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