|Title:||Indonesia annual sharia banks' outstanding loans, conventional banks' outstanding loans, and ratio of sharia loans to conventional loans in rupiah and percentages for 2006 to 2011|
|Source:||Indonesian Commercial Newsletter|
Start of full article - but without data
Sharia financing against conventional banks' outstanding credits
Sharia banks' Outstanding Ratio of sharia Tahun financing credits of financing to position (Rp conventional conventional trillion) banks (Rp credits (%) trillion)
2006 XX.X XXX.X X.X 2007 XX.X X,XXX.X X.X 2008 XX.X X,XXX.X X.X 2009 XX.X X,XXX.X X.X 2010 XX.X X,XXX.X X.X 2011 XXX.X X,XXX.X X.X 2012 Mei XXX.X X,XXX.X X.X
Sources: Bank Indonesia, Data Consult
In general encouraging growth has been recorded in the Indonesia's banking industry including sharia banking over the past several years as reflected by the healthy growth in assets and handsome profit recorded from year to year.
The country's sharia banks have increased in number and expanded in assets and financing capacity. In 2012, however, there is a slowdown in the growth. The increase in the amount of third party funds collected by sharia banks slowed in the first half of the year.
In 2012, the expansion of sharia banking industry is no longer as strong as in the previous years. In May 2012, the assets of sharia banks grew only X.X percent, much slower than a growth of XX.X percent recorded in the whole of 2011.
The assets of sharia banks totaled RpXXX trillion by the end of 2011, although not comparable to the total assets of conventional banks.
Sharia banks, therefore, still have room for expansion in the country. The government has abolished double taxation in a bid to boost the country's sharia banking development.
Not all sharia banks in the country have fully adopted the sharia principles. Only XX% of the sharia banks adopt the profit sharing system. The rest still use the margin system.
There has been no new investment by Sharia General Banks (Bank Umum Syariah/BUS) since 2010 that their number remains the same until 2012. The number is not expected to increase until the end of the year amid the condition being not conducive this year.
An increase in the number of BUS from Sharia Business Units (UUS) of conventional banks is not expected this year. In 2010 a number of conventional banks spun off their UUS to add to the number of BUS. They were injected with large capital to operate as independent sharia banks.
It is mandatory for conventional banks to spin off their UUS not later than 2023 or if the assets of UUS have reached XX percent of their assets of the conventional bank that own them. However, it is most unlikely that the assets of UUS could reach as much as XX% of the assets of their owners as conventional banks also grow fast.
According to Bank Indonesia (BI) , ideally the country has around XX units of BUS in Indonesia in 2020. Currently the country has only XX units of BUS .
Characteristics of Products
The basic principles of sharia banks and conventional banks are different in characteristics as follows :
Al-wadi'ah is a purely entrusted deposit from one party to another either individual or institutional and it has to be safely kept and to returned any time the depositor want it.
The bank that receives the deposit could use this principle known as giro in conventional banks. As a consequence, profit from the deposits goes to the bank and any loss is the responsibility of the bank. As a compensation, the depositors are guaranteed the security of their assets and other giro facilities.
Giro account in sharia banks is managed with the system of trust called Giro Wadiah, as basically giro funds are public funds in banks that could be withdrawn any time.
Al-Mudharabah is a business contract between two parties with the first party providing all (XXX%) of the capital, to be managed by the second party. The profit under the mudharabah system is split based on an agreement put in a contract. The owner of the capital will bear any loss as long as the loss is not caused by the fault of the fund manager. In the event that the loss is found to be the result of deceit or mismanagement, the manager is fully responsible for the loss.
The system of mudharabah transaction is applied on financing products. In und collection, al-mudharabah is adopted on savings and deposits. In financing, al-mudharabah is used for working capital financing.
Under the al-mudharabah principle, the fund owners do not have received interest as in conventional banks, but they share a percentage of the profit. In practice the percentage for savings is XX percent -XX percent of the result of the investment. In the case of conventional bank, it is more or less the same as an annual interest of XX percent--XX percent.
A trader needing capital could make a proposal for profit sharing financing like al-mudharabah. The income to be earned by the customer from the project is first calculated.
Deposits in sharia banks are managed as an investment or with mudarobah system, known as Deposito Mudharabah. Sharia banks pay no interest on deposits but they pay split of profit set with a percentage. There are also time deposits managed under the mudharobah system such as education saving known as Tabungan Pendidikan Mudharabah (Mudharabah Education Savings), old age security savings and hajj savings. The savings may not withdrawn by the owners before maturity dates. Therefore, the fund could be invested.
Al-Musyarakh is a system of cooperation between two or more parties in a certain business. The parties involved contribute to the capital of the project. All parties jointly share the profit and risks based on an agreement. In conventional banks it is known as a financing facility. Bank and the clients jointly contribute capital to be used in the business. The portion of bank will be a capital participation with profit sharing based on an agreement. It is like working capital credits in conventional banks.
This scheme is used in transaction over a goods at original price with additional profit in value agreed upon by both sides the buyer and the seller. The seller is required to inform the price of the product and set the level of profit as an addition.
If a conventional bank pays interest to its customer, a sharia bank pay the profit share based on an agreement. The profit sharing agreement is set on a profit sharing ratio (nisbah). Nisbah between bank and its customer is prefixed, for example, XX:XX, which means the customer will have a split of XX% of the profit.
Sharia Bank Networks
Indonesian economic growth has been recorded both in the real and financial sectors. The banking sector in the past several years has expanded steadily in assets, capital, as well as profit, reflecting good performance of the industry.
As is in conventional banking industry, sharia banking industry has also expanded to follow the trend of the country's economic development. There is no additional in the number of sharia banks in the past two years, but the number of their offices or branches has continued to increase. The growth indicates expansion of the industry. There were XX sharia banks in 2011 or the same as in the previous year. The number remained the same until mid 2012.
Meanwhile, the number of the branch offices of BUS grew XX.X percent to X,XXX units in 2011 from 2010. In February, 2012, the number grew further to X,XXX units.
Amid the rapid expansion, Bank BRI Syariah decided to restrain from opening more branches in 2012 changing its target. The bank, which is owned by state lender BRI decided to slow down over difficulty in financing the ambition.
Fund needed to open a new branch of BRI Syariah is around RpX billion--RpX.X billion that the cost for the expansion program would reach RpXX billion--Rp XXX billion this year.
PT Bank Rakyat Indonesia Syariah revised down its target for new branches this year from XXX to XX units. The XX new units would be opened by phases in a number of second cities all over Indonesia. The outlets would focus on expanding cooperation with micro businesses.
The micro business financing operations of BRI Syariah is projected to grow XX.X percent to RpX trillion from RpX.X trillion by the end of 2011.
Bank Syariah Mandiri Has Largest Networks
Sharia banks have continued to expand in networks in 2012. By May 2012, Bank Syariah Mandiri (BSM) had the largest number of offices at XXX units all over Indonesia including head office, branches, and cash offices.
Bank Syariah Mega Indonesia (BSMI) has the second largest number of XXX offices, followed by Bank Syariah Muammalat Indonesia (BMI) with XXX offices.
Sharia Business Units (UUS)
UUS is a business unit of a conventional bank operating in sharia banking. Bank Indonesia gives time for conventional banks to spin off their UUS until 2023.
In line with the regulation of Bank Indonesia (PBI) No.XX/XX/PBI/2009 on UUS, conventional banks (BUK) are required to spin off their UUS in XX years after the Law No. XX of 2008 was effective or if the assets of the UUS have reached XX% of their assets (the BUKs' assets).