Indonesian Islamic Banking: Current Development, Policies and Prospect Paper Presented in Summer School Program in Islamic Finance and Banking Durham University, 28 July 2006 Rifki Ismal Bank Indonesia
Outline Current Development of Islamic Banking: General Condition Institution Development Business Development Islamic Banking Policy: Development Policy Supervisory Licensees Islamic Banking Prospect.
Current Development of Islamic Banking : General Condition Syaria banks develop significantly during last decades due to the need of public to invest money in Islamic principle and system. Many efforts have been doing such as opening sharia banking faculty and licensing office channeling in banks, but more efforts needed. Number of syaria banks increased from 1992 into 2006 followed impressive growth in sharia banking indicators (total asset, deposit, financing).
Up to April 2006, total asset has been Rp21 trillion while (whole banking industry is around Rp1400 trillion). trillion Rp 25.00 20.00 20.59 20.50 20.50 21.00 15.00 15.37 15.57 10.00 8.76 9.22 5.00 4.40 4.45 0.00 Jan 2003 Feb 2003 Jan 2004 Feb 2004 Jan 2005 Feb 2005 Jan 2006 Feb 2006 Mar 2006 April 200 Total Asset of Sharia Banks
Total deposit has been Rp15.1 trillion while (whole banking industry is around Rp900 trillion). trillion Rp 16.00 14.00 15.13 14.87 15.00 15.10 12.00 11.89 11.76 10.00 8.00 6.00 6.62 6.82 4.00 3.11 3.15 2.00 0.00 Jan 2003 Feb 2003 Jan 2004 Feb 2004 Jan 2005 Feb 2005 Jan 2006 Feb 2006 Mar 2006 April 200 Total Deposit of Sharia Banks
Total financing has been Rp16.5 trillion while (whole banking industry is around Rp600 trillion). trillion Rp 18.00 16.00 15.04 15.37 16.00 16.50 14.00 12.00 11.67 12.14 10.00 8.00 6.00 4.00 3.38 3.48 5.86 5.76 2.00 0.00 Jan 2003 Feb 2003 Jan 2004 Feb 2004 Jan 2005 Feb 2005 Jan 2006 Feb 2006 Mar 2006 April 200 Total Financing of Sharia Banks
Current Development of Islamic Banking : Institutional Development Number of syaria banks : From 1 banks in 1992 to 3 banks in 2006. In 2006, 19 Sharia Business Unit (UUS) and 92 Sharia Rural Banks (BPRS). 567 offices around 28 provinces in Indonesia But, compared with conventional one, it is still very small. Up to May 2006, There are 131 conventional banks and, 8,191 branches around Indonesia.
Total number of sharia banks increases significantly in the last several years 20 18 16 14 12 10 8 6 4 2 0 Sharia Banks (left) Sharia Business Unit (left) Sharia Rural Banks (right) 2000 2001 2002 2003 2004 2005 Jan-06 Feb-06 Mar-06 Apr-06 100 95 90 85 80 75 70 Total Number of Sharia Banks, UUS and BPRS
Total number of sharia banks offices also up 600 550 550 556 558 565 567 500 450 443 400 350 337 300 250 200 150 146 182 229 100 2000 2001 2002 2003 2004 2005 Jan-06 Feb-06 Mar-06 Apr-06 Total Number of Sharia Banks Offices
Current Development of Islamic Banking : Institution Development Some problems should be addressed: Why does total number of banks grow very slowly in 2005-2006? The growth occurred only in UUS and BPRS. The effectiveness of office channeling. Images, public expectation and demand for sharia banks.
Current Development of Islamic Banking : Business Development Since 2000 into present, most of the financing in Sharia banks is in Murabahah (60%-62%), followed by Mudharabah (20%) dan Musyarakah (10%-12%). While most of the deposit in sharia banks is in form of Mudharabah time deposit (50%-60%), Mudharabah saving deposit (28%-30%) and wadiah demand deposit (13%-15%). It is caused by minimizing risk consideration, current economic and banking condition, banking financing trend and limited number of sharia banking market share.
Feb 2006 Jan 2006 Feb 2005 Jan 2005 Feb 2004 Jan 2004 Feb 2003 Jan 2003 Most of financing in sharia banks is in form of Murabahah, followed by Mudharabah and Musyarakah trillion Rp 12.00 10.00 8.00 Musyarakah Mudharabah Murabahah Istishna 6.00 4.00 2.00 0.00 Top 4 Financing Types in Sharia Banks
Feb 2006 Jan 2006 Feb 2005 Jan 2005 Feb 2004 Jan 2004 Feb 2003 Jan 2003 Most of deposit in sharia banks is from Mudharabah time deposit, followed by Mudharabah saving deposit and Wadiah Demand Deposit. trillion Rp 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Wadiah Demand Deposit Mudharabah Saving Deposit Mudharabah Time Deposit Top 4 Deposit Types in Sharia Banks
Current Development of Islamic Banking : Business Development Some problems should be considered: Public need diversified Islamic products. Solution for huge liquidity in sharia banks Sharia banking products mismatch. Sharia banking product for Islamic Money Market. Public mindset (rationale depositors) regarding sharia banks. Socialization problems and coordination with DSN.
Islamic Banking Policies : Development Policies Sharia Banking Architecture.
Islamic Banking Policies : Development Policies Sharia Banking Architecture.
Islamic Banking Policies : Development Policies Sharia Banking Architecture.
Islamic Banking Policies : Development Policies Sharia Banking Architecture.
Islamic Banking Policies : Supervisory PBI no 7/46/PBI/2005 : Contract for Sharia Banking fund collecting and distributions. PBI no 7/13/PBI/2005 : Sharia banking capital structure. PBI no 7/35/PBI/2005 : Improvement of previous regulation on Islamic banks. PBI no 7/47/PBI/2005 : Sharia banks financial report transparency. PBI no 7/23/PBI/2005 : Emergency fund for shortage in Sharia Banking.
Islamic Banking Policies : Licensees In early 2006, Bank Indonesia gives permission (license) to conventional banks which have UUS to accept deposit from their conventional branches through office channeling mechanism.
Islamic Banking Policies : Some problems should be thought: Unfavorable current economic condition affects sharia banking architecture. General public perception on Sharia banking. Policy coordination among BI, DSN, banks and People s Representatives. Actions in form of policies to prevent future sharia banking problems on high financing. A lot of regulations are further needed by sharia banking industries. Sharia banking act is still under discussion on People s Representatives.
Islamic Banking Propects : Growth volume for 2006 is predicted to be 1.7% of the total banking industry. Some supporting condition for growth : Management of Hajj s Fund in Sharia banks Result of office channeling mechanism Government s guarantee on Islamic agriculture financing. New investors come to open banks or to be investors. In 2007, sharia banking share is expected to reach 2,5% - 3,5% of total banking industry.
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