Unicorn may buy RI bank to expand services

Unicorn may buy RI bank to expand services

Shanthy Nambiar, Bloomberg/Jakarta

Unicorn Investment Bank of Bahrain said it may buy a lender in Indonesia to expand Islamic financial services in the nation with the world's largest Muslim population.

The bank, which offers products and services compliant with the Koran's ban on interest payments, may enter Indonesia by next year, Chief Executive Officer Majid Al Sayed Bader Al-Refai said in an interview.

"We are hoping we can do that through a bank acquisition," he said, declining to name any takeover candidates.

Indonesia is home to about 202 million Muslims, making it the biggest market for providers of Islam-compliant financial services. The nation's US$258 billion economy, Southeast Asia's largest, is targeting 6 percent growth this year, the fastest pace since 1996.

Unicorn offers insurance, private equity, asset management, corporate finance and investment banking services. It is vying with HSBC Holdings Plc, Deutsche Bank AG and other lenders for a greater share of global financial assets that comply with Islamic law, estimated at between $300 billion and $400 billion by the International Monetary Fund.

"The large number of Indonesia's Islamic population is the exciting factor -- that's the big attraction," Badlisyah Adbul Ghani, head of Kuala Lumpur-based CIMB Islamic, the Islamic investment banking unit of CIMB Bhd., Malaysia's biggest securities firm, said in an interview. "In the next five years, we would definitely see a lot of more activity."

Indonesia is pushing for a bigger role for Islamic finance. The Islamic banking industry is set to expand more than two- thirds this year as more investors seek to follow the religion's financial principles, the central bank said in March.

"They would be expecting us to bring higher and better services in the banking sector," said Al-Refai, who visited Indonesia in 2003 to raise capital and look for investors. "We hope to offer a bigger variety of products."

London-based HSBC in October 2003 became the first international bank to offer companies in Indonesia financial advice and loans that conform with the laws of Islam, or Shariah. Saudi Arabia-based Islamic Development Bank and Kuwait's Boubyan Bank hold a stake in Bank Muamalat Indonesia, one of three commercial Islamic banks in Indonesia.

Islamic banking assets will probably reach Rp 24 trillion (US$2.5 billion) in 2005, or 1.9 percent of total assets, and Rp 172.3 trillion in 2011, or 9.1 percent of total assets, Bank Indonesia said in the March report.

"We are seeking to simplify licensing procedures and want to promote strategic alliances with other institutions to improve the reach of Islamic banking activities," Mulya Siregar, head of bank research at the central bank's Directorate of Islamic Banking, said in an interview in Jakarta.

Indonesia also has 88 rural Islamic banks, including lenders in Java, Sumatra and Kalimantan, Siregar said. About 85 percent of the nation's 238 million people follow Islam.

Unicorn was established in May 2004 and has representatives in the U.S., Malaysia and Bahrain.

With cash generated from rising oil prices, many Middle East governments and companies are seeking to invest in Islam- compliant real estate and banks. Members of the Organization of Petroleum Exporting Countries supply a third of the world's oil.

"Based on the price of oil and the level of exports Middle Eastern countries have in terms of oil, there is definitely an increase in terms of revenue," CIMB'S Badlisyah said. "These petro-dollars are boosting the development of these countries, and it so happens that Islamic finance is the recipient of this."

Islamic principles state that returns paid on loans must be based on actual profits generated and not on pre-set interest rates, and require banks to share risks.

To comply with Muslim beliefs, banks can negotiate so-called "Ijarah," or lease agreements that allow them to buy properties on behalf of the customer. The customers will then rent their homes or cars from the bank until they have repaid the bank's investment plus an agreed profit. Account holders will receive a share of the returns on investments made instead of interest.