ROLES OF THE GOVERNMENT TO IMPROVE THE PERFORMANCE OF ISLAMIC FINANCIAL INSTITUTIONS Rifki Ismal International Seminar of SETY 2013 Gadjahmada University

ROLES OF THE GOVERNMENT TO ROLES OF THE GOVERNMENT TO IMPROVE THE PERFORMANCE OF IMPROVE THE PERFORMANCE OF ISLAMIC FINANCIAL INSTITUTIONSISLAMIC FINANCIAL INSTITUTIONS

Rifki Ismal

International Seminar of SETY 2013Gadjahmada University

Jogjakarta, 30 November 2013

1

Unique Values and Characteristics of Unique Values and Characteristics of the Indonesian Islamic Bankingthe Indonesian Islamic Banking

2

3

UNIQUE VALUES OF THE INDONESIAN IB

Sharia Based with Selected Sharia Compliance contracts.

Real sectors oriented (around 80% financing for SMEs).

Domestic Orientation (strong domestic demand, market share is still 3.8%)

Coopetion with Conventional Banks

An independent National Sharia Board and Fatwa Issuance

Comprehensive structure of Islamic bank and non bank Financial Institutions

Retail Banking instead of Investment Banking

A High Annual Growth of Islamic Banking Industry (+/- 40% per year).

An Average of 101% Financing to Deposit Ratio in the last 2 Decades

An Increasing Trend of Investment Based Financing

Social Driven Islamic Banking Development

More than 200 million are Moslem Population and Support Islamic Banks

Robust Domestic Economy (Less Affected by Global Financial Crisis)

Supportive Social and Political Situation

Driving Factors of the Indonesian Driving Factors of the Indonesian Islamic BankingIslamic Banking

4

• Central Bank Act No. 23 of 1999 (amended by Act No. 3 of 2004).

• Banking Act No 7 of 1992 (amended by Act No. 10 of 1998).

• Deposit Insurance Act No. 24 of 2004• Islamic Banking Act No. 21 of 2008.• Islamic Sovereign Bond (Sukuk) Act No. 19 of 2008.• Government Law No. 25 of 2009 (income tax for

sharia transactions). • Tax Neutrality in Government Law no. 42 of 2009.• Microfinance Act no. 20 of 2008• Waqf Act no. 23 of 2011• Financial Service Authority (OJK) Act no. 21 of 2011

5

LEGAL SUPPORTS

Medium and Large

Business

Small and Micro

Business

Conventional Banks

Islamic Banks

UUS

Existing BPRS

New BPRS

New BPR

Existing BPR

Existing Community

Existing Community

New Community

New Community

Investors of BPR/S

SMEs Financing is done by:

•Conventional Banks

•Islamic Banks

•Unit Usaha Syariah

•Rural Banks

•Islamic Rural Banks

•New Investors

•Baitul Maal Watamwill (BMT)

BMT

LINKAGES AMONG INSTITUTIONS

ExecutingExecuting

ICBICB

IRBIRB

MSMMSM

EsEsMSMEsMSMEs MSMEsMSMEs

Joint FinancingJoint Financing

ICBICB IRBIRB

ChannelinChannelingg

ICBICB

IRBIRB

Based on Mudharaba

Based on Wakala Based on

Musharaka

MODELS OF LINKAGES

ExecutingExecuting

ICB/ICB/BPRSBPRS

BMTBMT

MSMEsMSMEs MSMEsMSMEs MSMMSMEsEs

Joint FinancingJoint Financing

ICB/ICB/BPRSBPRS

BMTBMT

ChannelingChanneling

ICB/ICB/BPRSBPRS

BMTBMT

Based on Mudharaba

Based on Wakala Based on

Musharaka

MODELS OF LINKAGES

(Trilion Rp)

Types 2009 2010 2011 2012 Q3 2013MARKET SHARE

Islamic Banking 66,09 97,52 145,47 174,09 223,50** 4,80%

Takaful 4,8 6,979,15

13,1 14,97* 2,40%

Islamic Financing

0,64 2,36 3,62 22,66 27,54* 8,27%

Islamic Stocks n.a n.a 1.968,10 2.451,33 2.475,36 58,22%

Corporate Sukuk 7,02 7,82 7,92 9,79 11,41 3,26%

Islamuc Mutual Funds

4,63 5,23 5,56 8,05 9,35 4,94%

Government Sukuk

20,32 44,34 77,73 124,36 147,80 10,23%

* Per June 2013** Per August 2013

ASSETS OF ISLAMIC FINANCE

Source: Presentation of OJK in FREKS UIN Jakarta 2013Source: Presentation of OJK in FREKS UIN Jakarta 2013

Proportion of Islamic Stocks (October ,2013)

Stocks in DESStocks outside DES

Note : *) Per October 2013, Numbers of Stocks in DES are 309 stocks constisting of: • 302 stocks Period 1 was issued 24 May 2013• 7 stocks is from IPO

