Sharia banking to grow up to 50% in 2006: BI
Sharia banking to grow up to 50% in 2006: BI
The Jakarta Post, Jakarta
Sharia banking, which is based on Islamic law, will expand by up
to 50 percent next year in the world's largest Moslem country on
an improving economy and the implementation of a new system, a
senior central bank official says.
Despite the current economic downturn and rising inflation,
the growth of sharia banking next year will stand at between 45
percent and 50 percent, slightly higher than this year's
estimated growth, Bank Indonesia deputy governor Siti Fadjrijah
was quoted by Antara news agency as saying on Monday.
The rapid expansion will become possible after sharia banks
start implementing "office channeling", a system that allows
sharia customers to open accounts and conduct financial
transactions in the branches of conventional banks, said Siti on
the sidelines of a seminar on sharia banking.
Most sharia banks in Indonesia do not stand of their own, but
are subsidiaries or units of conventional banks. The new system
is expected to add thousands of branches to the hundreds of units
currently open to sharia customers.
The concept of interest, as well as speculation, is strictly
forbidden under sharia banking, which uses a profit-sharing
mechanism instead. The sub-sector's market share in the country's
banking sector stood at 1.4 percent in 2005, BI sharia banking
director Harisman said.
According to earlier figures, as of October, total assets in
the sector had reached Rp 18.5 trillion (US$1.88 billion) with
total financing of Rp 14.75 trillion and third-party funds of Rp
13.36 trillion.
According to the central bank's report, sharia banking
contributed 1.1 percent to national banking assets last year. It
grew by 88.6 percent in 2004, with total assets reaching Rp 14
trillion and total financing Rp 10.9 trillion.
Sharia banking has been enjoying rapid growth since the
Indonesian Ulema Council (MUI) issued an edict in 2003 stating
that bank interest could be considered an illegal profit, or
riba.
It seems poised to get another strong boost as the government
has decided to assign the management of haj pilgrimage funds,
worth some Rp 5 trillion annually, to the sub-sector starting
2006.
Vice President Jusuf Kalla said on Nov. 21 that Minister of
Religious Affairs Maftuh Basyuni had been ordered to use the
sharia system to control the funds collected from some 200,000
pilgrims going to Mecca in Saudi Arabia each year.
The pilgrims, who are charged about Rp 25 million each for the
trip, must transfer the money to assigned bank accounts months or
even a year prior to their departures.
BI has also provided several incentives for boosting the
development of the sub-sector, including lowering the required
capital for setting up a new sharia bank from Rp 3 trillion to Rp
1 trillion.
The central bank has projected that by 2011, the asset share
of sharia banks will reach between 5 percent and 9 percent of the
nation's total banking assets.