Islamic Financial Services Industry Development: Framework and Future Direction Indonesia Experience

The IDB Group 9Th Global Forum on Islamic FinanceJeddah, Saudi Arabia - 24 June 2014

Dr. Muliaman D. HadadChairman of Board of CommissionerIndonesia Financial Service Authority

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Content

1 Global Islamic Finance and Indonesia’s Position

2 Indonesia’s Islamic Finance Sector Recent Development

3 Policy Direction

Islamic Banking Global Growth and Indonesia Position

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Islamic Banking Global Average Growth Trends

Financing Growth Trend by CountryDeposit Growth Trend by Country

There’s decreasing trend of Islamic banking (iB) global growth (asset in 2012 < 24%) while in Indonesian iB in 2012 reach ± 34% (yoy)

Indonesian iB growth of financing in 2012 (± 44%, yoy)

Indonesia iB growth of deposits in 2012 (± 28%, yoy)

However in Dec 2013, there’s decreasing in Indonesia’s iB’s growth only reach ±24% (still higher than conventional bank & global Islamic bank) rebalancing ..

Source: IFSB Islamic Financial Services Industry Stability Report, 2014

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Indonesia’s Islamic Finance Sector Recent Development

Milestone of Indonesia’s Islamic Finance

Islamic Bank

Takaful

Islamic Capital Market

1992 1997 2000 2004 2006 2008 2010 2012 2013 2014

1st Syariah Mutual Fund

Danareksa Syariah Berimbang

1st Syariah Mutual Fund

Danareksa Syariah Berimbang

1st Bank Syariah Bank Muamalat

1st Bank Syariah Bank Muamalat

1st Syariah InsuranceTakaful Keluarga

1st Syariah InsuranceTakaful Keluarga

1st Islamic Banking Accounting Standard (2002)

1st Islamic Banking Accounting Standard (2002)

Syariah Office Channeling

Syariah Office Channeling

Syariah List of Share (DES)

Syariah List of Share (DES)

Multifinance

1st Reinsurance SyariahReINDO Syariah

1st Reinsurance SyariahReINDO Syariah

Regulation Syariah Capital Matket

Regulation Syariah Capital Matket

ETF SyariahSyariah

Premier ETF JII

ETF SyariahSyariah

Premier ETF JII

1st Finance Syariah

Amanah Finance

1st Finance Syariah

Amanah Finance

1st Corporate Sukuk Mudharabah Indosat1st Corporate Sukuk Mudharabah Indosat

Jakarta Islamic Index (JII)

Jakarta Islamic Index (JII)

1994 1999 2002 2005 2007 2009 2011

Regulation related to Down Payment of Sharia

Finance

Regulation related to Down Payment of Sharia

Finance

Islamic banking act Act No.21 year 2008Islamic banking act Act No.21 year 2008

Regulation related to Insurance & Reinsurance

Syariah

Regulation related to Insurance & Reinsurance

Syariah

Act of Sovereign Sukuk (SBSN)Act No.19 year 2008

Act of Sovereign Sukuk (SBSN)Act No.19 year 2008

Indonesia Sharia Share Index (ISSI)

Indonesia Sharia Share Index (ISSI)

Sharia Online TradingIPOT Syariah

Sharia Online TradingIPOT Syariah

1st Sovereign Sukuk IFR0001 & IFR0002

1st Sovereign Sukuk IFR0001 & IFR0002

Syariah Delivery Channel

Syariah Delivery Channel Sharia Bank

XBRL reportSharia Bank XBRL report

Act No.10 year 1998/Banking Act

Islamic business unit (UUS)

Act No.10 year 1998/Banking Act

Islamic business unit (UUS)

Shariah Bank Reserve

Requirement

Shariah Bank Reserve

Requirement

Syariah Interbank

Money Market

Syariah Interbank

Money Market

Other Act No.42 year 2009 VAT (neutrality)

Act No.42 year 2009 VAT (neutrality)

Act No.3 year 2006 Religius

Court

Act No.3 year 2006 Religius

Court

Syariah LOLR (2003)Syariah LOLR (2003)