ISLAMIC STOCKS


Development of Islamic Stocks

ISLAMIC MUTUAL FUNDS


CORPORATE SUKUK


Outstanding and Numbers of Corporate SukukOutstanding and Numbers of Corporate Sukuk

GOVERNMENT SUKUK


Government Sukuk (Numbers and Outstanding)Government Sukuk (Numbers and Outstanding)

Future Development and Future Development and Supports from the RegulatorsSupports from the Regulators

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15

Retail Konsumtif

Retail Produktif (SMEs)

Corporate

Government

Unbankable(micro)

Business Models

Investment Banking Development/

Infrastructure Banking

Special Purpose Banking for Hajj

Agriculture Banking

Infrastructure Banking

Corporate/Wholesale Banking

Investment Banking

Commercial Banking Retail Business

Banking

Consumer Banking Retail Banking

Micro Banking Branchless Banking Community Banking

(for women)

Potential Markets

• Business sectors are dominated by SME (99.9%):

(53,823,732 units)• Share of Banks’ financing to

SMEs is only 20.7% (Rp481.2 T)

• 50% population do not have financial access

• Government credits distributions were Rp20

T(2011)• Domestic labors, overseas workers and remote areas

people

•Hajj Funds Rp 25 T. •Infrastructure Funds +/- Rp75,15

trillion•MP3EI up to 2025 needs Rp1.923

trillion•Mining sectors 150 T

• IDB financing for private sector: US$1,1 billion up to 2014.

• High net worth individual (HNWI) are 112,000 persons

• Local Investors are 363.094 persons

Middle Class potentials with 9 million growth/year

Mass Affluent depositorsDemands for housing 2,6

million/year (REI)Estimation of car sales of more than

875,000 unit (GAIKINDO)

POTENTIAL MODELS OF ISLAMIC BANKS

OUTLOOK of ISLAMIC BANKING 2013 TPF

Financing

Assets

NPF 0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

4,000,000,000

4,500,000,000

5,000,000,000

Jan-11Feb-11M

ar-11A

pr-11M

ay-11Jun-11Jul-11A

ug-11S

ep-11O

ct-11N

ov-11D

ec-11Jan-12Feb-12M

ar-12A

pr-12M

ay-12Jun-12Jul-12A

ug-12S

ep-12O

ct-12N

ov-12D

ec-12Jan-13Feb-13M

ar-13A

pr-13M

ay-13Jun-13Jul-13A

ug-13S

ep-13O

ct-13N

ov-13D

ec-13

80,000,000

130,000,000

180,000,000

230,000,000

280,000,000

330,000,000

Asset CB (actual)Asset CB (moderate)Asset IB (actual)Asset IB (pesimist)Asset IB (moderate)Asset IB (optimist)

actual

estimation

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

Jan-1

1F

eb-1

1

Mar-1

1

Apr-1

1M

ay-1

1

Jun-1

1Jul-1

1

Aug-1

1

Sep-1

1O

ct-1

1

Nov-1

1

Dec-1

1Jan-1

2

Feb-1

2M

ar-1

2

Apr-1

2

May-1

2Jun-1

2

Jul-1

2A

ug-1

2

Sep-1

2

Oct-1

2N

ov-1

2

Dec-1

2Jan-1

3

Feb-1

3

Mar-1

3A

pr-1

3

May-1

3

Jun-1

3Jul-1

3

Aug-1

3S

ep-1

3

Oct-1

3

Nov-1

3D

ec-1

3

DPK IB (actual)DPK IB (pesimist)DPK IB (moderate)DPK IB (optimist)

actual

estimation actual

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000

220,000,000

Jan-1

1

Feb-1

1

Mar-1

1

Apr-1

1

May-1

1

Jun-1

1

Jul-1

1

Aug-1

1

Sep-1

1

Oct-1

1

Nov-1

1

Dec-1

1

Jan-1

2

Feb-1

2

Mar-1

2

Apr-1

2

May-1

2

Jun-1

2

Jul-1

2

Aug-1

2

Sep-1

2

Oct-1

2

Nov-1

2

Dec-1

2

Jan-1

3

Feb-1

3

Mar-1

3

Apr-1

3

May-1

3

Jun-1

3

Jul-1

3

Aug-1

3

Sep-1

3

Oct-1

3

Nov-1

3

Dec-1

3

Financing IB (actual)Financing IB (pesimist)Financing IB (moderate)Financing IB (optimist)

actual

estimation actual

Total Aset Total DPK Total PembiayaanPesimis 213.75 174.43 180.30Moderat 237.50 183.61 189.79Optimis 261.25 193.67 199.28

SkenarioAkhir 2013

MARKET SHARE OF ISLAMIC BANKING

4.87

5.85

5.07

3.2

3.7

4.2

4.7

5.2

5.7

6.2

Jan

-11

Ma

r-11

Ma

y-11

Jul-1

1

Se

p-1

1

No

v-11

Jan

-12

Ma

r-12

Ma

y-12

Jul-1

2

Se

p-1

2

No

v-12

Jan

-13

Ma

r-13

Ma

y-13

Jul-1

3

Se

p-1

3

No

v-13

market share (actual)

market share (estimation)

