INDONESIAN ISLAMIC FINANCIAL MARKET: FACTS AND CHALLENGES

Transcription

1 INDONESIAN ISLAMIC FINANCIAL MARKET: FACTS AND CHALLENGES IIFM Specialized Sessions on Finance Indonesian Sharia Economic Festival Surabaya, November 7, 217 Dr. Rifki Ismal Department of Economics and Finance Bank Indonesia OUTLINE 1. Developing the Indonesian Economic and Finance 2. Roles of Bank Indonesia in Finance 3. Performance of the Financial s 4. Financial Deepening 5. Recent Regulation Related to Money 2 1

2 1. Developing the Indonesian Economic and Finance 3 DEVELOPING THE INDONESIAN ISLAMIC FINANCIAL MARKET OPPORTUNITIES Global Environment CHALLENGES CURRENT CONDITIONS 1. Less understanding on economy 2. economic conditions Top 1 markets (GIEI) in each halal industry but not a top player. economic share is still small. 3. finance is dominated by banking sector with small banking share (5.3%) 2. Less utilization of social funds. Suboptimal collection and distribution of social funds. 5. Not strong enough national policy and political will on economics (no specific institution and initiatives). Fragility of the conventional economic system. Huge potential of the global halal market. OPPORTUNITIES Tight global liquidity. Downturning of the global trade. Varieties of school of thought. DEVELOPING ISLAMIC ECONOMIC AND FINANCE Economic sector. Deepening the financial market. Developing the social sector Establishement of KNKS. Potential of halal industry. Potential of social fund Establishmnt of KEKS National Environment CHALLENGES Imbalance business opportunities. High business concentration. EXPECTED CONDITIONS 1. Improved public understanding Higher economics literacy 2. Economics Performances Top 1 players in each halal industry Increase share in business. 3. Financial Performance Increase share in financial market. Improved share in money market. 2. Optimal collection and distribution of social funds (ZISWAF). 5. National level of Economics policy 4 4 2

3 DEVELOPING THE INDONESIAN ISLAMIC FINANCIAL MARKET Less Optimal Economic Performance Excess Liquidity Due to finance Economic and Finance Conditions 1 Economy Productive Funds Allocation Contribute to 2 3 Financial Deepning 4 Link to & based on Well integrated Commercial & Social finance Real Sectors Excess liquidity in the economy can be managed in some financial markets. However, it goes through a cooperation among regulators and market players Such an excess liquidity is then linked with productive activities Money Forex Stock Commodity - Bank Indonesia - Ministry of Finance - Financial Services Authority - JFX 5 Roles of KNKS, mainly: Bank Indonesia Ministry of Finance Financial Authority (OJK) Financial market deepening ROLES AND CHALLENGES OF ISLAMIC FINANCIAL MARKETS Less Optimal Economic Performance Excess Liquidity Due to finance Economy Productive Funds Allocation Contribute to Link to & based on Well integrated Commercial & Social finance Real Sectors Social Funds Forex Money LKS Zakat Wakaf Spot Hedging Interbank BI Instrument Sovereign Corporation Banks Non Banks Challenges: Lack of information Public trust on amil Integration of commercial & social funds No involment of securities Less optimal portfolio allocation Challenges: Limited instruments Limited forex supply No pricing benchmark Less active (freq, vol) Less forex financing Lack of infrastructures Challenges: Less variety of instrument Less participation of ib and investors Less active (freq, vol) Less prefered option for liquidity mgt Lack of infrastructures Challenges: Hold to maturity Limited Corporate Less optimal SBSN No pricing benchamrk Lesser role in monetary operation Challenges: Economic performance Less competitive to conventional bank Less optimal public trust Less occupying financial market Less supportive finance to Indonesian economy Limited role of instruments in economic policies Less optimal social sectors to solve social economic problems 6 3

4 2. Roles of Bank Indonesia in Finance 7 ISLAMIC ECONOMIC AND FINANCE POLICIES IN BANK INDONESIA Achive and Maintain Rupiah Stability Bank Indonesia Main Policies Monetary Policy Developing instrument, infrastructure, regulation & investor based in: Money Forex ; Include engaging social sector through securities. Developing infrastructure, regulation & real sector based monetary instrument. Encouraging the development of sukuk market. Developing real sector-return indexes as a benchmark. Macroprudential Policy Banks regulation and macro prudential supervision. Strengthening business: Economy empowerment in pesantren ( boarding school) Increasing corporations business Increasing mustahik s business. including the optimization of ziswaf. Encouraging the integration of commercial and social finance. REGIONAL POLICY OF ECONOMY AND FINANCE 1. Developing economy and finance research and studies in the regional level. 2. Strengthening economy empowerment. 3. Empowering ZISWAF and microfinance. 4. Strengthening and education of economy and finance in the regional level. SP PUR Policy SPN establishment, regulation, implementation and supervision including with Banks. Non-cash payment instrument and infrastructure which comply with principles. INTETRNATIONAL POLICY 1. Involvement and membership in IDB, OIC, IIFM, IILM, IFSB forum, etc. 2. Actively involve in Int l WG (zakat-waqaf core principles). 3. Establishment of Inclusive Financial Service Board (IIFSB) and encourage to establish World Infrastructure Bank (WIIB). 88 4

