Islamic Banking Needs Supporting Ecosystem

It is believed that developing a halal ecosystem would support the expansion of sharia banking and finance. The Islamic financial market has recently seen rapid growth, but low financial literacy and inclusion could hamper further growth.

KOMPAS/KARINA ISNA IRAWAN

Bank Indonesia Governor Agus DW Martowardojo (right) and chairman of BI’s Central Java office, Hamid Ponco Wibowo, visit an exhibition stand at the 2018 Java Sharia Economic Festival in Semarang, Central Java, on Wednesday (2/5/2018). Sharia economics and finance continue to be developed to promote national economic growth and resilience.

JAKARTA, KOMPAS – It is believed that developing a halal ecosystem would support the expansion of sharia banking and finance, which has great potential for growth in Indonesia.

The Islamic financial market has recently seen rapid growth, but low financial literacy and inclusion could hamper further growth.

Dhias Widhiyat, the small and medium enterprises (SMEs) and commerce director at BNI Syariah, said the Islamic financial marked needed an ecosystem that comprised markets as well as halal lifestyle producers for faster growth.

"There is large room for Islamic banking to grow. If the halal lifestyle can develop an ecosystem, sharia banking and finance would grow more rapidly,” Dhias said on Wednesday in Jakarta.

A BNI Syariah study shows that the Indonesian halal fashion industry had a market potential of Rp 190 trillion. Meanwhile, halal tourism had a market potential of Rp 135 trillion and the halal food industry had a Rp 2.3 quadrillion market potential.

These potentials could be realized if micro, small and medium enterprises (MSMEs) were also involved in meeting demands for halal products, Dhias said, adding that growing demand for capital from micro enterprises would lead to greater demand for loans from sharia banks.

As of the second semester, sharia banks had a market share of only 5.7 percent, which was comparatively low against conventional banks, which had a market share of 94.3 percent.

However, Financial Services Authority (OJK) data shows that Islamic banks grew 14.6 percent year-on-year (yoy) in July, while conventional banks grew only 8.9 percent yoy in the same period.

Meanwhile, the OJK’s Firman Hendarsyah, the director of sharia banking research, development, regulation and licensing, said expressed optimism that the growing population of young people would support growth in sharia banking. He said that demand continued to increase for halal products like food, clothing and travel, such as religious tours to Mecca for haj and umrah (minor haj).

The OJK planned to increase financial literacy and inclusion in the sector. Sharia financial literacy reached a mere 8 percent and financial inclusion only 11 percent by the second half.

Indonesia’s role

Meanwhile, Indonesia was strengthening its role in providing technical assistance to South-South Cooperation member countries. The government would be more open toward understanding the needs of member countries in the future, so assistance could be provided to the right recipients.

Indonesia’s expanding role in the grouping was seen in Jakarta on Wednesday, in the launch of Reverse Linkage: Development through South-South Cooperation, published by the National Planning and Development Ministry/National Planning and Development Agency (Bappenas) and the Islamic Development Bank (IDB).

Bappenas and IDB had signed a memorandum of understanding in 2013 that included cooperation on the publication. The IDB facilitated data analysis and resource mapping for the publication, and mapped 22 resource centers in the 12 priority development fields: agriculture, maritime affairs and fisheries, health and population, pharmaceuticals, vocational training and education, planning and budgeting, micro financing, transportation, technology, industry, trade and disaster mitigation.

(DIM/JUD)