ISLAMIC RETAIL BANKING A Response Toward

Microfinance Development Case of Indonesia

Fleming Gulf Conferences

Dubai, 9-10 October 2012

Associate Professor Rifki IsmalAssistant Director

Islamic Banking Department – Bank Indonesia

The Indonesian Economic Authorities

Fiscal Authority

Government

Economic Development

Bank Indonesia

BankingNon Bank Financial

InstitutionsFinancial Markets

Financial Sector

Authority

Monetary Authority

OJK

USD83B

USD441B

USD371B

Banking

Non Bank

Financial MarketsGovernment conducts fiscal policiesOJK conducts financial sector policiesBank Indonesia conducts monetary policies

More than USD900 billion funds managed by OJK

IIFSA: Authorities & Players

AUTHORITIES

Indonesia Capital Market and Financial Institutions

Supervisory Agency(Bapepam-LK, MoF)

Ministry of Cooperatives &Small Medium Enterprises

Bank Indonesia(banking supervision functions)

National Amil Zakat Body

Capital Market

Insurance

Pension Funds

Finance Companies

Cooperatives

Pawn Shop

Zakah Fund Institutions

Banking

FINANCIAL INSTITUTIONS

Financial Services Authority (2013)

4

Retail Konsumtif

Retail Produktif (SMEs)

Corporate

Business Model of the Indonesian Islamic Banks

Business Model

Corporate/Wholesale Banking

Infrastruktur Banking

Commercial Banking Retail Business Banking

Consumer Banking Retail Banking

Products

Retail Produktif (SMEs)

RetailKonsumtif

Corporate

• Saving deposit, time deposit

• Transfer

• Wealth Management

• E-Channel (Internet banking, Mobile banking ATM)

• SDB

• KPR, KKB,

multifinance• Pawn shop

• Demand deposit

• Time Deposit

• Mutual funds

• Gold Investment

• Working capital

financing

• Credit card

• Pawn shop

• Cash Management

• Electronic payroll

• Tax payment

• Collecting

• Financing with

small margin

(special rate)

• Investment and

working capital

financing

• Leasing

Type of Business

Criteria (MSMEs Act No.20/2008)Number of

Units

MICRO- Asset < IDR 50 mio (USD 5,500)

- Ann. Revenue < IDR 300 mio (USD 33,000)50,70 million

(98,9%)

SMALL- Asset: IDR 50 mio – IDR 500 mio (USD 5,500 – USD 55,000)- Ann. Revenue: IDR 300 mio – IDR 2,5 bio (USD 33,000 – USD

278,000)

0,52 million(1,01%)

MEDIUM- Asset: IDR 500 mio – IDR 10 bio (USD 55,000 – USD 1,1 mio)- Ann. Revenue: IDR 2,5 bio – IDR 50 bio (USD 278,000 – USD

5,5 mio)

0,04 million(0,08%)

BIG- Asset > IDR 10 bio (> USD 1,1 mio)

- Annual Revenue > IDR 50 bio (> USD 5,5 mio)0,004 million

(0,01%)

Type of Business based on MSMEs Act No.20/2008

IIFSA: Islamic Microfinance Services

Insurance

Finance Companies

Cooperatives

Pawn Shop

Zakah Fund Institutions

Banking

INSTITUTIONS/PLAYERS Services

As an APEX for IRBs & BMTsProducts: auto/motorcycles

financing

Products: microinsurance

Products: funds for start-up/existing micro business

ICB/IBU’s: microfinancing

Microfinance Institutions: Islamic Rural Banks

(BPRS)

Microfinance Institutions:

BMTs

Empowerment Programs

Poorest of the Poor

Islamic Life Insurance 3

Islamic Non Life Insurance 2

Sharia Unit of Life Insurance 17

Sharia Unit of Non Life Insurance

18

Sharia Unit of Reinsurance 3

TOTAL 43

Islamic Finance Co. 2

Sharia Unit of Finance Co. 12

Finance Co. Offer Islamic Prod

2

TOTAL 16

Islamic Com Bank 11

Islamic Windows 24

Islamic Rural Bank 156

Offices 2408

Islamic Cooperatives (BMT) > 5,500Conventional Cooperatives

(Financial Sector) 71,365Conventional Cooperatives

(Total) 187.598

Zakat Fund Institutions >500

MICRO BUSINESS

IIFSA: Major Players of Islamic Microfinance

Cooperatives

Banking

ICB/IBU’s: microfinancing

Microfinance Institutions:

Islamic Rural Banks (BPRS)

Microfinance Institutions:

BMTs

Banking ProfilesNumber of institutions: 11 Islamic Commercial Banks, 24 Islamic Banking Units, 156 Islamic Rural Banks (1,820 total Rural Banks)Assets ICB: IDR 156 tr (USD 17 bio) or 4% Market shareAssets IRB: IDR 4.2 tr (USD 466 mio) or 6.3% market shareAnnuall Growth: 45–50% (ICB); 25–30% (IRB)Total Customers: 9.5 mio (ICB); 728,908 (IRB)

BMT ProfilesNumber of Institutions: More than 5500 BMTs (Conventional Cooperatives 71.365 units)Assets: IDR 3,5 tr (USD 389 mio)Annuall Growth: 30 – 40%Number of Employee: 5 – 10 (average)Total members: 10 mioNon-Performing Financing/Loan: 4-5 % (average)Mostly initiated by group of people in particular community; Islamic Mass Organization, Mosque Comm.