5 DEVELOPMENT OF ISLAMIC SOCIAL FINANCE Bank Indonesia Involvements Linkage program and instrument development 3 Data and information Research and Development Regulation New settings points Deviation Targeted Performance Standard 2 BI involvement in regulation and supervision process in Social Finance Business Model Development + Data and information Waqf Core Principles (WCP) Development and Technical Notes (IIFSB)* - Corrective action 2 Input Regulation/ Corrective Action Social Finance Corrective action because of deviation Supervisory Process New techniques for data aquisition *) Inclusive Financial Services Board (IIFSB) Indonesia Wakaf Board Supervision Actual Output Sector respond to policy Data acquisition through on- and off1 site supervisory process Project Development in Zakat and Waqf Information System Performance of the Financial s 1 5

6 ISLAMIC MONEY MARKET SIMA (Vol and Return) Volume (million Rp) Return on SIMA (%) SBIS (Vol and Return) Volume (million Rp) Return on SBIS (%) 12% 1% 8% 6% 4% 2% % money market is getting more active with increasing volume and lower risk However, it still is dominated by placement in Bank Indonesia instrument SIMA (Return and Risk) Return on SIMA (%) variance SBIS (Vol and Return) Return on SBIS (%) Variance Government (Vol and Average Price) ISLAMIC REPURCHASE (REPO) Repo (Repo Rate and Price) repo is the new transaction mechanism stipulated under Bank Indonesia Regulation (PBI) Number 17/4/PBI year 215. It has been applied by banks and conventional banks. The repo transactions are ranged between Rp2 Rp18 billion In the 1 quarter of 216, there has been more than Rp1.1 trillion repo transactions between banks and conventional banks 12 6

7 4. Financial Deepening 13 DEVELOPING INSTRUMENTS AND INFRASTRUCTURES Deepening Forex - Spot - hedging Deepening Financial Instrument - SBSN (Govt ) - Conventional Bank - Bank - Corporate - State Owned Enterprise (SOE) Existing Deepening Money - SIMA (Mudarabah) - SIKA - Repo syariah (SBSN, Corporate ) Monetary Operations - SBIS (joalah) - Fasbis - Repo SBIS - Repo SBSN - Reverse repo - forex term deposit There have been some instruments in the money, forex and sukuk market. Bank Indonesia monetary operation has occupies sukuk as well. The improvement of the instruments would capture those markets. Areas of Development - OMO instrument - Money market instrument - Forex market instrument - market instrument - Social fund instrument 14 7

8 DEVELOPING INFRASTRUCTURES AND INVESTORS Infrastructure Financial Investors - Mini MRA Syariah (for repo) - Financial Code of Conducts (icoc) - Settlement system for repo - Accounting for repo and hedging Domestic Investor - Bank konvensional Foreign Investors - Individual via local bank - Corporate via local bank Areas of Development - benchmark rate - social fund information system - Treasury certification - Managing non government for collateral Infrastructures are going to be developed in some areas (benchmark rate, treasury, etc. There is also a plan to expand domestic and foreign investors Areas of Development Domestic Investors: - Bank and Non Bank - Individual - Government, - Quasy Government Foreign Investors - Bank and Non bank 15 DEVELOPING INSTRUMENTS AND INFRASTRUCTURES BI Regulations on Instruments - Instrumen moneter syariah BI (SBIS) - Operasi moneter dengan Financial Regulations BI Regulations on Trading of New (proposed) Money Instruments BI Regulations on Trading in Money - Interbank trading - BI & Bank (reverse repo SBSN) Regulations stand in 3 things: regulations for the existing instruments, new (proposal of) instruments and trading of instruments in the islamic money market. Such regulations are coordinated with related regulators. Areas of Development Money Forex Monetary Operation 16 8

9 2. Recent Regulations Related to Money 17 ISLAMIC REPO (PBI No.17/4/PBI/215) Committment time Bank A promises to sell sukuk to Bank B in an agreed time (1st leg) Bank B agrees and promises to purchase sukuk in the 1st leg and will resell it in the 2nd leg First leg (time T) repo is based on true sale of (government and corporate) with a mutual promise to resell/repurchase in an agreed time It can be applied by any bank (conventional and ) having Strong committment among parties are needed. Second leg (time T+n) 18 9

10 ISLAMIC HEDGING (PBI No.18/2/PBI/216) Simple Hedging (Tahawwuth al basith): By usng Forward Agreement (Al-Muwa adat li al- Aqd al-mustaqbal) followed by Spot in the maturity time. Commitment time: Each party mutually agrees (muwa adah) to exchange (trade) the currency in an agreed time including currencies, nominal, exchange rate and premium and, settlement time Complex Hedging (Tahawwuth al Murakkab): Maturity time: Each party trade (exchange) the currencies (Spot transaction) with an agreed committment followed by delivery By using a subsequent spot transaction and Forward Agreement followed by another Spot transaction in the maturity time. hedging can take forms of simple and complex hedging. Those are based on mutual promise among parties There are consequences for a party who breaches the contract. On the spot time: Each party conducts spot transaction and then mutually agrees to re-exchange (re-trade) the currency in an agreed time including currencies, nominal, exchange rate and premium and, settlement time Maturity time: Each party trade (exchange) the currencies (Spot transaction) with an agreed committment followed by delivery 19 Thank you 2 1