islamic finance development

©AIFC2021

Islamic Finance DevelopmentOpportunities and Challenges in the

Pandemic and Post Pandemic Era

Nyimas RohmahDirector - Sharia Banking Regulation and Licensing Directorate

Financial Services Authority

AGENDA

©AIFC2021

1.Islamic Finance & Islamic Banking Development

2.Challenges & Opportunities

3.What’s Next

AGENDA

©AIFC2021

Islamic Finance & Islamic Banking Development

©AIFC2021

*) excluding Sharia-compliant stocks

As of May 2021, total assets of Indonesia Islamic finance(excluding Sharia-compliant stock) have reachedRp1.792,73 trillion or USD125,28 billion.

(BI Exchange Rate as of 31 May 2021 = Rp14.310,00/USD)

As of 31 May 2021

Growth (yoy) 26,41% 14.15% 13.84% 22.79% 22.45%

ConventionalFinance90,43%

9,57% Islamic Finance

Islamic Finance Market Share*(in trillion rupiah)

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2017 2018 2019 2020 May 2021

Islamic Banking Islamic NBFI Islamic Capital Market

59,31%

6,48%

34,21%

Indonesia Islamic Finance Landscape

©AIFC2021

Indonesia Islamic Banking Landscape

5%

10%

15%

20%

25%

30%

Deposits

Financing

Assets

Islamic Banking Exposure

Islamic Banking Growth

12Islamic

Commercial Banks

20Islamic

Windows

163Islamic

Rural Banks

Islamic Banking

Total Asset Rp613,30 trillion

USD 42,86 Bn

As of May 2021, Islamic banking has showed signs ofrecovery after experiencing slowing down during pandemic.

year-on-year growth

Deposits 17.52%

Financing 7.32%

Assets 15.54%

∆ ytd:

+0,72%

+3,51%

+1,70%

in trillion IDR

613,3

401,34

492,49

Share Assets

May’21: 6,49%

Islamic Banking Market ShareIslamic Rural Bank

2,46%

Islamic Windows

31,60%Islamic

Commercial Bank

65.93% Deposits

Financing

Number of Accounts

In million account6,05

39,44

AGENDA

©AIFC2021

Challenges and Opportunities

©AIFC2021

Challenges in Developing Islamic Finance in Indonesia

8,11%

Islamic Finance

2016

8,93%

Conventional Finance

2019

29,66% 37.72%

Islamic Finance


Limited differentiation business models/products tomeet the needs of the community1

3

Limited capacity (assets, market share) comparedto conventional finance2

Other challenges:

▪ Lack of competent human resources, such as marketplayer who competent in both financial and fiqhmuamalah as well as education personnel (teacher,lecturer) which have competency in Islamic finance.

▪ Changes in people’s behavior – Increasing customerinteraction through mobile banking compared tophysical branches (PwC Digital Banking ConsumerSurvey 2018).

4

IDR IDR IDRIDR


Islamic Finance

Low literacy level (National Finance Literacy Survey)

Islamic banks should have variety ofproduct customized by customersegment and life cycles.

This should also be supported byadvanced IT development that couldhandled variety of product schemeand reporting in accordance tosharia principles.

©AIFC2021

Largest Muslim population andgrowing population of productive age1

3

High internet penetration2

Align with the government’s goal for Islamiceconomy4Awareness of ethical investing

Source: HSBC Sustainable Financing and Investing Survey 2019

62% of investors stated thatenvironmental and social issues areimportant.

Internet users in Indonesia havereached 196.7 million users with a73.3% penetration of totalpopulation in Indonesia.

Source: Penetration Survey Q2 2019-2020, Internet Service ProvidersAssociation

The government’s interest todevelop Islamic economicecosystem should be utilized byIslamic banking.

Aligning work program withgovernment’s strategies fordeveloping Islamic economycould result huge synergy andbenefit for Islamic banking.

More than 87% of Indonesia'spopulation is Muslim, with approximate±230 million people.

By 2030, it is estimated that millennialswill reach 70% of the productive agepopulation.

