Sharia banks expand amid crisis

The Jakarta Post, Thu, 11/13/2008 10:32 AM  

With the global financial crisis raising doubts over the world's conventional financial system, the sharia banking industry stands to benefit from the global downturn and expects to continue rapid growth next year, the central bank says. 

Ramzi A. Zuhdi, Bank Indonesia director of sharia banking, said Wednesday both assets and lending would growth by between 20 and 30 percent next year, respectively. 

"The financial crisis is having no (negative) impact on the development of sharia banking. So far, sharia banks have not showed any weakening of their performance," Ramzi said. 

This optimism is based on a healthy growth in lending over the past two years. Indonesian shariah banking assets grew by 26 percent up to quarter three this year while deposits grew by 35 percent. In the same period shariah-based lending grew by 20 percent. 

Sharia banks still make up only 2 percent of the banking industry, but Bank Indonesia has set a target to push this up to 5 percent by 2010. 

During the 17 years of its development, pioneered by Bank Muamalat Indonesia in late 1991, the total assets of sharia banking in Indonesia have now grown by 15 times. 

Two more conventional banks have converted into sharia banks this year, BRI Syariah and Bukopin Syariah. 

For next year, at least five more sharia banks will hit the market -- Panin-Hafra, BCA-UIC, Victoria, Maybank Indonesia and BNI Syariah -- as confirmed by deputy governor of Bank Indonesia Siti C. Fadjriah. 

"Sharia banking establishes a strong foundation. In sharia, there is no speculation that masterminds the destruction of the (conventional) financial system," said Siti. 

As opposed to the extremely complicated derivative instruments of the conventional banking system, all sharia transactions require clear and detailed underlying assets thus minimalizing risks, she said. -- JP/Olivia Dameria