Indonesia’s Islamic finance sector broadens

Indonesia’s Islamic banks maintained double-digit asset growth last year while rural and non-bank segments made further gains, broadening the industry’s consumer base in Southeast Asia’s largest economy.

According to Reuters, Indonesia has the world’s largest Muslim population, but that potential has yet to fully translate into the country’s Islamic banking sector which remains underdeveloped, lagging behind neighbour Malaysia.
Islamic banking assets grew by 24.2 percent to 242.3 trillion rupiah ($21.4 billion) last year, giving the sector a 4.9 percent share of total banking assets, data from Indonesia’s financial service authority or Otoritas Jasa Keuangan (OJK) showed.
Indonesia’s 11 full-fledged Islamic banks added 32.7 trillion rupiah worth of assets in 2013, a 22.2 percent increase, while the country’s 23 Islamic windows added 14.5 trillion rupiah in assets, a 30.5 percent increase.
But beyond commercial banks, Islamic finance is making inroads in other areas which could help it tap the country’s large consumer base – with a predominantly Muslim population of 240 million.
There are now 163 Islamic rural banks in Indonesia which posted a 24.1 percent growth in assets in 2013 to reach 5.8 trillion rupiah, lifting their share of total rural banking assets to 7.5 percent.
Such growth came despite the size of their branch network being almost unchanged with 402 branches across the country.
In a separate OJK report, Islamic financing companies posted a five-fold increase in assets in 2012 to reach 22.7 trillion rupiah. There were 35 such firms in Indonesia at the end of 2012, after 21 opened their doors that year.
Even Islamic pawn-brokers have made gains, they held a 9.8 percent share of total financing for that segment as of December 2012, the latest available data from OJK showed.
Indonesia’s Muslim charitable organisations have also built large asset pools which could support efforts to reduce poverty, a study released on Tuesday found.
Regulators are also planning to roll out initiatives to develop other areas of Islamic finance, which follows religious principles such as a ban on interest and monetary speculation.