(Translated from KONTAN Tabloid, no. 45, Year IX, 15 August, 2005 Edition)
Sharia Gets More Attractive: Three Foreign Investors Interested in entering Islamic banking
After commercial banks, now Islamic or sharia banks are being pursued by foreign investors. Recently, JBIC, the Kuwait Financial House and the Commerce international Merchant Bankers Berhard, made their start to enter this anti-interest banking business.
Silently, the prestige of sharia based finance draws attention. Not only more and more clients and debtors have become attracted by the Islamic banks, but the same enthusiasm has also oozed to foreign investors. By the end of last July, three foreign investors such as the Japan Bank for International Cooperation (JBIC), the Kuwait Finance, and a Malaysian Bank visited Bank Indonesia (BI). "They have interest in entering the sharia business in Indonesia," said Deputy Director of Sharia Banking at BI, Edy Setiadi.
If this is true, they may follow the earlier footsteps taken by those entering through Bank Muamalat Indonesia (BMI). After its IPO in May 2005, the composition of BMI stockholders underwent a total change. Besides the ADB, Bank Boubyan (Kuwait's SOE bank), and a consortium of three investors from Saudi Arabia (Atwil Holding Ltd, MNF Holding and IDF Investment Foundation) are now sharing the ownership of BMI. The majority of owners of this first Indonesia's Islamic bank are with foreign investors.
The fact shows that the development of Islamic banks in Indonesia has been more outstanding. According to data from the central bank, the total assets has increased fast. In 2003, it stood at Rp 7.9 trillion; in 2004, it became Rp 1.5 trillion. Meanwhile, by March this year, it already touched Rp 17 trillion. Their financing and third party funding have been as impressive. By March this year, the Islamic banks channeled financing of Rp 12.48 trillion worth. Third-party depositors' funds hit Rp 12.8 trillion, from Rp 11.8 trillion in 2004.
From New Establishment to Acquisition and IPO
The central bank offers various ways to investors. Those aiming for fast establishment, said Edy, may resort to acquisition of general banks. The moment has arrived for this. Sooner or later, the central bank's regulation stipulating that general banks ought to strengthen their capital up to Rp 80 billion by 2007 and Rp 100 billion by 2010 will find investors to fulfill the requirement. Moreover, according to BI data, some 30 banks need fresh capital for that purpose. Once the investors enter the general banks, "They can convert into sharia banks,"said Edy. Acquisition would exempt them from having to start from scratch; and would only require them to develop the banks.
In addition, they can start by establishing general banks based on the Islamic Law in Indonesia, for which they will have to reach further down the pocket. Establishing a new bank these days requires them to have a deposit of by Rp 3 trillion.
Another option is by just opening a branch in Indonesia, as what Citibank and HSBC did. "The cost is far lower than starting a new one,"continued Edy. Yet another alternative offered by the central bank is through IPOs of sharia banks, precisely as some foreign BMI stockholders did.""They can enter through the market,"said Edy.
Sukasah Syahdan, a researcher with JBIC, acknowledged that the head quarters is interested in investing money in Islamic banks in Indonesia. However, the pattern would not precisely resemble any option offered by the central bank. The reason is that, "We look into possibilities of co-financing, providing cheap financing funds, such as through two step loans,"said Sukasah, who joined the delegation of JBIC Tokyo led by the Director General of Project Finance, Ryuichi Kaga, in a meeting with the central bank. This mode is not especially developed in Indonesia, but not impossible. "It actually classifies as a pattern of mukayadah (loan), whereby JBIC can act as a shahibul maal (owner of fund),"said Edy.
Despite the interest, according to Sukasah, JBIC is now thoroughly studying the prevailing regulations. Sukasah said that there were some sharia regulations in Indonesia that are different from the ones practiced in other countries. The decision based on fatwa (edicts) by the National Sharia Council for sharia instruments, for example, are nationally binding and applied. In other countries, such as Singapore and Middle East, each bank can issue its own fatwa. "It's applicable only to the banks and their clients,"said Sukasah.
Different from the case in these two countries, in Malaysia, the sharia Council resides within the central bank. So, "All the decisions therefore will comply with the banking regulations,"he continued. Meanwhile, the sharia council in Indonesia is under the Indonesia's Ulema Council (MUI), "It can happen that the rules will be different from the banking regulations,"said Sukasah.
Then, how about the Kuwait Financial House and Commerce? According to Edy, they seem to be still studying the nooks and crannies of the sharia business in Indonesia. The central bank was hopeful that the two institutions would eventually place capital by establishing new Islamic banks. The thing is that, despite the fast growth, in quantity there are still only 3 Islamic banks in Indonesia, the 16 others still take the form of business units [of commercial banks]. To grow even faster, "We want to see the number increase," said Edy.
