23.4 C
Indonesia
  • Time

Indonesia: Asia’s next Islamic finance hub

Most Read

Dan Edwards
Dan Edwards has been with Alpha Southeast Asia since 2013 and edits both print and online versions of the magazine. He wrote the award-winning story ‘spotlight on unclarity’ soon as after joining Alpha Southeast Asia. He is based in Singapore.

Indonesia ended 2020 with record highs in Islamic finance development, with the State of the Global Islamic Economy Report (SGIER) 2020-2021 raising the ranking of Indonesia’s Islamic finance industry to 4th from 5th, after Malaysia, Saudi Arabia and the UAE.

The Islamic finance development indicator (IFDI) for 2020 revealed that Indonesia’s rankings also rose from 4th to 2nd in Islamic finance development and from 8th to 7th in Islamic financial assets, with the latter increasing 15 percent to US$99 billion.

The National Islamic Economics and Finance Committee (KNEKS), which acts as the conductor of a giant orchestra that comprises Indonesia’s Islamic economics architecture, has developed an integrated map of the country’s Islamic economics and finance ecosystem that gives an eagle’s eye view of the roles and positions of stakeholders, players, regulators, infrastructures, IT, human resources and the public.

It has done a tremendous job in encouraging every aspect of the ecosystem to make considerable improvements, despite its modest political power. In Islamic commercial finance, Indonesia entered 2021 with a plan for a grand transformation: the megamerger of the country’s three largest Islamic banks, Bank Syariah Mandiri (BSM), BNI Syariah and BRI Syariah, to establish the state-owned Islamic bank Bank Syariah Indonesia (BSI) in February 2021.

Creating a bank with Rp 21.5 trillion ($1.5 billion) in equity (as of November 2020), the BUKU III category BSI will have strong capital to compete in Indonesia’s Islamic banking sector. The merger will scale up its capability and capacity to compete at both national and international levels and thereby step up the sector’s game, which has long been deemed as having snail’s pace growth.

While it will be the only Indonesian Islamic bank in the BUKU III category (the rest are still BUKU II or BUKU I), BSI plans to step up to the highest rank of BUKU IV by the second quarter of 2022. With Rp 232.5 trillion in assets, amounting to almost half of Indonesia’s total Islamic banking assets, BSI will be counted among the top 10 banks in Indonesia as well as the top 10 Islamic banks in the world. Stronger capital, wide-ranging and substantial transformations in IT infrastructure and digitalization of products and services, as well as significant employee upskilling, are some critical points BSI should be aware of to win the battle.

In Islamic social finance, Indonesia has tons of potential in faith-based social funds for zakat (obligatory alms) and voluntary charitable donations like waqf, infaq, and sadaqah. While struggling to collect zakat (realizing only 4.4 percent of potential zakat in 2019), Indonesia has been giving more attention to waqf. Indonesia is estimated to have Rp 180 trillion in potential cash waqf and 11,000 hectares in current land waqf. Recently, it introduced waqf sukuk, or cash waqf-linked sukuk (CWLS), an Islamic bond financed by waqf.

The government in March 2020 issued CWLS SW001, its first CWLS, through a private placement scheme with the Indonesia Waqf Board (BWI). In Islamic microfinance, micro waqf bank (BWM) is the current trend, with Vice President Ma’ruf Amin recently asking the industry to boost their development. BWM is not a bank, but waqf-based microfinance. Mirroring Bangladesh’s microfinance pioneer, Grameen Bank, BWM follows the basic microfinance model of financing micro-enterprises excluded from formal financial institutions because they lack physical collateral.

The group lending model based on peer pressure (if one member defaults, the other group members will not get their loans) acts as social collateral that substitutes physical collateral. Unfortunately, Indonesia’s Islamic microfinance institutions (IMFI) have less favorable reputations due to mismanagement as a result of a lack of regulation and oversight.

Despite President Joko Widodo’s support for this alternative economic system through establishing the KNEKS, legislative support is still critical to the industry’s development, such as by approving the Islamic economics bill.

An umbrella legislation, this bill is urgently needed, as it regulates all activities in Islamic economics, incorporates significant fiscal and non-fiscal incentives to provide a level playing field and encourages stakeholders to actively take part in the Islamic economics and finance ecosystem. Indonesia has only a few existing regulations on sectors of Islamic finance: Islamic banking, Islamic securities, Islamic giving and halal product assurance.

