamic finance industry is slowing even after a five-year blueprint was unveiled in 2014 to strengthen the capital base of banks, improve the management of funds used for the annual pilgrimage to Mecca and increase the number of experts.

Assets rose 0.4 percent through October to 273 trillion rupiah ($19.7 billion), after increasing 12 percent in 2014, 24 percent in 2013 and 34 percent in 2012, data from the Financial Services Regulator show. That’s a far cry from Malaysia’s 672.6 billion ringgit ($152 billion).

“Islamic finance in Indonesia is still far short of the potential,” minister Djalil said. “What we need is synergy among the participants.”

The Southeast Asian nation is also susceptible to a global slowdown just like any other regional economy, making it more imperative that Indonesia boosts its Shariah-compliant industry. More than five years after the central bank asked the tax department to look into the issue of double taxation on sukuk, companies interested in selling such debt are still in limbo and offerings have to be considered on a case-by-case basis.

A plan to create an Islamic megabank by merging the Shariah units of PT Bank Mandiri, PT Bank Negara Indonesia, PT Bank Rakyat Indonesia and PT Bank Tabungan Negara has also been pushed back, with various officials touting different target dates to achieve it.

Financial Services Authority Director Dhani Gunawan Idat said last month that such an entity will be established in 2017.

“There are many areas that the committee will need to consider and attempt to address,” said Suhaimi Zainul-Abidin, a founding member of the Gulf Asia Shari’ah Compliant Investments Association in Singapore. “With President Jokowi chairing the committee and given the membership composition, it should be much easier for the different stakeholders to reach a consensus of what needs to be done, and to thereafter activate the appropriate levers to make things happen.

(Bloomberg Business / 12 January 2016) 

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Indonesia plans to sell dollar sukuk for sixth straight year

Jakarta: Indonesia plans to sell dollar Islamic bonds, kickstarting 2016’s sovereign issuance after the poorest showing for global annual offerings in five years.

The deadline for proposals is next week and selections for the arrangers will be made before the end of January, according to people familiar with the matter, who asked not to be identified because the process is private. No details on the size and maturity were given. Suminto, Islamic financing director at Indonesia’s Finance Ministry, couldn’t immediately comment.

It’s the sixth straight year the Southeast Asian nation will have sold Sharia-compliant debt overseas and coincides with waning risk appetite across world markets driven by a selloff in Chinese shares. The government plans to issue as much as $2 billion of global sukuk in 2016, Robert Pakpahan, director general for budget financing and risk management at the Finance Ministry, was citing as saying by Kontan in October.

“While it may not be the best time to issue, weighing against the risk of potentially higher dollar-funding conditions when the United States Federal Reserve tightens further, it could still be a better window of opportunity to tap the market now,” said Winson Phoon, a Kuala Lumpur-based fixed-income analyst at Maybank Investment Bank Bhd. “With some yield concession, I think there will be demand.”

The sovereign sold $2 billion of 10-year dollar Islamic notes in May last year at a coupon rate of 4.325 per cent and got $6.8 billion in orders. The securities were paying 4.84 percent on Friday, compared with 4.96 per cent at the end of 2015, data shows.

(Times Of Oman / 08 January 2016)

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Indonesia prays for Islamic banking boom

Indonesian teacher Nina Ramadhaniah hopes for "blessings from Allah" by opening a sharia bank account -- the sort of pious customer the world's most-populous Muslim-majority country is praying for as it launches an Islamic finance drive.

Indonesia, Southeast Asia's biggest economy, has a Muslim population of around 225 million, but this huge number of faithful has not translated into success for sharia banks – institutions required to do business in line with Islamic principles. Now regulators have launched a plan aimed at growing the sector, which currently accounts for less than five percent of banking assets, compared to a quarter in neighbouring, more developed Muslim-majority Malaysia and around half in Saudi Arabia. Authorities believe it is a good moment, with many Indonesians getting wealthier after years of strong economic growth and an increasing trend towards piety across broad sections of society.