Cover by Deposit Insurance (LPS)

Cover by Deposit Insurance (LPS)

Islamic Bank Blue Print (2002)Islamic Bank Blue Print (2002)

Masterplan Capital Market & NBFI (2005)

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Development of Islamic Banking (BUS+UUS)

Indicator 2009 2010 2011 2012 2013

Islamic Commercial Bank (BUS) 6 11 11 11 11

Islamic Business Division (UUS) 25 23 24 24 23

Islamic Rural Bank (BPRS) 138 150 155 158 163

Offices 998 1,477 1,737 2,262 2,588

Total Asset (IDR Trillion) 66.1 97.2 145.47 195.02 242.28

Growth of Asset (yoy) 33% 48% 49% 34% 24%

Market Share 2.61% 3.24% 3.98% 4,58% 4.89%

Deposit 52.3 76.04 115.41 147.51 183.53

Financing 46.9 68.18 102.66 147.51 184.12

CAR 10.77% 16.25% 16.63% 14.13% 14.44%

FDR 89.7% 89.67% 88.94% 100.0% 100.32%

NPF (gross) 4.01% 3.02% 2.52% 2.22% 2.62%

ROA 1.48% 1.67% 1.79% 2.14% 2.00%ROE 25.81% 17.58% 15.73% 24.06% 17.24%

± 98% asset of Indonesian Islamic banking dominated by Islamic Commercial Bank (BUS) and Islamic business unit of Conventional Bank (UUS)

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Islamic (syariah) Capital Market Development

Islamic Mutual Fund (reksa dana) Corporate Sukuk

Sovereign Sukuk(SBSN)

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Islamic (Syariah) Non Bank Financial Industries (IKNB)

Development of Entity and Asset of Islamic IKNB

2009 2010 2011 2012 2013

Full Pledge Finance Sharia 2 2 2 2 2

Islamic Business Unit Finance Companies

5 9 12 32 42

Full pledge Venture Capital - - - - 4

Total 7 11 14 34 48

Development of Islamic Multifinance and Venture Capital

Growth of Asset and Receivable (Piutang) of Islamic Multifinance (Pembiayaan)

Asuransi = InsurancePembiayaan = Multifinance companies

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Policy Direction

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Indonesia’s Islamic Finance Architecture : Future Direction

Urgency of Integrated and comprehensive Islamic finance Masterplan : Indonesia FSA ’s mandate & authority to regulate and supervise Islamic finance industry in an integrated approach

The need of comprehensive framework of Islamic finance industry’s regulation and supporting infrastructure , which is better if it’s integrated in national policy agenda

Integrated supervision need harmonization of each masterplan/blue print

Islamic banking blue print 10 years (BI)

Capital Market & Non Bank FI Masterplan 5

years (MoF)

Indonesia’s Islamic Finance Architecture (cooperation with IDB and Govt. of Indonesia) Bigger role in supporting economic development particularly for priority economic sector Integrated development i.e. forum of policy authority in making policy and implementation More efficient and competitive including strengthened capital and synergi Broaden access and Financial inclusion Impact to national plan of medium term development

Reference :i.e. IDB-IFSB 10 yrs Masterplan of IFSI :• Enablement : i.e. Policy

Stakeholders Forum, IT support

• Performance : i.e. efficient & competitive

• Reach : i.e. broaden acces and financial inclusive

Challenge :External i.e. financial sector integration in ASEAN, global arrangementInternal i.e. priority economic sector financing, limited domestic support capital

Maintaining Indonesia’s Islamic Bank Growth

• Innovation of genuine sharia Products and services : support the people need ,more broaden customer base and more productive activities

• Strategic alliance and strong infrastructure support : i.e. Government support, Optimization synergy with iB’s holding/Grup companies.

• More professionals & qualified HRD• Intensified Education and Promotion

Muslim population Steps Forward

This strategy will attract more broaden customers to use services from islamic banks, and in the end this will have an impact to strong growth

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THE END

THANK YOU

TERIMA KASIH