Market Research

As reported in a recent report, the Indonesian parliament passed a Shariah or Islamic banking bill into law on June 17, 2008 to provide legal base for operating the Shariah banking industry in Indonesia, the most populous Muslim country of the world.

The Indonesian Shariah or Islamic banking industry currently accounts for below 5% of the total assets of the country’s banking industry. The Central Bank of Indonesia aims to bring the total assets of Islamic banking industry to 5% by 2010. The Shariah banking industry had a total market share of 1.98% till the end of February 2008. Moreover, there are only three leading commercial Shariah banks – Bank Shariah Mega Indonesia, Bank Shariah Mandiri and Bank Muamalat Indonesia.

The Indonesian Parliament legislated a Shariah or Islamic banking bill to promote the Shariah banking industry as an alternative for the traditional banking industry that would boost the real sector. Hence, the banking industry requires a special law that provides it a legal base. Moreover, the law safeguards the interest of both Muslims and non-Muslims because the banking industry is universal in nature.

Besides, the long-awaited law will not only provide legitimacy to the transactions but also strengthen the regulatory environment that would boost the Islamic finance market in the country. The new law has included a provision for establishment of new Shariah banks jointly by foreigners and Indonesian citizens or local authorities. It also gives flexibility to the commercial banks for converting their businesses into Shariah-compliant banks.

Apart from this, the Islamic banking industry of Indonesia is based on the rulings of the Central Bank of Indonesia. Therefore, with the enactment of the new law, the Shariah banking industry would get the legal base to run in the country.

The Indonesian Islamic banking industry is growing at a rapid pace in the country leading to vast opportunities for global financial institutions to grow in this sector. Also, it will keep the global players updated on the developments in the Islamic banking markets in many other emergent countries. Hence, it makes sense to be aware about the developments taking place in the Shariah banking industry of Indonesia.

Related report: Sharia Banking System in Indonesia