The Southeast Asian country is projected to have a population of 184 million Muslim adults, of which over 50 percent are from the upper middle class and mostly work in the private sector.
Besides, the nation's Islamic financial services are growing at a swift pace even as the pandemic ploughs on. Indonesia’s Islamic banking assets in 2020 grew by 10.9 percent, while the conventional ones only clocked 7.7-percent growth.
Likewise with third-party funds — Islamic banking recorded an increase of 11.56 percent, slightly superior to conventional banks, which registered a rise of 11.49 percent.
"In terms of financing, Islamic banking recorded the largest growth of 9.4 percent, far ahead of conventional banking that only grew by 0.55 percent. In addition, the market share of the Islamic capital market has reached 17.39 percent, and the number of cooperatives for savings and loans and sharia financing has reached 4,115 units," State Enterprises Minister Erick Thohir, concurrently chairman of the Sharia Economic Community, informed.
He said the development of Islamic economics and finance in Indonesia won it accolades from the international community in 2020.
This was apparent from the Islamic Finance Development Report 2020, which placed Indonesia in the second place globally and the Global Islamic Economy Indicator 2020, which placed Indonesia in the fourth position globally.
To strengthen the national sharia economy, the government on February 1 this year merged the sharia compliant subsidiaries of three state-owned lenders — Bank Mandiri, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI) to form Bank Sharia Indonesia (BSI).
BSI is expected to be one of the largest sharia banks in Indonesia and also the world, with total assets of Rp214 trillion and core capital of Rp20.4 trillion. It is also expected to propel the development of the halal value chain in the country. Based on the global index, Indonesia’s ranking in sharia economy and finance is among the top 10 in the fields of finance, food, and fashion,
The inauguration of BSI by President Joko Widodo (Jokowi) was well-received by the market, with the Indonesian Stock Exchange (IDX) Composite Stock Price Index (IHSG) shooting up at the start of the new week.
"Today it (the stock market) strengthened in almost all sectors, especially SOE stocks in the mining, banking, and construction sectors, which have been oversold and have experienced consecutive decreases. Today, the sentiment is the effective operation of Bank Syariah Indonesia (BRIS), SWF, and data. The improving Indonesian manufacturing index has also been the trigger for a stronger index," the President said.
Widodo also highlighted the performance of Indonesia's Islamic banking industry that grew at a faster rate than conventional banking despite the challenges presented by the COVID-19 pandemic.
"In the midst of the COVID-19 pandemic, I am pleased to be informed that the performance of the Indonesian Islamic banking continues to record stable growth, and that Islamic banking has managed to grow, even higher than conventional banking. We should be grateful," he remarked.
Amid the COVID-19 pandemic, the Islamic banking industry marked a 10.9-percent (year-on-year/yoy) growth in assets, higher than conventional banking which recorded a 7.7-percent growth, according to the head of state.
Moreover, from the collection of third-party funds (DPK), the Islamic banking industry was able to record a growth of 11.56 percent, while conventional banks grew up to 11.49 percent.
On the financing side, the Islamic banking industry in the country grew about 9.42 percent, again much higher than conventional banks which recorded a 0.55-percent growth.
Citing the growth data, President Widodo expressed confidence that Indonesia's Islamic economic industry would continue to grow rapidly.
"I believe Indonesia's sharia economy will grow very fast and will contribute significantly to the welfare of our people and society," he remarked.
Thohir is targeting to ensure PT Bank Syariah Indonesia Tbk (BSI) ranks among the world's top 10 Islamic banks, considering that its assets are now in excess of Rp240 trillion.
"Owing to this merger, Bank Syariah Indonesia has assets of more than Rp240 trillion and is targeted to be included in the top 10 Islamic banks in the world. Hence, we pray for and continue to support the management of BSI to be able to realize the noble ideals in order to create a comprehensive sharia ecosystem, not only in Indonesia, but also in the world," Thohir noted during a discussion at ISEI Jakarta on March 13, 2021.
To achieve the target, the minister highlighted the importance of strong coordination between all stakeholders, including with communities and religious groups.
Furthermore, strengthening the halal value chain, Islamic finance, MSMEs, and digital sector are the four key strategies of the digital economy society, he said.
"As a country with the largest Muslim population in the world coupled with the determination to work with morals, God willing, we will be able to respond to all challenges and be able to turn opportunities into prudent and sustainable growth," he affirmed.
Meanwhile, BSI recently announced it is targeting to sell Rp500 billion worth of sharia-compliant government retail bonds, or retail sukuk series SR014.
"Retail sukuk SR014, issued at a coupon of 5.47 percent, may become an interesting investment choice for the public. They are expected to be able to meet customers' financial needs," BSI president director Hery Gunardi said on March 16, 2021.
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The directorate general of financing and risk management at the Finance Ministry has appointed BSI as a new distribution partner for the sale of sharia-compliant government retail bonds.
Gunardi said he hopes the new appointment will allow BSI to diversify banking product needs, particularly customer investments.
To achieve the SR014 sales target, the BSI has prepared a marketing strategy that includes pre-marketing and cross-selling to existing customers whose bonds are about to mature.
In addition, BSI has also prepared online publication campaigns, including digital marketing, digital flyers or posters, and other publication media strategies for social media and other outdoor media.
Investing in SR014 offered by BSI will offer many advantages since the bank is offering wealth management products compliant with sharia principles, Gunardi said.
The SR014 series is quite attractive since it is a safe investment product with government-guaranteed coupon and principal, he added.
It also offers attractive returns with a competitive coupon and low tax that can be easily disbursed and it can also be traded in the secondary market, he said. As such, customers have the potential to receive capital gains, if the retail bonds fetch more than the initial purchasing price, he added.
The BSI has won the support of the Indonesian Ulemas Council (MUI), which is encouraging Indonesian Muslims to use the services of the new bank, as part of efforts to develop sharia banking in the country.
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Editor: Rahmad Nasution
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