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.