- Indonesia and Malaysia have different approach in the establishment Islamic bank. Please explain their approach and why? What is the first Islamic bank in Indonesia and Malaysia and when it was launched?
A decade behind neighbouring Malaysia in the development of Islamic banking, Indonesia is making great strides as the sector grows at twice the rate of conventional finance. With the unbanked accounting for more than half of the population, the potential for growth in the world’s biggest Muslim population is immense, says Edy Setiadi, Executive Director and Head of the Islamic Banking Department at Bank Indonesia, the country’s central bank.
Bank Indonesia is accelerating reforms, including the development of liquidity instruments and capital markets, says Edy. Starting January 2014 all financial institutions including Islamic banks and cooperatives will come under the supervision of the Financial Services Authority (FSA). By the year 2020, Bank Indonesia expects one in five banks to be a Shariah-compliant bank. “One of the reasons that Islamic finance is growing well in Indonesia is because economic conditions have been very stable especially during the past five years.”
Economic growth in Indonesia has averaged about 6% since 2008. Shariah-compliant financial service providers currently account for only 4.5% of total banking sector assets. Between 2008 and 2012, Islamic bank assets tripled, increasing by an average of 31.5% annually. Strong growth in the past five years was helped by the Shairah Banking Law introduced in July 2008. Since then, the number of Islamic banking outlets has increased from 241 to 517, comprising 11 fully Shariah-compliant banks, 24 Islamic banking units and 158 Shariah-compliant rural banks. Islamic bank’s network has spread with the number offices rising at a rate of 27% year-on-year, says Edy.
Despite its Muslim population, Indonesia is a relatively latecomer to the Islamic banking industry. United Arab Emirates, which recently established the Center of Islamic Finance as part of its efforts towards promoting Dubai as the world’s capital city for the Islamic economy, has a headstart of about 20 years. Indonesia’s first Islamic bank, Bank Muamalat, was established in 1992 and Bank Indonesia was only allowed to make use of Islamic instruments as part of its monetary policy in 1999.
First banks
Began with the establishment of the Malaysian Pilgrims Fund Board (Tabung Haji) and the country's first Islamic bank, Bank Islam Malaysia Berhad (BIMB), which began operations on 1 July 1983. Since then, BIMB has become the core component of Malaysia's Islamic financial system.
Indonesia's first Islamic bank, Bank Muamalat, was established in 1992 and Bank Indonesia was only allowed to make use of Islamic instruments as part of its monetary policy in 1999.
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- Indonesia and Malaysia have different approach in the establishment Islamic bank. Please explain their approach...
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