Islamic Banking, Beyond Banking Part 1

Introduction

In 2009 alone, Middle Eastern countries are expected to channel 1.5 trillion US dollar into their investment funds, ready to be supplied to investment destinations around the world.

Background

Naturally, many countries quickly responded to the profusion of investment funds by developing Islamic-based financing and banking in the hope of enticing these funds to invest in their countries. As a result, Islamic banking and other Islamic financial products quickly became a global trend, even in countries where Moslems do not make up a majority.

The increasing enthusiasm in developing Islamic banking system has led to the adaption of a dual banking system and driven the huge growth in Islamic Banking assets. By adopting a dual banking system, Islamic banking can be developed alongside existing service and providing a broader range of banking services for public and investors

Worldwide growth in Islamic banking assets is estimated to be 27% in 2008, much higher than the 19% growth in conventional banking.

A number of countries in Asia have developed and positioned themselves as Global or Regional Islamic financial hubs links global regions.

To compete with UK, which was first recognized by the world’s banking community as an Islamic financial hub, Malaysia has worked hard to become one of the Southeast Asia’s financial hub by positioning itself as the world’s largest issuer of global bonds (sukuk). By the end 2007, Malaysia accounted for a staggering 65% of the world’s sukuk issuance.

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Islamic Banking, Beyond Banking Part 2

Islamic Financial Hub of Asia

Singapore as a country that has positioned itself as the gate to Southeast Asia commerce, is not far behind. Even though Moslems only make up a fraction of Singapore’s citizens, the country offered various Islamic banking products and services, as well as, Islamic-based investment instruments. The tiny island is well-known as a potential hub for Middle East investors eager to invest in Southeast Asia.

So where does this leave Indonesia? Since its inception in 1992, Islamic banking industry in Indonesia has shown an impressive growth rate, with average growth of 60% per year! With that tremendous growth rate and Indonesia demographic condition as the world’s most populous Moslem nation, plus its abundant natural resources, Indonesia has great potentials to become major provider of Islamic banking products and services, as well as Islamic Banking Invesment instruments, Indonesia can become important player in the international Islamic finance community.

Islamic Banking in Indonesia


Recognizing Indonesia's enormous potential to become a global Islamic financial hub, the Government of Indonesia has stepped up efforts to attract Islamic-banking-oriented investors and actively participate in the global trend of Islamic banking growth.

Now is the time! Now is the right time to work together and raise awareness that Indonesia’s Islamic banking system is capable of becoming a global player and serving Indonesian people’s financial needs with much wider financial products and services.

To that end, visionary measures are needed to accelerate the development of Islamic banking market so it can eventually serve the needs of Indonesian people with an international standard of quality.

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Islamic Banking, Beyond Banking Part 3

Islamic Banking, Beyond Banking
 
The Blue Print of Islamic Banking Developmnet in Indonesia is formulated by Bank Indonesia as a long term road map for developing Indonesia’s Islamic banking industry through 2015.

The Grand Strategy of Islamic Banking Market Development, also formulated by Bank Indonesia, outlines a comprehensive strategy to develop Islamic banking market and covers many strategic aspects, such as: setting a 2010 vision to become a leading Islamic banking industry in ASEAN region, creating a new image of Islamic banking in Indonesia that is more inclusive and universal, drawing a more accurate mapping of the market segment , developing more diverse products, improving services, and creating a new communication strategy that positions Islamic banking as beyond banking.

Sovereign Sukuk Act & Islamic Banking Act

In the meantime, the government has also taken several visionary measures, such as revision of tax regulations and Sovereign sukuk act issuance (UU SBSN). The passage of this law would enable Islamic-based investment instruments to become more competitive and ready to be offered to both domestic and foreign investors. In turn, this will further drive the development of Islamic banking in Indonesia.

Besides the Sovereign Sukuk Act, Indonesia has also enacted the Islamic Banking Law. By referring to the international standards of banking and Islamic banking, the newly enacted Islamic Banking Act will support national Islamic banking industry in diversifying its products and improving the quality of its services to all segments of Indonesia’s society.

The passing of these two acts has boosted the optimism of Islamic banking industry and added significant and timely support of Islamic banking. It is hoped that the laws can help pushing the industry to close the gap and attain its market development vision to become the most attractive and leading Islamic banking in ASEAN region.

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Islamic Banking, Beyond Banking Part 4

Islamic Banking Industry’s New Image

Obviously, these goals can be accomplished only with the support and participation of everyone in the national Islamic banking industry to implement strategic programs recommended in The Grand Strategy of Islamic Banking Market Development.

Communication program to educate the public would be focused on developing a new image for the national Islamic banking: “Beyond Banking”.

This new image would show the new face of Islamic banking in Indonesia:

• Positioning Islamic bank as a banking system that will mutually benefit both parties, the bank and its customers bank .
• Differentiating Islamic bank as a banking system that offers diverse products with various schemes,
• conducts its business transparently and fairly, and also supported by the latest information system and experts in the field of investment, finance, ethics, and Islamic practices on financial transactions.

Together, these new positioning and differentiation would be the foundation that forms the new image of Islamic banking, “beyond banking”.

To strengthen Islamic banking’s new image and help the public recognize the presence of Islamic banks and Islamic banking services, on 2 July 2007, Bank Indonesia formally began the use of iB (ai-Bi) logo as an official sign for the Islamic banking industry in Indonesia.

The new Identity’s sign of Indonesia’s Islamic Banking

Through the iB (ai-Bi) logo, Islamic banks will be more easily recognized as they expand throughout Indonesia. The iB (ai-Bi) logo presents the Islamic banks as part of a banking industry that is large, solid, strong, well-managed, and integrated within the framework of dual banking system in Indonesian Banking Architecture (API).

The iB (ai-Bi) logo is the essence of such values as balance, order, and perfection, signifying the identity of Islamic banking industry in Indonesia and conveying an alternative banking system that is modern, service-oriented, fair, transparent, ethical, and beneficial for the entire Indonesian people.

 

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Islamic Banking, Beyond Banking Part 5

Vision and Strategy for Market Development

It is hoped that the new inclusive and universal image of Islamic banking, the use of iB (ai-Bi) logo, and comprehensive market development strategy would spur the Islamic banking industry and investors to work together and realize the development of Indonesia’s Islamic banking market within the next three years outlined in these three phases, which are:

• First Phase (2008): “To build understanding of Islamic Banking as “Beyond Banking”

During the first phase, total accumulated assets are targeted to exceed 50 trillion Rupiah with the Islamic banking industry growing by 40%

• Second Phase (2009): “to make Islamic Banking as the Most Attractive Islamic Banking in ASEAN”

At this phase, total assets are targeted to reach 87 trillion Rupiah with the industry growing by 75%

• Third Phase (2010): “to make Indonesia’s Islamic Banking as a leading Islamic Banking in ASEAN”

In 2010, Indonesia’s Islamic banking industry is expected to reach total assets of 124 trillionrupiah and growth of 81%

Closing

 

These initiatives, and optimism with full support from government, provide participants in the national Islamic banking industry with the vision of transforming Indonesian Islamic banking industry to become a reputable industry in the global financial community.

By: iB Syariah - Bank Indonesia

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