Indonesia Islamic banking market share crosses 5 pct ’psychological barrier’, looks to halal sector for more growth

Photo: JAKARTA, INDONESIA - SEPTEMBER 25, 2016: People enjoy car free day, which happens every Sunday morning, on the Sudirman avenue in Jakarta, where only Tranjakarta bus can run / AsiaTravel / Shutterstock.com

JAKARTA –The value of Indonesia’s Islamic banking assets crossed the psychological 5 percent barrier at the end of September to reach 331.76 trillion Indonesian rupiah ($25 billion), or 5.13 percent of the country’s 6,465.68 trillion rupiah banking assets, Beny Witjaksono, Executive Director of Indonesian Sharia Bank Association (Asbisindo) told Salaam Gateway.

Citing data from the Financial Services Authority (OJK), Witjaksono said the value of assets held at the end of September by the country’s 13 Islamic banks, 21 Shariah-compliant units of conventional banks and 165 Shariah-compliant rural banks jumped 17.58 percent from 282.16 trillion rupiah compared to the same period last year.

The growth in assets is 11.98 percent from 296.26 trillion rupiah at the end of 2015.

Growth is in large part due to an injection of 19.76 trillion rupiah (pdf) in assets from regional development bank BPD Aceh that converted from conventional to Shariah-compliant banking towards the end of September.

Third party funds (DPK) have risen by 20.16 percent from last year to reach 263.52 trillion rupiah, while financing grew 12.91 percent to 235.01 trillion rupiah.

“This is a positive moment for us, considering how our Islamic banking growth has been stalling. We should have surpassed this 5 percent mark three or four years ago,” said Witjaksono.

Looking ahead, Asbisindo expects an average 12 to 16 percent asset growth per year, in line with the country’s aim to triple Islamic banking market share to at least 15 percent by 2023.

ISLAMIC ECONOMY PUSH

To accelerate the growth of the country’s Islamic banking sector, Asbisindo has called on the national halal certifier, the Indonesian Ulema Council (MUI), to require companies applying for halal certification to use Islamic banking facilities. 

There is significant potential for Islamic banking growth within the halal food sector alone, which itself is receiving a big push from the government.

In 2014, only 20 to 30 percent of food in Indonesia was halal-certified, Asbisido business development chairman Imam T Saptono told reporters in Jakarta yesterday. The government has made it compulsory for all halal products to be labeled as such by 2019. According to Saptono, the total expenditure on halal food in the country in 2014 was $147 billion.

Growth will also come directly from the financial sector. Among initiatives in the OJK’s 2015-2019 Islamic finance roadmap that will make a bigger impact on the asset base, are the ones that require companies on the Sharia Stock Index to hold accounts in Islamic banks as well as use Islamic banks for transactions in the equity market, and for Shariah-compliant business units of conventional banks to be spun off into standalone Islamic financial institutions by 2023.

Witjaksono is confident there are many other opportunities to build on Islamic banking assets in the country. “We are promoting all travel agencies for umrah pilgrims to use Islamic banking facilities. Currently there are 800,000 to 1 million umrah pilgrims each year with average 20 trillion rupiah in transactions. If we can grab a minimum 50 percent, this will accelerate Islamic banks’ asset growth. We can also provide foreign currency transaction facilities for them,” he said.

($1 = 13,454 Indonesian rupiah)

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