We need more regulations to govern other sectors, such as Islamic capital market, Islamic insurance, Islamic pension funds, Islamic export financing, Islamic deposit insurance, Islamic pawnbroking, Islamic venture capital, Islamic microfinance, Islamic fintech, halal tourism, Islamic fashion and halal media and recreation. 

Latest Articles

LATEST
MOST READ

Rupiah Drop to ’98 Low

The last time the Indonesian rupiah was this weak in 1998, governments across Asia were seeking international bailouts to pay off foreign creditors. Now...

Rupiah Drop to ’98 Low

The last time the Indonesian rupiah was this weak in 1998, governments across Asia were seeking international bailouts to pay off foreign creditors. Now...

Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of...

Our capital market also needs to be in line with other jurisdictions

IN any discussion about the capital markets and their viability as instruments of value accretion, investors need always be cognisant of their ability to...

Indonesia Push to Boost Lending Risks Backfiring

Indonesia’s efforts to revive economic growth by bringing down lending rates are at risk of backfiring as they make banks the worst performers in...

Widodo Seeks Indonesian Reboot as Currency Pressure Mounts

Indonesian President Joko Widodo is going for a reboot. The president, known as Jokowi, revamped his economic team in a cabinet reshuffle on Wednesday as...

Rupiah Drop to ’98 Low

The last time the Indonesian rupiah was this weak in 1998, governments across Asia were seeking international bailouts to pay off foreign creditors. Now...

Indonesia Stocks Are Red Hot as Valuations Surge

After a tumultuous 2015, Indonesia’s financial markets are turning red hot. Stock valuations have climbed to records after the benchmark equity gauge rebounded 16...

Indonesia Leads Rout in Asian Shares

Even though Asia is widely expected to emerge from the global economic crisis ahead of the West, the region’s financial-services industry may turn to...

Subscribe to our newsletter

To keep up to date with the latest news and trends taking shape in Indonesia.

Capital Market/FX

Indonesia: Asia’s next Islamic finance hub

Indonesia ended 2020 with record highs in Islamic finance development, with the State of the Global Islamic Economy Report (SGIER) 2020-2021 raising the ranking...

Southeast Asian Stocks Crawl Back From Bear Market as Funds Buy

Southeast Asian stocks are bouncing back from a bear market, outpacing global indexes as foreign investors pour in amid recovering economies.  The MSCI South East...

Indonesia Stocks Are Red Hot as Valuations Surge

After a tumultuous 2015, Indonesia’s financial markets are turning red hot. Stock valuations have climbed to records after the benchmark equity gauge rebounded 16...

Rupiah weakens past 15,000 per dollar for first time since 1998

The Indonesian rupiah fell to its weakest in more than 20 years and other emerging Asian currencies also  slid on Tuesday as the dollar...

Shareholder Value

Using Rate Cuts for Growth

Indonesia’s central bank isn’t in a position to use interest rates to spur growth as cutting them would hurt the currency, Senior Deputy Governor...

Telcos in Malaysia, Singapore & Indonesia pay highest dividends to govts, says Moody’s

Telcos in Singapore, Malaysia and Indonesia pay the highest dividends to their respective governments, said Moody’s. — Picture courtesy of Pexels.com KUALA LUMPUR, Oct 23...

Southeast Asia’s Debt Problem

Rising debt levels pose threat to economic stability In Southeast Asia, original sin hasn’t gone away. Even as the region’s currencies rally, stock markets rise...

Indonesia in the sweet spot?

INDONESIA HASN’T HAD it this good for a long time. Investors can’t seem to get enough of the country, with portfolio capital as well...

MORE FROM SHAREHOLDER VALUE

Economy/M&A

IDX Imposes 10% Drop Limit on Shares

The Indonesia Stock Exchange narrowed the daily limit on share-price losses to 10 percent in a bid to stem volatility after the benchmark index...

The crisis of microfinance

The recent ouster of the Nobel Prize-winning Bangladeshi economist Mohammed Yunus as Managing Director of the Grameen Bank, which blazed a trail for microfinance...

