Developing Sharia Financial System

SCREENSHOT VIDEO SEKRETARIAT PRESIDEN

President Joko Widodo inaugurated PT Bank Syariah Indonesia Tbk (BSI) at the State Palace, Jakarta, Monday (01/02/2021).

The Islamic financial system has not been optimally developed. Islamic banks should be able to help improve the welfare of the people.

President Joko “Jokowi” Widodo inaugurated the operation of Bank Syariah Indonesia (BSI) at the Merdeka Palace, Jakarta, on Monday (1/2/2021) . BSI was established through the merger of three state-owned Islamic banks, namely Bank Mandiri Syariah, BRI Syariah, and BNI Syariah, with total assets of Rp 240 trillion (US$17.10 billion) as of the end of December 2020.

Also read: BSI Expected to Strengthen Halal Industry Ecosystem

The President said BSI should be inclusive and open to all segments of society so that it would be able to improve the welfare of the people through the development of the Islamic economy. The President also emphasized the need for digital technology to further expand outreach to millennials who, according to the 2020 Population Census, account for 25.87 percent of the country’s 270.2 million people.

According to the Financial Services Authority (OJK), the operation of the Islamic banking system is based on the principle of mutual benefit for the public and banks. It also emphasizes aspects of fairness in transactions, ethical investment, and prioritizes the value of togetherness and brotherhood in production, while avoiding speculative activities in financial transactions. This principle should also include the concept in promoting the sustainability of the natural environment.

Also read: An Opportunity to Make Islamic Financial Products More Accessible

In Indonesia, the sharia economy has long been established with the opening of Bank Muamalat in 1992. Nevertheless, the penetration of Islamic banks in Indonesia remains low at only 6 percent, while in Malaysia it reaches 29 percent, Brunei Darussalam 57 percent, and Saudi Arabia 63 percent.

KOMPAS/TOTOK WIJAYANTO

Bank Syariah Indonesia tellers serve customers at the Hasanudin Branch Office, Blok M, Jakarta, Monday (1/2/2021). The bank, which is a merger of PT Bank BRI Syariah Tbk, PT Bank BNI Syariah, and PT Bank Syariah Mandiri, officially operates on Monday (1/2/2021).

To attract more customers, Islamic banking must carry out the principles of banking management in general such as good corporate governance (GCG), which will guide the bank to work in an accountable, professional, prudent, transparent and efficient manner, including in channeling third party funds for business activities. The products offered must be more competitive and innovative compared to those of conventional banks.

BSI is targeted to become the 10th largest Islamic bank in the world by 2025, based on market capitalization. Even so, BSI must be able to help reduce the gap in access to finance in the community, especially for micro, small and medium enterprises (MSMEs although its main target is to finance large customers and become an influential bank globally.

Also read: The Potential of Sharia Economy

BSI must be also able to foster young entrepreneurs and rural economies especially in agriculture sector that have difficulty financing from conventional banks that have not been able to accept business prospects of potential borrowers as collateral.

Promoting public literacy regarding Islamic finance and banking must be accompanied by quality services through an improvement in the human resource capacity and the use of digital technology. We hope that this alternative financial model will be able to use the people\'s potential in achieving the equitable economic growth for all.

This article was translated by Hendarsyah Tarmizi.