Many of those without bank accounts, estimated at about 40 percent of the population, are soon expected to open one. "The situation is an opportunity for the Islamic banking business to get bigger," said Nasirwan Ilyas, a senior official from the Islamic banking division of the Financial Services Authority (OJK). The OJK is spearheading the drive, and unveiled a five-year roadmap earlier this year that included plans to educate the public about sharia lenders and the establishment of an Islamic finance committee to better manage the sector.

Key features of sharia banking include the prohibition of interest on loans or customer deposits, and a ban on investing in "non-Islamic" businesses, such as those involving pork or alcohol. For teacher Ramadhaniah, who has an account with Indonesia's biggest Islamic lender, Bank Syariah Mandiri, the ban on interest is a key attraction. "Charging interest is haram (against Islam), ill-gotten gains that will not bring me any blessings from Allah," the 44-year-old told AFP. "I don't want to live in sin."

Sharia accounts often work on a "profit-and-loss sharing" model, meaning customers get a windfall when the bank does well, but can lose out when it does badly. There are obvious disadvantages. Sharia lenders generally offer lower returns on investments and their modest size often means they provide fewer services than larger, conventional peers – many shops are not equipped to accept their debit cards.

Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 percent a year between 2008 and 2012, according to the OJK. The growth came after laws were changed to make it easier to establish an Islamic bank, and there are now a plethora of stand-alone sharia lenders, Islamic banking units attached to conventional banks and smaller Islamic financial institutions in the countryside. Growth in the sector has lost steam due to a broader slowdown in the economy, which is expanding at six-year lows – giving authorities another reason to launch their drive.

Central to the overhaul is a plan to set up a National Islamic Finance Committee this year, to oversee the sector by bringing together representatives from different government agencies and act as a contact point for potential foreign investors. Currently, responsibility for the sector is spread around different bodies, such as the OJK, the central bank and the finance ministry, according to the OJK's Ilyas. It is modelled on similar bodies in other countries, such as the International Islamic Financial Centre in Malaysia, where the sector is already far more developed as the government started supporting it some years ago.

In addition to the OJK roadmap, the government has announced plans to merge the Islamic banking subsidiaries of four state-owned banks to create an Islamic mega-bank, which should be able to provide better services than the current Islamic lenders.

While observers have broadly welcomed the plans, they concede that many difficulties remain. Khalid Howladar, Moody's global head of Islamic finance, said it would be "quite a challenge" to grow the sector to a substantial level. "The market is growing faster than the conventional but from a very low base," he said, adding Islamic banks in Indonesia did not offer "substantive competition" to their non-sharia peers.

But for Ramadhaniah and a growing army of devout Indonesians with new-found spending power, Islamic banks remain the only choice. "I really don't care that I'm not earning anything or getting lower returns on my investments," she said. "I can live in peace.

(Qantara  / 30 September 2015)

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Indonesia’s gain in Islamic banking

Indonesia is drawing interest from Middle-Eastern banks seeking to tap the world’s biggest pool of Shariah-compliant investors as some Islamic lenders wind down or close operations in Malaysia and Singapore. Emirates NBD PJSC wants to invest at least US$300 million (RM1.32 billion) in a new Shariah lender or acquire a stake in an existing one, Dhani Gunawan Idat at Indonesia’s financial regulator said. That’s a vote of confidence for Southeast Asia’s largest economy, which is also bidding to host the regional infrastructure unit of Saudi Arabia-based Islamic Development Bank that’s due to begin operations in 2016.

The investments would be a boost for Indonesia in its ambition to become an Asian hub in the US$2 trillion industry. Emirates NBD’s plan comes as Kuwait Finance House prepares to close its Islamic operations in Malaysia, while Bahrain’s Elaf Bank BSC has already done so. DBS Group Holdings Ltd is winding down its Singapore arm catering to Muslims, having said this month it was “unable to achieve economies of scale”. 

