LippoBank launches sharia unit

The Jakarta Post, Jakarta

LippoBank has entered the country's largely untapped sharia banking market, unveiling a new unit Wednesday with the opening of its first sharia branch in Jakarta, a bank executive said.

The sharia unit, called LippoBank Salam, is equipped with a US$600,000 information technology system.

"We have prepared an initial working capital of Rp 5 billion for this first sharia branch, and hope to disburse a further Rp 20 billion into sharia-based finance by the end of December," the group head of the unit, Dradjat Tjahjono, said.

Under the sharia principles, banks are prohibited from charging interest on saving and lending. They instead based their business on a profit-sharing mechanism.

Dradjat said the new group would open four more branches in Bandung, Medan, Semarang and Surabaya, which would supervise 130 sub-branches. The first three sub-branches, he said, would be launched in Jakarta in the middle of this month.

"We hope to have all offices operational by the end of 2008," Dradjat said, adding that the investment was not big because the sub-branches would be attached to existing branches.

"We see this as a golden opportunity because the prospect of sharia banking here is very good," LippoBank president director Henk G. Mulder said.

Sharia banking services have been successful in Malaysia and began to gain popularity in Indonesia after the 1997-1998 economic crisis when all conventional banks suffered deficits.

Sharia banking currently makes up less than 1 percent of the country's total financial transactions.

At present, Indonesia has three banks which offer dedicated sharia banking services: Bank Muamalat Indonesia, Bank Syariah Mandiri and Bank Mega Syariah. At least 24 conventional banks have opened sharia units and there are some 106 Bank Perkreditan Rakyat syariah (sharia community banks). (ind)