Syariah investment seen rising in RI

Rendi A. Witular, The Jakarta Post, Jakarta

Just three years ago, most local investors and businessmen would draw blank expressions upon hearing the word syariah, and would jokingly ask, "Do we need an Arabic translator for that?"

Islamic syariah investment, which was initially thought to be "complicated", has now created a new market in the country, led by rising demand for alternative investment options and the anticipation of "hot money" inflow from the Middle East.

This year, syariah investment portfolios in the form of bonds, mutual funds and stocks is estimated to grow by more than 150 percent to around Rp 4 trillion (US$470 million) from just Rp 500 billion last year, said syariah expert Adiwarman Karim of Karim Business Consulting.

"The growth is high, because investors are now looking for an alternative investment that is more reliable and transparent amid the current legal and business uncertainties here," said Adiwarman.

A "syariah investment" is an investment that is carried out in accordance with Islamic law, which bans the receipt of interest from loans, and instead rely on a revenue sharing scheme.

Karim gave an example of syariah bonds, of which their yield would be decided based on the revenue obtained by the companies issuing the bonds; if the companies failed to book profits, then investors would not receive any yield.

Under such a system, he said, only high-profile companies could issue syariah bonds since they had a reliable profit performance.

The issuing companies would also gain an added advantage, as they would not be burdened with interest payments, he said.

As for stock, Karim said, the yield was the same as with conventional investments, but there was a limitation: Investors could only buy shares of a company whose core business was not prohibited by Islamic law.

Among those prohibited are shares of companies engaged in the production and distribution of alcoholic drinks, haram food and banks. Haram food is food prohibited under Islamic law, such as those made from pigs, dogs and reptiles.

According to the National Syariah Council, out of the 333 companies listed on the Jakarta Stock Exchange, only 59 are forbidden under syariah.

Another factor that has prompted the rise in syariah investment here is the inflow of money from the Middle East, as most Arab sheiks had avoided parking their money in the United States after the Sept. 11 terrorist attacks.

Karim said this "hot money" was currently stored in Europe, but now the sheiks were moving them to Malaysia and Singapore. The two countries had the appropriate infrastructure for making syariah investments while providing higher yields than European assets, he said.

At present, it is estimated that US$180 billion in mobile funds from the Middle East are available for investment in syariah products.

Karim said most of the capital had not entered Indonesia due to the lack of reliable syariah investment infrastructure.

But foreign-based financial institutions such as HSBC and ABN Amro are now gearing up to take advantage of the business opportunity.

Chief executive officer of HSBC Asia-Pacific Aman Mehta said that HSBC Indonesia would soon launch its syariah investment services by establishing a new syariah banking division.

Mehta hoped they would be able to attract overseas investors, particularly Middle Eastern investors.

"We have the products, experience and infrastructure, and this is a large Islamic country -- why not? We think we will have a great value in it," he said, and that the planned services were awaiting government approval.

Eyebox

'Syariah' bonds issuance in 2003

Companies Value

(billions/Rupiah)

PT Indosat 175 PT Berlian Laju Tanker 60 PT Bank Bukopin 50 PT Bank Muamalat Indonesia 200 PT Bank Syariah Mandiri* 200 PT Indofood* Unknown

*Under development