“Islamic banking elsewhere is starting to reach saturation point,” Dhani, director of Islamic banking research, regulation and licensing at the Financial Services Authority, said. “This investment will bring in fresh funds as well as Middle East expertise in infrastructure investment, which the economy needs.” Investment from the Middle East would be timely as Indonesia’s Shariah-compliant banking assets have shrunk 18% in 2015 from a year earlier amid the global financial turmoil. They stood at 201 trillion rupiah (RM60.3 billion) in May, compared with Malaysia’s RM523 billion, central bank data show. Indonesia offered the highest profitability among nine major Islamic banking markets tracked by Ernst & Young LLP, with a return-on-equity of 15%, according to the company’s 2014-15 competitiveness report. 

That compared with 10% in both Malaysia and the United Arab Emirates, 0.7% in Bahrain and 7.4% in Kuwait, the research firm said. While Indonesia limits foreign ownership in the nation’s lenders to 40% under legislation introduced in 2013, it’s seeking to consolidate the banking industry. In that vein, the FSA will allow an investor to take a bigger stake as long as the buyer merges the two entities. Emirates NBD, Dubai’s largest lender, was advised to open a new Islamic bank in the Southeast Asian nation to sidestep the ruling, Dhani said. A spokesman for Emirates NBD, who asked not to be identified, declined to comment on the Indonesia plan. “Indonesia has some resistance towards foreign banks coming into the market,” said Megat Hizaini Hassan, head of the Islamic finance practice at law firm Lee Hishammuddin Allen & Gledhill in Kuala Lumpur. “The perception of some in Indonesia is that foreign banks are trying to gobble up the business.”

 Malayan Banking Bhd in Kuala Lumpur bought out PT Bank Internasional Indonesia in 2008 before the investment cap was brought in, and then set up PT Bank Maybank Syariah Indonesia in 2010. Malaysia’s CIMB Group Holdings Ltd and Singapore’s Oversea-Chinese Banking Corp entered the local market in 2002 and 2008, respectively, and now offer Shariah-compliant products via PT Bank CIMB Niaga Syariah and PT Bank OCBC NISP. The Islamic Development Bank, whose largest shareholders are Saudi Arabia, Libya, Iran and Nigeria, may choose Indonesia as the base for its Islamic Investment Infrastructure Bank, Finance Minister Bambang Brodjonegoro said in April. The government is approaching “key countries,” especially those in the Middle East, to earn the right to host the IDB, he said. 

The multilateral lender currently owns 32.7% of PT Bank Muamalat Indonesia, the country’s second-largest Shariah-compliant bank by branches. Singapore’s DBS Holdings abandoned its plan to buy conventional lender PT Bank Danamon Indonesia for US$6.5 billion in 2013 due to the new ownership rule. China Construction Bank and South Korea’s Shinhan Bank are currently seeking two acquisition targets to merge. “The Indonesian Islamic banking market has all the ingredients to achieve similar, if not more success” than its counterparts, said Alhami Abdan, head of international finance and capital market at Kuala Lumpur-based OCBC Al-Amin Bank Bhd.

(The Malaysian Insider  29 September 2015)

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Indonesia lists world's biggest sukuk in Dubai

Indonesia listed on Sunday four sukuk valued at Dh22 billion - the largest ever carried out by a sovereign issuer on Nasdaq Dubai - as Dubai further reinforced its position as the world's leading hub for Islamic economy.

Indonesia's Finance Minister Bambang Bodjonegoro, who rang the market-opening bell to celebrate the listing of the Islamic bonds said it was an important step forward in further strengthening his country's ties with the UAE and the wider Middle East.

With the new listings, Dubai, which had already overtaken rival financial centres to become the world's leading sukuk hub in line with the goal set by the leadership, has boosted the listed nominal value of sukuk to Dh135 billion, with Nasdaq Dubai accounting for 93 per cent of that amount.

Sunday's sukuk listings are the largest ever carried out by a sovereign issuer in Dubai, underscoring the Emirate's growth as the global capital of the Islamic Economy.            

