Indonesia prays for Islamic banking boom

Yahoo – AFP, Sam Reeves, 27sep 2015

Indonesia has a Muslim population of around 225 million but this huge number

of faithful has not translated into success for sharia banks (AFP Photo/Adek Berry)

Indonesian teacher Nina Ramadhaniah hopes for "blessings from Allah" by opening a sharia bank account -- the sort of pious customer the world's most-populous Muslim-majority country is praying for as it launches an Islamic finance drive.

Indonesia, Southeast Asia's biggest economy, has a Muslim population of around 225 million but this huge number of faithful has not translated into success for sharia banks, institutions required to do business in line with Islamic principles.

Bank Indonesia mosque, pictured

 on the first day of the holy month of 

Ramadan, in Jakarta, in 2013 (AFP

Photo/Adek Berry)

Now regulators have launched a plan aimed at growing the sector, which currently accounts for less than five percent of banking assets, compared to a quarter in neighbouring, more developed Muslim-majority Malaysia and around half in Saudi Arabia.

Authorities believe it is a good moment, with many Indonesians getting wealthier after years of strong economic growth and an increasing trend towards piety across broad sections of society.

Many of those without bank accounts, estimated at about 40 percent of the population, are soon expected to open one.

"The situation is an opportunity for the Islamic banking business to get bigger," said Nasirwan Ilyas, a senior official from the Islamic banking division of the Financial Services Authority (OJK).

The OJK is spearheading the drive, and unveiled a five-year roadmap earlier this year that included plans to educate the public about sharia lenders and the establishment of an Islamic finance committee to better manage the sector.

'Interest is haram'

Key features of sharia banking include the prohibition of interest on loans or customer deposits, and a ban on investing in "non-Islamic" businesses, such as those involving pork or alcohol.

For teacher Ramadhaniah, who has an account with Indonesia's biggest Islamic lender, Bank Syariah Mandiri, the ban on interest is a key attraction.

Key features of sharia banking include the prohibition of interest on loans

or customer deposits (AFP Photo/Bay Ismoyo)

"Charging interest is haram (against Islam), ill-gotten gains that will not bring me any blessings from Allah," the 44-year-old told AFP. "I don't want to live in sin."

Sharia accounts often work on a "profit-and-loss sharing" model, meaning customers get a windfall when the bank does well but can lose out when it does badly.

There are obvious disadvantages. Sharia lenders generally offer lower returns on investments and their modest size often means they provide fewer services than larger, conventional peers -- many shops are not equipped to accept their debit cards.

Nevertheless, Islamic banks have proven popular in recent years, with the sector expanding on average more than 40 percent a year between 2008 and 2012, according to the OJK.

The growth came after laws were changed to make it easier to establish an Islamic bank, and there are now a plethora of standalone sharia lenders, Islamic banking units attached to conventional banks, and smaller Islamic financial institutions in the countryside.

Growth in the sector has lost steam due to a broader slowdown in the economy, which is expanding at six-year lows -- giving authorities another reason to launch their drive.

Islamic mega-bank

Central to the overhaul is a plan to set up a National Islamic Finance Committee this year, to oversee the sector by bringing together representatives from different government agencies and act as a contact point for potential foreign investors.

Currently responsibility for the sector is spread around different bodies, such as the OJK, the central bank and the finance ministry, according to the OJK's Ilyas.

It is modelled after similar bodies in other countries, such as the International Islamic Financial Centre in Malaysia, where the sector is already far more developed as the government started supporting it some years ago.

In addition to the OJK roadmap, the government has announced plans to merge the Islamic banking subsidiaries of four state-owned banks to create an Islamic mega-bank, which should be able to provide better services than the current Islamic lenders.

Sharia lenders generally offer lower returns on investments and their modest

 size often means they provide fewer services than larger, conventional peers

(AFP Photo/Bay Ismoyo)

While observers have broadly welcomed the plans, they concede that many difficulties remain.

Khalid Howladar, Moody's global head of Islamic finance, said it would be "quite a challenge" to grow the sector to a substantial level.

"The market is growing faster than conventional but from a very low base," he said, adding Islamic banks in Indonesia did not offer "substantive competition" to their non-sharia peers.

But for Ramadhaniah and a growing army of devout Indonesians with new-found spending power, Islamic banks remain the only choice.

