Sharia banking grows by 40% in 2005

The Jakarta Post, Jakarta

Despite the current economic downturn amid rising inflation, the central bank remains optimistic that growth of sharia banking will remain robust.

"Currently, growth has exceed the 2005 target of 40 percent," Bank Indonesia's sharia banking director Harisman said on the sidelines of the 6th International Conference on Islamic Economics and Finance on Tuesday.

He added that the banking sub-sector would experience significant growth although it would not grow as rapidly as previous years.

Globally, syaria banking is growing by roughly 20 percent per year.

Sharia banking has been enjoying rapid growth since the Indonesian Ulema Council issued an edict in 2003 stating that bank interest could be considered an illegal profit, or riba.

According to the central bank's report, sharia banking grew by 88.6 percent last year, with total assets of Rp 14 trillion and total financing of Rp 10.9 trillion.

It contributed 1.1 percent to national banking assets.

This year, the volume of sharia banking assets is expected to reach Rp 24 trillion, or some 1.8 percent of the national banking sector. Currently, total assets in sharia banks has reached Rp 18.5 trillion with total financing of Rp 14.75 trillion and third-party funds of Rp 13.36 trillion.

Harisman explained the development of sharia banking faced the challenges of disadvantageous macroeconomic conditions -- a weakening rupiah as well as rising interest rates.

BI expects the sector to grow faster next year and has provided several incentives like lowering the required capital for setting up a new Syaria bank from Rp 3 trillion to Rp 1 trillion.

As of 2004, the number of sharia bank offices grew to 443 units from 337 in 2003.