Bodjonegoro said Indonesia, the biggest Muslim nation with a total population of 255 million people, is a frequent sukuk issuer in the global market. "Since our international debut in 2009, we have issued global sukuk valued at 7.65 billion dollars," he said.

The minister said the latest listings underlined importance of sukuk as a global sovereign financial tool for investment and development and strengthen confidence in Islamic finance regulatory environment in Dubai and the UAE. 

Mohammed Abdulla Al Gergawi, the UAE Minister for Cabinet Affairs and Chairman of the Dubai Islamic Economy Development Centre, said the listing of the Indonesian sukuk was a milestone in the drive by Dubai to become the capital of the global Islamic economy.  

Gergawi said Sunday's listing would play a significant role in attracting further sukuk from around the world and further strengthen global confidence in Dubai as the capital of the Islamic Economy. It will encourage more countries and  corporations to utilise sukuk as a financial sovereign and investment tool in their development plans in the medium and long term.

Nasdaq Dubai attracted sukuk listings valued at $13.4 billion in 2014 and has added $12.6 billion so far in 2015.

By July, Dubai has overtaken other Islamic bond markets as the value of sukuk listed on the emirate's exchanges hit $36.7 billion, ahead of the world's three traditional sukuk centres: Malaysia, with $26.6 billion listed on Bursa Malaysia and the Labuan free trade zone, the Irish Stock Exchange with $25.7 billion, and the London Stock Exchange with $25.1 billion.

Leadership in global sukuk was a goal set by His Highness Shaikh Mohammed bin Rashid Al Maktum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, in his 2013 initiative to make the emirate the capital of the Islamic economy.

 While 56 per cent of Dubai's listed sukuk are from UAE issuers, 22 per cent are from Saudi Arabia. Ali said he wanted the proportion from the Gulf countries outside the UAE to grow.

The four sukuk listings by the Indonesian government under its Trust Certificate Issuance Programme comprise one issuance of $2 billion, two of $1.5 billion each, and one of $1 billion.  

"The success of Dubai's Islamic capital markets is based on our deep-rooted traditions in this field and the profound knowledge of the many experts based within the Emirate. We are delighted to collaborate with issuers and other specialists around the globe to maintain the growth of the sector for the benefit of all participants," said Essa Kazim, Governor of DIFC, Secretary General of DIEDC and Chairman of DFM.

Abdul Wahed Al Fahim, Chairman of Nasdaq Dubai, said the exchange would further develop its close ties with international and regional investors,  underpinning the global visibility of the sukuk issued by the government of Indonesia. "Nasdaq Dubai is positioned to support many more Islamic capital-raising activities by governments and public and private sector issuers around the world."

Hamed Ali, Chief Executive of Nasdaq Dubai, said  Nasdaq Dubai is continually  enhancing its swift and responsive listing process, as well as its comprehensive post-listing services. "We are committed to introducing further innovation and product development across the Islamic capital markets sector.

(Khaleej Times / 14 September 2015)

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Indonesia regulator may ease foreign ownership rules for Islamic banks

Indonesia's financial regulator said it may ease foreign ownership restrictions for Islamic banks - a move that could attract Middle Eastern lenders such as Bahrain's Al Baraka Banking Group.

Under a 2012 rule introduced amid calls by nationalist politicians to limit foreign ownership, an overseas bank can only own up to 40 percent of an Indonesian lender.

Nelson Tampubolon, banking supervisor at Indonesia Financial Services Authority, said the regulator is looking at relaxing overseas ownership requirements in cases where a foreign bank plans to convert an Indonesian commercial lender to an Islamic one.

But certain conditions would apply, such as whether Indonesia already has a market access agreement with the foreign country and whether the foreign bank can bring in the expertise that local lenders lack, Tampubolon told Reuters in a text message.