Number of IRB Asset Volume

3 < 1 Billion

25 1 up to 5 Billion

39 >5 up to 10 Billion

89 > 10 Billion

156 Total

Islamic Microfinance Services: ISLAMIC BANKING

Islamic Com Bank 11

Islamic Windows 24

Islamic Rural Bank 156

Offices 2.408

Banking

ICB/IBU’s Products: microfinancing

Microfinance Institutions: Islamic Rural Banks

(BPRS)

Micro-Small Enterprises

ICB/IBU’s Services: Special Division for

microfinancing

ICB/IBU’s Strategy: Linkage to MFIs

Microfinance Institutions:

Islamic Rural Banks (BPRS) & Baitul Mal wa Tamwil (BMT)

Islamic Rural Banks (BPRS): Infrastructures

National Sharia Board

National Islamic Arbitrage Board

Indonesian Institute of Accountants

Certification Institutions for Microfinance Professionals

BPRS

BANK INDONESIA

Fatwas

Regulations: licensing & supervision

Capicity Building

TA, advocacy & Participation in Policy

Dialogue

Statement of Financial Accounting Standard

Dispute Mediation

A wholesale Apex for Financing MSMEs Projects

Certification for BoD

Deposit Insurance Corporation

10

118.95%20% 9%2.44% ACEH12.70%

98.97%15% 9%2.72% SUMUT5.63%

157.35%32% 25%1.93% RIAU4.09%

187.04%45% 40%0.72% KEPRI6.59%

85.78%28% 25%6.57% BABEL0.01%

113.48%25% 28%3.83% SUMBAR2.61%

FDRGrowth

DPK

Growth

PYDShare PROVNPF

Growth

Asset

12%

17%

22%

44%

25%

31%

152.43%21% 31%2.21% BENGKULU3.98%30%

115.70%13% 21%0.22% SUMSEL3.73%5%

146.71%40% 35%3.72% LAMPUNG3.43%34%

385.455%34% 25%0.90% DKI9.42%25%

117.291%18% 25%9.80% BANTEN7.85%15%

137.40%25% 24%29.27% JABAR5.49%24% 116.38%26% 31%2.93% NTB2.24%31%

110.60%29% 27%0.25% BALI8.29%27%

350.56%-265% -43%0.03% PAPUA42.23%-47%

95.77%24% 29%4.74% YOGYA5.05%25%

117.32%30% 31%8.81% JATENG5.88%28%

152.24%22% 22%14.85% JATIM4.86%20%

180.88%-11% 3%3.21% SULSEL11.44%9%

SULUT0

93.08%12% -23%0.29% KALTIM39.56%-15%

81.16%3% -7%0.59% KALSEL*9.76%-11%

0 0 0 0 0

GORONTALO0 0 0 0 0 0

IRJABAR0 0 0 0 0 0

SULTENG0 0 0 0 0 0

MALUT0 0 0 0 0 0

MALUKU0 0 0 0 0 0

Islamic Rural Banks (BPRS) Map

DESEMBER 2011

SULTRA0 0 0 0 0 0

SULBAR0 0 0 0 0 0

NTT0 0 0 0 0 0

KALTENG0 0 0 0 0 0

KALBAR0 0 0 0 0 0

JAMBI0 0 0 0 0 0

* Prov KALSEL data Oktober 2011

Challenges

Skill & Competency of Human Capital

MSMEs & MFIs Study Center in Major Universities

TA & Capacity Building by Regulators, Agencies or Local/Regional Associations

APEX Institutions: i.e PNM, Regional Association, Regional Champion

Programs (Local State Own Banks)

Linkage Programs: i.e ICBs, IBUs or IRBs

Self-regulations & Supervisions by Regional Association or Agencies

Financial Sustainability

Lack of prudential Regulation & effective Supervision*

Harmonizing Policy & Regulations between Banks and Cooperatives

*) especially for BMTs

Financial Inclusion OptimizationIslamic Banks and BMTs

LINKAGE PROGRAM MODEL by Bank IndonesiaIslamic Commercial Bank – Islamic Rural Bank

Executing

ICB

IRB

MSMEs MSMEs MSMEs

Joint Financing

ICB IRB

Channeling

ICB

IRB

Based on Mudharaba

Based on Wakala Based on

Musharaka

LINKAGE PROGRAM MODELIslamic Commercial Banks/ Islamic Rural Bank – Islamic Microfinance

Executing

ICB/BPRS

BMT

MSMEs MSMEs MSMEs

Joint Financing

ICB/BPRS BMT

Channeling

ICB/BPRS

BMT

Based on Mudharaba

Based on Wakala Based on

Musharaka

Associate Prof. Dr. Rifki Ismal is both a

central banker and lecturer. He earned

bachelor degree in economics from University

of Indonesia, master in economics from

University of Michigan, ann arbor (USA) and

PhD in Islamic economics and Finance from Durham

University (England). An Associate Professor in Islamic

Banking and Finance is from the Australian Government

(Australian Center for Islamic Financial Studies)

SHORT BIO