Source: The Urban Middle Class Millenials, 2017

Opportunities in Developing Islamic Finance in Indonesia

AGENDA

©AIFC2021

What’s Next

©AIFC2021

What’s Next – Policy Response

Increase demand through supporting the real sector

Strengthening the financial services sector

Pandemic response

effectiveness

Synergy and Interconnectedness within Islamic Economy Ecosystem

Using Islamic banking services for halal industry transactions

Integration of Islamic commercial and social finance to rebuild the real sector post pandemic

Consolidation in financial services industry

Acceleration of Islamic Banking Digitalization

©AIFC2021

Pandemic Response Effectiveness – Synergy between Ministry of Finance, OJK, and Bank Indonesia

Financial Sector(Banking, Capital Market and Non-Bank Financial Industry)

Supporting National Economic Recovery

Capital LiquidityOJK Policies:▪ Credit restructuring▪ Additional working

capital

Government Policies:▪ Interest subsidy▪ Guarantee

Government Policies:Gov. fund placement to commercial banks

Bank Indonesia Policies:▪ Liquidity scheme▪ Quantitative easing

Default debtors

Provision LiquidityCredit inflow

Deposits outflow

©AIFC2021

Halal media & recreation

Halal food

Nadzhir

Halal

market

place

Lembaga

amil zakat

Islamic

boarding

school

Halal

fashion

Halal

pharmacy

and

cosmetics

Halal travel

Hajj &

umrah

Masjid

Support

(Platform

sharing)

Conventional

NBFI

Conventional

Banking

Conventional

Capital Market

PemerintahPelakuusaha

Stakeholders &

Halal Industry

Deposits

Cost Of Fund

Financing

Margins

Expectation from Ecosystem Synergy

Synergy with stakeholders of the Islamic economic ecosystem is expected to beable to increase funding sources so that it can suppress cost of funds, thusmaking Islamic banks more competitive to serve stakeholders and halalindustry.


The Islamic economic ecosystem consists of several sectors, including: the commercial finance sector (Islamic Banks, Islamic Capital

Markets and Islamic Non-Bank Financial Institution), the social finance sector (Zakat, Waqf) and the real sector (halal industry).

Increase Demand Through Supporting The Real Sector

©AIFC2021


Integration of Islamic commercial and social finance to rebuild the real sector

*) TN-3 Technical Note on Financial Inclusion and Islamic Finance - IFSB

LAZ/Nazhir

ZISWAF

Micro &Small Businesses

Islamic Bank

“Islamic social funds are economic tools that could play a very effective role in building the economy if managed professionally through the integration of commercial finance and social finance in Islamic banking”

Utilization of Zakat, Infaq and Sadaqah (ZIS) to support debt alleviation of defaulting debtors

Qard hasan or productive waqf to rebuild the business post-pandemic through lower/reduced cost

Flexible prudential treatment for Islamic social funds utilization, thus might become opportunities for iB

Professionally managed in synergy with Islamic banking

Increase Demand Through Supporting The Real Sector

©AIFC2021

Strengthening The Financial Services Sector

Consolidation in financial services industry

MERGER OF 3 ISLAMIC BANKS

BUKU IV

BUKU III

BUKU II

3 Banks

7

Merger 3 Islamic Banks

Newly Merged Bank

The Opportunity to Create Large ScaleIslamic Bank (categorized as BUKU IV)

Merger or consolidation of Islamic banks willcreate a large scale Islamic bank

Becoming Global IslamicEconomy and Financial CenterImproving services and outreachof Islamic banks to support thedevelopment of Islamic economyand financial ecosystem inachieving global Islamic economyand financial center goal

Increasing Competitiveness

Merger or consolidation couldincrease competitiveness andcapacity, as well as improvingefficiency of Islamic bank

Increasing Global Ranking

Increase position of Indonesian Islamicbanking in global Islamic finance industry

Inorganic growththrough M&A canboost Islamic banks,which were initiallyclassified as BUKU IIand III groups tobecome BUKU IVgroup.

MERGER

CONSOLIDATION

ACQUISITION

GOALS

Banks

©AIFC2021

Strengthening The Financial Services Sector

Acceleration of Islamic Banking Digitalization

“An increasingly borderless world due to digitalization, demands Islamic banking to always develop its technological infrastructure in order to improve its services to customer (faster, more comfortable and better services)”

Digitalization of products and services to support Islamic banking services and operations

Online CustomerOnboarding e-form

Application ProgrammingInterfaces

QR Code Indonesia Standard (QRIS)

islamic finance development

Documents