'Sharia banks should invite foreign investors or go public'

'Sharia banks should invite foreign investors or go public'

Leony Aurora, The Jakarta Post, Jakarta

Sharia banks need to improve their capacity to absorb risks and
deliver loans by expanding capital through inviting foreign
investors or going public, Bank Indonesia (BI) deputy governor
Maulana Ibrahim said.

He pointed out that Bank Muamalat, where the Islamic
Development Bank (IDB) holds 35.71 percent of the shares, as an
example.

"When they raise capital, their risks will decline and they
will be ready to lend more," he announced on the sidelines of an
international seminar entitled Money and the Real Economy from an
Islamic Perspective organized by Trisakti University on Monday.

Islamic law bans interest on loans and so sharia banks finance
companies instead of lending money to them. Should the companies
reap profits, they will share them with the sponsoring banks
based on a previously agreed upon contract.

"Sharia banks have a higher financing-to-deposit ratio (FTR)
as they are not disturbed by the (government's previous)
recapitalization program," said Maulana.

Bank Muamalat recorded an FTR of 80 percent as of August 2003,
while conventional banks' average loan-to-deposit ratio (LDR)
stood at 52 percent.

The non-performing loans of the Islamic banks as of August
2003 were at 3.91 percent, lower than the 5 percent required by
the central bank.

The deputy governor also emphasized that sharia banks should
channel third party funds entrusted to them to the real sector.
"Don't just put the funds in BI's wadiah certificates (SWBI)," he
said.

SWBI is a sharia tool similar to BI's SBI promissory notes.

Money has been coming into Islamic banks from, among others,
Middle East investors, especially after the Sept. 11 terrorist
attacks in the United States.

Sharia banks also have seen increasing popularity because of
the recent controversial edict issued by the Indonesian Council
of Ulemas (MUI), which declared that interest was haram
(prohibited) according to Islamic law.

The council further urged Muslims not to use the services of
conventional banks, except when there were no sharia banks in
their areas.

Rector of Trisakti University Thoby Mutis said that the yearly
growth rate of the Islamic banking sector reached between 50
percent and 70 percent. The sector claims 0.4 percent in terms of
assets of the entire banking industry.

"Indonesia has a market and loyal customers (of sharia
banks)," he said. BI ideally wants sharia banks to reach a 5
percent market share over the next 10 years, he added.

Currently there are two fully Islamic banks and about eight
sharia branches of conventional banks. The trend of conventional
banks opening sharia branches started with the enactment of dual
system banking by the government in 1998.

In response to the rapid expansion of the sharia economy in
Indonesia, Trisakti University plans to launch post-graduate
programs in sharia economics for a master of philosophy, master
of science and doctoral degrees later this year.