bank muamalat

[jones.tjiunardi]

World Islamic Banking Conference

The Rise of Islamic Finance

We recently attended the 4^th Annual World Islamic Banking Conference (WIBC) Asia Summit in Singapore, a two-day event arranged by the country’s Monetary Authority.  In this event, more than 50 Islamic finance expert speakers from around the globe shared presentations with some 500 registered conference participants, coming from more than 20 countries.

Sharia-related assets  jumped 20% y-y to USD1.6t by end-2012
As of end-2012, Sharia-related assets jumped to USD1.6t globally, up 20.4% y-y, and projected to top USD2t by end-2013 – making it one of the fastest growing segments within the finance sector. Meanwhile sukuk, a key product of Islamic finance, achieved another all-time high in 2012, as countries worldwide issued a total of USD138b, up nearly 50% y-y, with countries such as Kazakhstan and France making their debut.  This was higher than 2011’s sukuk issuances of USD98b, which was also a record. Malaysia continues to be the leader, contributing 70% of worldwide sukuk issuances, followed by Saudi Arabia with 8%, while UAE and Indonesia both account for just under 5%.  In Malaysia, sukuk (47% of total bonds issued), creates a liquid Islamic finance market, arousing interest from both domestic & foreign investors.

Issues need to be addressed, to tap a huge potential
Despite its rapid growth, Islamic finance only accounts for 1% of global financial assets, indicating huge untapped potential. A common view is that Governments must back regulations favoring Sharia banks (as it does in Malaysia), to boost competitiveness of Sharia banks, which mostly still operate on miniscule capital, compared to conventional institutions. Further, standardization of regulations among countries will generate more efficient cross-border transactions. Another concern is the small scale and limited variety of products, which generate thin liquidity.  As a result of a limited pool of analysts’ talent in the Islamic finance field, most products still reflect products of conventional banks (e.g. Murabahah mortgages), diverging from authentic Sharia finance, which is equity-based joint ventures.

Indonesia’s major Sharia role; Muamalat, first Sharia bank to list
As the largest Islamic-majority country (88% of its 240m population being Muslims), Indonesia can play a major role, supported by solid domestic growth and aggressive infrastructure expansions, both opening opportunities for sukuk issuances. Indonesia’s Sharia banking assets averaged 40% annual growth over the last 5 years, outpacing the 16% rate of conventional banks. The Government actively issues sukuk, totaling USD7.7b from 2011 to Jan 2013, only second place behind Qatar’s USD13b and ahead of Malaysia’s USD5.5b. Factoring in non-government issuances, Malaysia is, however, well ahead with USD36b, followed by Qatar’s USD15b, whereas Indonesia still recorded below USD10b, revealing poor private sector participation. The Indonesian Government has thus begun implementing rules favoring Sharia banks, such as looser branch opening regulations and lower FTV for mortgages. This should bode well for Bank Muamalat Indonesia, the upcoming first Sharia bank to be listed on the IDX.