Aug 18 A blueprint being drawn up for
Indonesia's Islamic finance industry may include incentives to
help revive the domestic market for sukuk (Islamic bonds), the
capital market regulator said.
Indonesia's financial services authority, Otoritas Jasa
Keuangan (OJK), is preparing a five-year plan for the sector to
help it expand in southeast Asia's largest economy.
The document is expected to be ready for public consultation
by year-end, and will address issues including a lack of scale
in the industry, sector consolidation and the role of foreign
ownership, the OJK said in a statement to Reuters.
Last week, the OJK established a committee to encourage
coordination in Islamic finance among government bodies and the
private sector, in order to help Islamic banks navigate a range
of local and federal regulations.
"Different regulatory sets and perhaps governance standards
between those institutions is one of the key issues in the road
map," the OJK said.
As of May, Indonesia had 11 full-fledged Islamic banks and
23 Islamic windows operated by conventional banks; their
combined Islamic banking assets were worth 244 trillion rupiah
($21.4 billion), giving the sector a 4.8 percent share of total
banking assets, OJK data showed.
This represented a 16.5 percent year-on-year growth rate,
which the OJK described as "mild", down from 24.2 percent growth
in 2013 and a peak of 49.2 percent in 2011.
Islamic banking initially grew rapidly in Indonesia from a
low base, but may now be nearing the limits of expansion in its
core customer base: people who value sharia compliance above all
other factors. It may now need to compete with conventional
banks for a larger, floating mass of consumers who also
emphasise service quality and price.
The blueprint will also help the sector implement rules
which require Islamic window operations to be spun off from
their parent banks and floated on the local exchange by 2022.
The OJK said it expected such listings to spur consolidation
among Islamic banks over the next nine years, although it hoped
this would not be at the expense of growth.
The OJK did not elaborate on its plans for foreign ownership
limits. Foreign institutions must seek regulatory approval to
raise their stakes in Indonesian banks above a 40 percent
threshold to a maximum 99 percent; some bankers would like to
see more clarity in the requirements for rises above 40 percent.
In June, Dubai Islamic Bank completed the
acquisition of a 24.9 percent stake in Bank Panin Syariah
, saying it would seek to increase its holding to 40
The regulator is also exploring ways to revive a sukuk
market which has seen no corporate issuers so far this year. The
market raised a combined 4.18 trillion rupees with 15 sukuk in
2012 and 2013, OJK data showed.
The reasons for the drop-off in activity are not clear, but
may be related to higher costs involved in issuing sukuk, a lack
of experience among arranging banks, or a lack of regulatory
The OJK said it was confident that tax neutrality for
corporate sukuk had already been created by existing laws, and
said it already provided incentives for the sukuk market in the
area of fees. But it said additional incentives were possible.
"Taxation should not be an issue, right now the biggest
challenge in our sukuk market is the issuers' and underwriters'
lack of knowledge and understanding on sharia products.
"We are reviewing the possibilities of incentives we can
provide for related parties in sharia securities issuance, the
same as we had done for sukuk in terms of the issuance fee."
The OJK has in recent months taken a more proactive approach
to policing the industry: in February, it revoked the permit of
PT Asuransi Tokio Marine Insurance to offer sharia-compliant
products, saying the insurer was handling them in an "unhealthy"
The OJK took over supervision of both conventional and
Islamic banks, brokerages and insurance firms from the central
bank and the capital market watchdog Bapepam-LK in January this
(Editing by Andrew Torchia)