Southeast Asia’s Debt Problem

Rising debt levels pose threat to economic stability In Southeast Asia, original sin hasn’t gone away. Even as the region’s currencies rally, stock markets rise...

South East Asia economic woes test reserves

Southeast Asia has spent the best past of two decades shoring defenses against a repeat of the Asian financial crisis, including building up record...

Indonesia Is More Exposed to Capital Flight Than Malaysia, Says S&P

Rocked by a political scandal and falling oil prices, Malaysia has been dominating headlines in recent months as the ringgit leads a drop in...

Indonesia Is More Exposed to Capital Flight Than Malaysia, Says S&P

Rocked by a political scandal and falling oil prices, Malaysia has been dominating headlines in recent months as the ringgit leads a drop in...

Where to look for returns in 2015: What will happen to stock markets?

What will happen to stock markets in 2015? Will it be a repeat of 2014, which started with hopes of the Footsie climbing above...

Transparency vital for world-class capital market

THIS year certainly presents a window of opportunity for Malaysia to raise the efficacy and integrity of its capital market. As a low-beta market, Malaysia...

Must watch

Most Popular

Indonesia Stocks Are Red Hot as Valuations Surge

After a tumultuous 2015, Indonesia’s financial markets are turning red hot. Stock valuations have climbed to records after the benchmark equity gauge rebounded 16...

Investor Q&A: Buy-side Fund explains why S.E.A is on his radar

WHAT IS YOUR INVESTMENT PHILOSOPHY AND STYLE? We are stock pickers and make our selections through intensive bottom-up analysis and use the well-established “growth at...

Indonesia Leads Rout in Asian Shares

Even though Asia is widely expected to emerge from the global economic crisis ahead of the West, the region’s financial-services industry may turn to...

Tax Breaks for Corporate Bond Investors

Indonesia is considering tax breaks for investors in the nation’s corporate bonds and is also planning to make it easier for local companies to...

Indonesia: Asia’s next Islamic finance hub

Indonesia ended 2020 with record highs in Islamic finance development, with the State of the Global Islamic Economy Report (SGIER) 2020-2021 raising the ranking...

Indonesia Budget Spending Starts to Help

Unemployed for much of 2015, Firman Agung now works for the Indonesian government, racing to dig a drainage ditch through his village before monsoon...

Indonesia bonds: acid test for Asian markets

Bond markets are always the same at this time of year. Investors have lots of cash they need to invest and smart issuers take...

Indonesia bonds: acid test for Asian markets

Bond markets are always the same at this time of year. Investors have lots of cash they need to invest and smart issuers take...

The Year 2021 According to BlackRock

Fiscal Cliff: A huge policy blunder has been averted (for now), but fiscal tightening will take place. With additional negotiations to come, markets will be...

Upside with Rupiah Bonds

There are two reasons investors love Indonesian local currency bonds: yields are amongst the highest in Asia, and the government is doing its best...

FinTech/DigFin

Rupiah Drop to ’98 Low

The last time the Indonesian rupiah was this weak in 1998, governments across Asia were seeking international bailouts to pay off foreign creditors. Now...

Our capital market also needs to be in line with other jurisdictions

IN any discussion about the capital markets and their viability as instruments of value accretion, investors need always be cognisant of their ability to...

Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of...

Indonesia Leads Rout in Asian Shares

Even though Asia is widely expected to emerge from the global economic crisis ahead of the West, the region’s financial-services industry may turn to...

Why we favour Indonesia

Of all the investible countries in the Asia Pacific region, the Philippines has arguably the most promising macroeconomic story. GDP per capita is low...

Telcos in Malaysia, Singapore & Indonesia pay highest dividends to govts, says Moody’s

Telcos in Singapore, Malaysia and Indonesia pay the highest dividends to their respective governments, said Moody’s. — Picture courtesy of Pexels.com KUALA LUMPUR, Oct 23...

Missing tech unicorns in Indonesia

While the Indonesia has successfully created impressive tech clusters and thousands of jobs, growth has mainly come from providing cheaper manpower Why has Indonesia not...

What BI & OJK can learn from the ANT IPO saga?

At a forum titled “Building Optimism after the C19 Pandemic” in January 2021, Central Bank Governor Perry Warjiyo estimated digital banking transactions through 2021...

