Sharia-based financing seminar to kick-off

The Jakarta Post, Jakarta

To further disseminate information and promote sharia-based financing in Indonesia and southeast Asia, an international Islamic finance seminar will be held here this week, featuring experts in Islamic and international financing laws.

Lovells, a European-based consultancy firm on international law, which covers services in numerous business sectors, including Islamic financing, will jointly organize the seminar with Pavillion Capital, a Jakarta-based firm that focuses its services on asset management.

Tamara Box, a London-based Partner of Lovells, said in a media statement that southeastern Asia was an area with encouraging growth prospects when in comes to Islamic financing.

"Lovells is committed to providing legal consultancy services of the highest standard and we believe that Islamic finance is one sector that will grow significantly in the future," said Box, who is considered an expert in the field. She is slated to speak on the subject during Thursday's seminar.

Financial transactions based on Islamic principals have growing rapidly in Asia in recent years -- average growth of 15 percent per year -- and Indonesia could play a bigger role in its development, she added.

In Indonesia at present, the sharia-based banking industry, in terms of assets, still accounts for less than 2 percent of the country's total banking sector -- which could mean a lot of room for improvement.

Still, the sector has seen swift progress in recent years.

"For instance, between 1990 and 1998 there was only one sharia-based bank in Indonesia," said the chairman of Indonesia's Sharia Council, Mahruf Amin.

The figure was a far cry from the current situation, which boasts about a dozen banks -- domestic and multinational -- with a total of 322 branch offices nationwide.

Bank Indonesia has estimated that the figure could increase to 438 this year, while the sector's assets would also rise from Rp 14 trillion in 2004 to Rp 24 trillion in 2005.

"The growth of sharia-based banking units has steadily averaged more than 70 percent per year," said the Indonesian Association of Sharia-based Bank Units (Abisindo), Wahyu Dwi Agung.

Despite the growth however, the sector is currently facing a potential obstacle.

The challenge has a lot to do with plans from the tax office to slap a 10 percent value-added tax (VAT) on all murabahah banking transactions, which could hurt its competitiveness against conventional banks.

Murabahah is a financing facility provided by sharia banks in which the banks finance the purchase of certain goods or products on behalf of a customer on an agreed fee amount.

Under the taxation law, such a fee is not categorized as interest, thus exempting the transaction from the VAT.

Sharia-based transactions prohibit interest. (004)