His comments follow remarks earlier this month that China Construction Bank Corp would be permitted to own more than 40 percent of a merged Indonesian bank should it buy stakes in two separate lenders and combine them into a single entity.

Middle Eastern banks have shown "pretty strong" interest to expand in the world's most populous Muslim country, Tampubolon added.

A relaxation of the rule would help Bahrain-based Al Baraka with its plans to enter Indonesia's Islamic banking sector by as early as 2016, Chief Executive Adnan Ahmed Yousif told Reuters by email.

Al Baraka opened a representative office in Jakarta in 2008, which it has used to explore potential acquisition targets.

Last year Dubai Islamic Bank said it was seeking to raise its holding in PT Bank Panin Syariah Tbk to 40 percent from 24.9 percent. 

(Reuters / 22 June 2015)

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Indonesia: should become center of Islamic finance

President Joko "Jokowi" Widodo said on Sunday Indonesia should become the center of the global Islamic, or shariah, finance system due to its huge potential for building this financial system.

"I warmly welcome the proclamation of the Islamic finance campaign and we need to pay close attention to the shariah financial service sector. It has rapidly grown but is not yet optimal if we look at its potential," he said as quoted by Antara.

The President was speaking during the launch of the I Love Shariah Finance program initiated by the Financial Services Authority (OJK) in Senayan, Central Jakarta.

"We are the country with the largest number of micro financial institutions in the world, and the biggest ever Islamic debt paper [sukuk] publisher as well. We are the one and only country that issues retail Islamic debt papers so that they can be widely used and developed," said Jokowi.

"If such huge potential could be developed well, Indonesia could become a center for the development of international shariah finance," he went on.

(The Jakarta Post / 14 June 2015)

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Indonesia: Government Plan Aims To Spur Consolidation Of Islamic Banks

JAKARTA, Indonesia – Indonesia’s efforts to develop its Islamic financial market will encourage smaller Islamic banks in the country to consolidate and create a larger domestic sukuk market, said Moody’s Investors Service.

The government is preparing a five-year plan to develop Islamic finance by encouraging the three large state-owned Islamic banks ‎ to merge. It says doing so will create more efficiency and is expected to spur smaller players to link up in order to compete with the new entity.

The government is also preparing regulations that are more conducive to Islamic or Shariah banking. The details are expected to be finalized later this year.

Among Sharia business tenets is a rule that prohibits banks from earning interest. Indonesia, which has the world’s largest Muslim population, currently has 12 banks that comply with Sharia principles.

But while growth in Islamic banking has been in excess of 30% a year since 2005, when it accounted for 1.4% of the banking system, the Islamic banking sector still only captures a 5% share, said Khalid Howladar, Moody’s Global Head of Islamic Finance.

By contrast, in Malaysia, where only 61% of the population is Muslim, Islamic banks garner a 20% market share.

“The Indonesian government’s Islamic roadmap should drive growth in the sector,” Mr. Howladar said in a press release.

Financial analysts say Islamic banking in Indonesia has found it hard to grow due to a lack of support from the government, an uncertain legal environment, and a lack of skilled manpower needed to develop innovative Islamic financial products.

The government is now encouraging the fully-fledged Shariah subsidiaries of the state-owned Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Mandiri to merge, creating a new unit with total assets of $8 billion. The government says it expects that the new institution will be able to quadruple Islamic banks’ market share to 20% by 2018.

The central bank and the agency that regulates and supervises the financial sector, known as OJK, are also encouraging conventional banks to spin off their 23 Shariah-compl‎iant units into fully-fledged Islamic banks.

(Indonesia Real Times / 27 May 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Aceh to provide roadmap for Indonesia's Islamic banking ambition

JAKARTA: Indonesia’s bid to rival Malaysia as a Shariah finance hub just took on greater impetus with a plan by Aceh province to convert its development bank to one that complies with Islamic law.

PT Bank Aceh will become the nation’s first to transform from a non-Shariah-compliant entity, setting a precedent for the national government that is also deliberating such a move for a state lender.

