Indonesian Government to Establish New Shariah Bank

Jakarta Globe, May 19, 2013

A banner advertising a mortgage product from the Shariah unit of state-owned
 Bank Tabungan Negara is displayed in the 2nd Shariah Economy Festival in
 Jakarta in this Feb. 2009 file photo. (JG Photo/Yudhi Sukma Wijaya)

State-Owned Enterprises Minister Dahlan Iskan on Sunday revealed that the government is planning to establish a Shariah-compliant bank in order to manage Rp 40 trillion ($4 billion) worth of Indonesian hajj funds.

Dahlan said the establishment of the bank will support the implementation of a new policy issued by the Ministry of Religious Affairs obliging hajj funds to be managed exclusively by Shariah banks.

The government has stakes in four lenders — Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Negara — that run their own Shariah units. None of these banks, however, focus solely on Shariah banking.

Dahlan said the government wants to support the development of Shariah banking in Indonesia with the new bank since the sector controls only 4.9 percent of market shares in Indonesia’s banking industry, according to first quarter data from Bank Indonesia.

“Shariah banks in Indonesia command … only a seventh of the assets that Malaysian Shariah banks [do],” Dahlan told Indonesian news portal republika.co.id.

Indonesia’s Shariah-compliant banks controlled a total of Rp 214.5 trillion in the first quarter of 2013, a 37.8 percent increase compared with the same period last year. The hajj funds are expected to help boost this figure.

Bank Indonesia is targeting a 58 percent increase in banking assets this year that comply with Islam’s ban on interest.