MORE FROM FINTECH

Banking

Tax Breaks for Corporate Bond Investors

Indonesia is considering tax breaks for investors in the nation’s corporate bonds and is also planning to make it easier for local companies to...

Traffic Curse May Ease as Indonesia Outlook Brightens: Economy

Indonesia’s plan for guidelines on acquiring land for infrastructure projects and a boost to the nation’s credit rating augur improved prospects for investment in...

Top Philippine Pension Fund Seeks More Stocks as Bonds Sink

The largest Philippine pension fund wants to increase the amount it can invest in stocks as returns from bonds shrink. The nation’s benchmark equities...

Top Fund Manager Doubles Cash Levels as Rally to End

The top-performing fund manager in the Philippines has almost doubled cash holdings, betting that the nation’s stocks will extend their longest monthly losing streak...

MORE FROM BANKING

Counter Narrative

Indonesia bonds: acid test for Asian markets

Bond markets are always the same at this time of year. Investors have lots of cash they need to invest and smart issuers take...

The Year 2021 According to BlackRock

Fiscal Cliff: A huge policy blunder has been averted (for now), but fiscal tightening will take place. With additional negotiations to come, markets will be...

Upside with Rupiah Bonds

There are two reasons investors love Indonesian local currency bonds: yields are amongst the highest in Asia, and the government is doing its best...

Indonesia in the sweet spot?

INDONESIA HASN’T HAD it this good for a long time. Investors can’t seem to get enough of the country, with portfolio capital as well...

MORE FROM COUNTER NARRATIVE

FDI/Trade

Indonesia Budget Spending Starts to Help

Unemployed for much of 2015, Firman Agung now works for the Indonesian government, racing to dig a drainage ditch through his village before monsoon...

Asian model of governance

I AGREE with Singapore Exchange chief executive Hsieh Fu Hua that the Anglo-Saxon model of corporate governance may not be fully suitable for Singapore...

Upside with Rupiah Bonds

There are two reasons investors love Indonesian local currency bonds: yields are amongst the highest in Asia, and the government is doing its best...

The myth of the unbankable

Farmers, street vendors, low-salaried clerical workers: With a few exceptions, banks in emerging economies have traditionally regarded this large group of lower-income customers as...

MORE FROM FDI

Open Letter

Manage Foreign Inflows, Not Restrict Them

With the nation’s benchmark index hitting an all-time high last week as investors race to capitalize on Indonesia’s strong economic potential, it may be...

The myth of the unbankable

Farmers, street vendors, low-salaried clerical workers: With a few exceptions, banks in emerging economies have traditionally regarded this large group of lower-income customers as...

What INA, Indonesia’s SWF needs to do?

Launching a sovereign wealth fund (SWF) is not for the faint hearted. Indonesia threw its hat in the ring in January 2021. There are...

What BI & OJK can learn from the ANT IPO saga?

At a forum titled “Building Optimism after the C19 Pandemic” in January 2021, Central Bank Governor Perry Warjiyo estimated digital banking transactions through 2021...

MORE FROM OPEN LETTER

Palm Oil

Indonesia Push to Boost Lending Risks Backfiring

Indonesia’s efforts to revive economic growth by bringing down lending rates are at risk of backfiring as they make banks the worst performers in...

Asia weathering year of the perfect storm

In a two-part series on ways Asian economies have weathered the economic crisis, Tai Hui, the Regional Head of Research for Southeast Asia for...

Are family businesses bad news?

FAMILY-OWNED businesses - in which one or more members of a family have a significant ownership interest - are the norm in many parts...

Poll & Indices

Rupiah Drop to ’98 Low

The last time the Indonesian rupiah was this weak in 1998, governments across Asia were seeking international bailouts to pay off foreign creditors. Now...

Pension Funds Shun Bonds Just as Southeast Asia Needs Them Most

The biggest state pension funds in Thailand and the Philippines are shifting money from bonds to stocks, which could push up the cost of...

Our capital market also needs to be in line with other jurisdictions

IN any discussion about the capital markets and their viability as instruments of value accretion, investors need always be cognisant of their ability to...

Indonesia Push to Boost Lending Risks Backfiring

Indonesia’s efforts to revive economic growth by bringing down lending rates are at risk of backfiring as they make banks the worst performers in...