Shareholders will vote this week on converting the bank’s 16.4 trillion rupiah ($1.2 billion) of assets, Zulfan Nukman, head of the province’s central bank office, said in a May 21 phone interview from the city of Banda Aceh.

Indonesia’s Financial Services Authority plans to announce this month a roadmap to develop the Shariah-compliant finance industry, as total assets of 272 trillion rupiah pales against Malaysia’s 626 billion ringgit ($173 billion).

The country is seeking toboostits regional profile with a bid to host the infrastructure arm of the Islamic development Bank, whose largest shareholders are Saudi Arabia, Libya, Iran and Nigeria.

“Industry players will be watching closely to see if the process goes smoothly and if the bank becomesmorecommercially viable,” said Achmad Kusna Permana, the Jakarta-based secretary-general at the Indonesia Islamic Banking Association.

“It would support the option to convert a state lender, which would add an instant few billions to Islamic banking assets and create an institution that can compete toe-to-toe with conventional banks.”

Aceh Trailblazing

Bank Aceh is majority-owned by the provincial government and its plan to convert to an Islamic lender has been approved by Governor Zaini Abdullah, Zulfan said.

Aceh, located at the northern tip of Sumatra, was granted more autonomy in 1999 to help stem an insurgency arising from unequal distribution of wealth from its natural resources.

The 30-year conflict ended in 2005 as separatist group the Free Aceh Movement disarmed following a peace pact.

The province has the highest proportion of Muslims at 98 percent and is the only one of 34 administrative regions that has implemented Shariah law, or Qanun, which permits floggings and fines for offenses ranging from stealing, to adultery and alcohol consumption.

Aceh has seen growth in Islamic banking assets outpace those of the conventional market, with a 17.6 percent increase to 5.5 trillion rupiah in 2014, compared with a 9.8 percent rise to 36.7 trillion rupiah, central bank data show.

That’s in contrast to the nationwide trend last year in a country with theworld’s biggest Muslim population.

“A Shariah bank is fitting for Aceh as that’s where the demand is,” said Bank Indonesia’s Zulfan.

“This will add to Islamic banking assets and Bank Aceh will be the trailblazer for other lenders considering to convert to Shariah.”

Size Differential

In an effort to boost the ability of lenders operating under religious principles to win morebusiness, the government began discussing a plan to form an Islamic megabank in 2013.

Options include creating such an institution from scratch, combining the Shariah units of government-held banks or fully converting a non-Islamic state lender.

Similar industry-wide initiatives have so far failed to produce results in a market that Ernst & Young LLP predicts will reach $3.4 trillion in assets by 2018 from $1.7 trillion in 2013.

Malaysia’s CIMB Group Holdings Bhd., RHB Capital Bhd. and Malaysia Building Society put such a plan on hold this year.

The relatively small size of Indonesia’s Shariah-compliant lenders makes it a challenge to compete with bigger conventional rivals, said Permana at the banking association, who is also the Islamic director at PT Bank Permata.

Increasing Confidence

PT Bank Syariah Mandiri, the nation’s largest Islamic bank, had 67 trillion rupiah of assets at the end of last year, compared with second-placed PT Bank Muamalat Indonesia’s 62 trillion rupiah, according to their websites.

That’s a fraction of the 868 trillion rupiah of PT Bank Mandiri and 806 trillion rupiah of PT Bank Rakyat Indonesia.

The Bank Aceh plan is “a good indication of the increasing confidence and commitment of the authorities on the viability and sustainability of Islamic finance,” said Alhami Abdan, head of international finance and capital markets at OCBC Al-Amin Bank Bhd. in Kuala Lumpur.

A Shariah megabank would enhance “the Indonesian Islamic banking industry’s capacity and capability in deepening its coverage of the wholesale banking sector,” he said.