"I really don't care that I'm not earning anything or getting lower returns on my investments," she said. "I can live in peace."

Joko Announces First Policy Package to Propel Economy

Jakarta Globe,  Tabita Diela, September 09, 2015

President Joko Widodo, center, on Wednesday announced the promised policy

package that he hopes will propel the economy. (Antara Photo/Yudhi Mahatma)

Jakarta. President Joko Widodo unveiled his much-awaited major deregulation policy package on Wednesday afternoon, with his administration revising 89 regulations considered to be damaging to the country's business climate.

“We’re trying to reduce duplications that could prevent industry growth,” said the President at the State Palace, while accompanied by economy-related ministers, including economic tzar Darmin Nasution, Finance Minister Bambang Brodjonegoro, Trade Minister Thomas Lembong, Energy Minister Sudirman Said and Agriculture Minister Amran Sulaiman.

Joko was also joined by central bank governor Agus Martowardojo and chairman of the Financial Services Authority (OJK) Muliaman Hadad.

Joko said his administration is simplifying the process for obtaining business permits, streamlining bureaucracy and offering more electronic-based services to reduce potential misconduct by government officers.

Today's announcement is the first of three deregulation packages Joko's cabinet pledged, with the first to be implemented before October.

The package addresses three key issues of importance to the business community.

In a bid to boost the competitiveness of Indonesia's manufacturing industry, these revisions target businesses in the finance, property, maritime, trade, agriculture and energy sectors. The review looked at 154 existing regulations pegged as being detrimental to business.

The role of regional governments will be strengthened to ease bottleneck issues for strategic projects of national interest. This includes simplifying the process for obtaining spatial planning permits, land acquisitions and goods procurement, as well as providing stronger legal certainty.

In a bid to boost investment in the property sector, the government will push the development of housing for middle-to low income buyers. Indonesia currently faces a backlog of 15 million properties and developers are struggling to meet the vastly increased demand.

“The government can’t work alone. There needs to be cooperation and support. Let’s unite to respond to the challenge of the global economic slowdown. I assure that the government isn’t only making commitments ... it is also serious in implementing these commitments,” Joko said.

Jokowi Appoints Anti-Graft Activist as Chief of Staff

Jakarta Globe, Novy Lumanauw, September 2, 2015

Teten Masduki has been inaugurated as President Joko Widodo's chief of
staff. (Antara Photo/Yudhi Mahatma)

Jakarta. President Joko Widodo on Wednesday installed his spokesman as his chief of staff in an inauguration ceremony at the State Palace in Jakarta.

Teten Masduki, an anti-corruption activist and former lawyer, replaces Luhut Binsar Pandjaitan who now serves as the Coordinating Minister for Politics, Legal and Human Rights.

"I will do my best in this new position... I'll consult with the president about what he expects from the chief of staff in the future," Teten told reporters after the inauguration ceremony.

Born in Garut, West Java, in May 1963, Teten's profile emerged as chairman of Indonesia Corruption Watch (ICW), one of the country's prominent anti-corruption watchdogs.

In 2013, Teten announced his decision to run as deputy governor with politician Rieke Diah Pitaloka in the West Java election with the support from the Indonesian Democratic Party of Struggle (PDI-P).

Jokowi to Roll Back Counterproductive Business Policies

Jakarta Globe, Ezra Sihite, September 2, 2015

President Joko Widodo ordered his ministers on Wednesday to help him examine
 existing regulations, conduct preliminary investigations, and deregulate unnecessary
policies. (Antara Photo/Yudhi Mahatma)

Jakarta. President Joko Widodo said on Wednesday that at least 110 government regulations were counterproductive, outdated or did not support Indonesia's business activities.

"We need major deregulation [policies],” Joko said as he opened a cabinet meeting at the State Palace in Jakarta. “We need new regulations that can actually improve the climate of our economy as soon as possible.”

Joko ordered his ministers on Wednesday to help him examine existing regulations, conduct preliminary investigations, and deregulate unnecessary policies.

“If we don't [take this step], the business sector will [face] difficulties [in growing]. They will have difficulties to disburse their [investment capital],” Joko said.

The president said that two days would be set aside this week at the palace in Bogor for cabinet members to gather to discuss deregulating counterproductive policies.

The president did not identify which regulations would be called into question, although he noted that “inflows of money from outside will be hampered. So I want everything to be quickly settled.”