OUTLOOK of ISLAMIC BANKING 2014 TPF

Financing

Assets

NPF

Total Aset Total DPK Total PembiayaanPesimis 255.21 209.66 216.72Moderat 283.57 220.69 228.13Optimis 311.92 232.82 239.54

SkenarioAkhir 2014

170,000,000

190,000,000

210,000,000

230,000,000

250,000,000

270,000,000

290,000,000

310,000,000

330,000,000

Jan-1

3

Feb-1

3

Mar-1

3

Apr-1

3

May-1

3

Jun-1

3

Jul-1

3

Aug-1

3

Sep-1

3

Oct-1

3

Nov-1

3

Dec-1

3

Jan-1

4

Feb-1

4

Mar-1

4

Apr-1

4

May-1

4

Jun-1

4

Jul-1

4

Aug-1

4

Sep-1

4

Oct-1

4

Nov-1

4

Dec-1

4

Estimasi Aset (Moderat)

Estimasi Aset (pesimis)

Estimasi Aset (optimis)

135,000,000

145,000,000

155,000,000

165,000,000

175,000,000

185,000,000

195,000,000

205,000,000

215,000,000

225,000,000

235,000,000

Jan-1

3

Feb-1

3

Mar-1

3

Apr-1

3

May-1

3

Jun-1

3

Jul-1

3

Aug-1

3

Sep-1

3

Oct-1

3

Nov-1

3

Dec-1

3

Jan-1

4

Feb-1

4

Mar-1

4

Apr-1

4

May-1

4

Jun-1

4

Jul-1

4

Aug-1

4

Sep-1

4

Oct-1

4

Nov-1

4

Dec-1

4

Estimasi DPK (moderat)

Estimasi DPK (pesimis)

Estimasi DPK (optimis)

140,000,000

150,000,000

160,000,000

170,000,000

180,000,000

190,000,000

200,000,000

210,000,000

220,000,000

230,000,000

240,000,000

Jan-1

3

Feb-1

3

Mar-1

3

Apr-1

3

May-1

3

Jun-1

3

Jul-1

3

Aug-1

3

Sep-1

3

Oct-1

3

Nov-1

3

Dec-1

3

Jan-1

4

Feb-1

4

Mar-1

4

Apr-1

4

May-1

4

Jun-1

4

Jul-1

4

Aug-1

4

Sep-1

4

Oct-1

4

Nov-1

4

Dec-1

4

Estimasi Pembiayaan (pesimis)

Estimasi Pembiayaan (optimis)

Estimasi Pembiayaan (moderat)

PROMISING FACTORS

A New State Owned Islamic Bank

100% Hajj Funds in Islamic Banks

Establishment of Waqf Banks

Conversion of UUS to become BUS until 2023

Robust policy coordination under OJK

Project based Sukuk to be issued by the government

Continuous supports from the parent banks to their IB subsidiaries

Market expansion in MEA (2015-2020)

Directorate of Islamic Finance in Ministry of Finance

Islamic Finance Division in Deposit Guarantee Institution (LPS)

Macroprudential and Economic stabilityMacroprudential and Economic stability

Robust Coordination of Monetary Policy, Fiscal Policy and Financial Sector PolicyRobust Coordination of Monetary Policy, Fiscal Policy and Financial Sector Policy

Micro and Macro Development of Islamic financeMicro and Macro Development of Islamic finance

SUPPORTS FROM THE CENTRAL BANK


SUPPORTS FROM OJK


Developing regulations to create conducive condition

Level of Playing Field

Developing Products with Islamic Principles

Developing Islamic HR

Well-planned socialization and education programs

Contribution on Acceleration of the Indonesian Economic DevelopmentContribution on Acceleration of the Indonesian Economic Development

Capturing the potential of middle class and upper class peopleCapturing the potential of middle class and upper class people

Opening an access for developing middle class people in all segmentsOpening an access for developing middle class people in all segments

FUTURE ROLES OF ISLAMIC FINANCE


Rifki Ismal is both central banker and lecturer. He earned bachelor degree in economics from University of Indonesia, master degree in economics from University of Michigan, Ann Arbor (USA), PhD in Islamic economics and Finance from Durham University (England) and an Associate Professor in Islamic Banking and Finance is from the Australian Government (Australian Center for Islamic Financial Studies). Besides lecturing in some Universities, he has published more thirty papers in international journals and a book titling Islamic Banking in Indonesia: New Perspective in Monetary and Finance (John Wiley and Sons, March 2013)

SHORT BIO

THANK YOU THANK YOU

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Documents

ROLES OF THE GOVERNMENT TO IMPROVE THE PERFORMANCE OF ISLAMIC FINANCIAL INSTITUTIONS Rifki Ismal International Seminar of SETY 2013 Gadjahmada University