(Astro Awani  / 26 May 2015)
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Indonesia plans to create USD8bn mega-Islamic bank

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 in Shariah-banking in Indonesia through so-called "Islamic windows" of conventional banks, as well as to boost the currently quite small market share of Islamic finance in the country of about 5% four-fold to 20% by 2018, as per a forecast by the Indonesia Islamic Banking Association, bringing the share on par with Malaysia. 

The new Islamic mega-bank would also be a catalyst for new products for retail customers and businesses and generally improve public awareness of Shariah-compliant finance. It would have lower operating costs and through its combined asset base would be able to finance larger infrastructure projects in the country, Hadad argued. 

Together with a five-year roadmap for Islamic banking development drafted by Indonesia's Financial Services Authority, the new focus on Islamic finance should correct the imbalance between Indonesia's huge Muslim population and their low use of Shariah-compliant financial products and services. For example, while the number of Indonesia's Muslims is 12 times higher than Malaysia's - Indonesia also has the largest Muslim population of any country in the world - total deposits at Islamic banks are less than a sixth of Malaysia's, the Jakarta Globe cited official data. The roadmap thus plans to introduce clear new regulations on Islamic finance, as well as incentives to attract first-time investors to the Islamic finance market. It also will seek that the new mega-Islamic bank will integrate itself into the global financial system by bringing its risk management and capital requirements in line with international standards.

Compared internationally, with just $24bn, Indonesia's Islamic banking assets are currently just slightly above the UK's, where Islamic banking has grown impressively in the recent past and reached an asset base of $19bn as per 2014. They are also significantly lower than Saudi Arabia's ($260bn), the UAE's ($90bn) and Qatar's ($60bn). Malaysia's Islamic finance assets are worth around $115bn as of 2014. 

With regards to foreign investors, Indonesia has already tested the appetite for sukuks, or Islamic bonds. In September last year, a US-dollar denominated $1.5bn sovereign sukuk had an orderbook comprising $10bn worth of bids submitted by foreign investors, having been more than 6-time oversubscribed. The huge demand for this bond has prompted the Indonesian government to come back with another sukuk issue as early as in the first half of 2015.

Economists also point at a regulation that requires conventional banks in Indonesia to separate their "Islamic windows" - or Islamic banking units of which there are more than 20 currently in operation by domestic and foreign conventional banks- into dedicated standalone institutions by 2023 similar to what the Qatar Central Bank asked conventional banks in Qatar to do in 2012. It is expected that this regulation will lead to a noticeable consolidation among such "Islamic window" units in the coming years in Indonesia.

(Zawya / 22 February 2014)
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Indonesia weighs merging Islamic banking units, but 2 banks say no plan yet

Indonesia's state enterprises ministry and financial regulator are talking about potentially merging the Islamic units of three state-controlled banks, but two of them said they have no plans for any such merger yet.

Local media previously reported that PT Bank Mandiri Tbk , PT Bank Rakyat IndonesiaTbk and PT Bank Negara Indonesia Tbk (BNI) may merge their Islamic banking businesses.

"That is just an initial thought that is developing between the state-owned enterprises minister and the regulator," Nelson Tampubolon, the executive head of banking supervision at the Indonesian financial services authority, told Reuters in a text message on Wednesday.

"It has to be further assessed because it has to involve the parents of each sharia bank," he said, adding that he cannot forecast when such a merger may take place.

Authorities in Indonesia want to reshape the country's Islamic finance industry by encouraging consolidation and building a new regulatory system, as the sector seeks to catch up with more mature markets in Malaysia and the Middle East.

Mandiri Corporate Secretary Rohan Hafas said it has no plans yet to merge its Islamic finance unit with others, while CEO Budi Gunadi Sadikin separately said that it is currently focusing on a rights issue.

BNI also has no plans for such a merger, Corporate Secretary Tribuana Tunggadewi said.

"Fundamentally it is up to the shareholders, but there must be some certainty on the purpose of this merger," said Imam Teguh Saptono, a business director at BNI Syariah, the Islamic unit of BNI.

(Reuters / 04 Febuary 2015)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com