It was with good reason that the Indonesian Ulema Council and the government established PT Bank Muamalat Indonesia on Nov. 1, 1991. Such a move was welcomed by the public, which invested Rp 84 billion in shares when the bank was established.
The people of West Java also showed their support by injecting Rp 106 billion into the bank. Although its business was not too bright in its early days, the bank recorded a profit of Rp 372.5 billion in the second quarter of 2009. The achievement of Bank Muamalat is proof of the great potential of sharia banking in Indonesia. Sharia banking is based on Islamic law.
The fact that Indonesia has the world’s largest Muslim population creates a huge market for sharia banking, and Bank Muamalat became the pioneer that made a breakthrough in the existing concept of banking.
Huge potential for sharia banking still exists in the country. Bank Indonesia data reveals there are currently five sharia banks operating in the country, namely Bank Syariah Mandiri, Bank Muamalat Indonesia, Bank Syariah Mega, Bank Syariah Bukopin and Bank Syariah BRI. Twenty-six other banks have sharia banking units, such as Bank Permata, Bank BNI, Bank CIMB-Niaga, Bank Danamon and BPD DKI.
The country’s Muslims, accounting for 80 percent of the estimated 240 million population, are the target market of sharia banking. This means that 31 sharia banks or bank with sharia units are available to serve about 192 million Muslims.
Major conventional banks are also interested in establishing sharia banking units due to the huge potential in the country. Bank Indonesia predicts that sharia banks will enjoy business growth of between 5 and 5.5 percent this year due to high consumer spending and exports.
“Banks based on Islamic law are predicted to enjoy further growth in 2010,” said Darmin Nasution, acting governor of Bank Indonesia, as quoted by BI deputy governor Budi Mulya at a seminar on sharia banking in Indonesia last month. Darmin added that sharia banks would continue to flourish due to the organic growth within existing banks and the establishment of new sharia banks and units.
Another reason for the growth potential of sharia banks is their ability to attract customers from conventional banks due to the impact of the global financial crisis. The universal principles held by sharia banks also make the growth possible. Hence, more and more customers are turning to sharia banks.
The profit sharing concept offered by sharia banks is attractive to most businesspeople in Indonesia.
This method makes it possible for a customer to benefit from a loan. In conventional banking, a customer must pay interest on a loan regardless of whether the business is successful or not.
However, with the sharia profit sharing concept the customer will not have to bear the burden of paying interest if his or her business fails.
Sharia banking products are also varied and no less attractive than conventional banks’ products.
Bank Syariah Mandiri, for example, makes available various savings products, such as personal, haj, education, time deposit and so forth. Naturally, the bank also offers various types of loans based on the profit sharing sharia concept.
It is predicted that more sharia banks will come into existence soon to compete with the five already established as the public is now more aware of the superior features of sharia banks. Among the banks that have applied to open sharia banks are: Bank BCA Syariah, Bank Jabar-Banten Syariah, Bank BNI, Bank Victoria and Bank Panin Syariah. Some bank authorities are targeting 26 percent growth for sharia banks with the assumption that the growth is based on organic growth.
Mulya Siregar, Bank Indonesia deputy director, said on Dec. 8, 2009 at a seminar on Islamic banking that sharia banks could grow by a maximum of 81 percent for asset ownership, adding that such growth could only be achieved if related government regulations supported the growth.
If government regulations did not fully support it, he said, growth would only be about 43 percent, which was based on the contribution of new players or new banks in this sector.
Bank BRI Syariah president director Ventje Raharjo also has a similar view on regulations, especially on the taxation applied to sharia banks. He said the taxes should be more lenient in this case.
“Sharia banks need to be given certain incentives, such as leniency in taxation and a lower ratio of capital ownership, or there should be a sharia banking development allocation in the state budget,” he said.
The success of sharia banking in Indonesia has also attracted some foreign banks, although currently only HSBC has a sharia unit, called HSBC Amanah. Mulya Siregar, Bank Indonesia’s head of Islamic finance, said there were strong rumors that new banks from Malaysia and Bahrain would establish sharia branches here.
In the midst of waning customer trust in particular conventional banks, sharia banks seem to provide a safer alternative for customers. However, along with the huge potential and many opportunities for sharia banks there are also challenges facing them as they still have to educate customers about the superior features and products of sharia banks that are equal to or better than those of conventional banks.
Iwan Suci Jatmiko