1
POLICY OF ISLAMIC BANKING
DEVELOPMENT IN INDONESIA
Dr. Rifki Ismal
Assistant Director
Department of Islamic Banking – Bank Indonesia
International Course on Financing Scheme in Islamic Banking and Finance
(AMED) Batch 5Jakarta, 15 April 2013
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Unique Characteristics of the Indonesian Islamic Banking
Vision and Mission of the Policy
Framework of the Development of Islamic Banking
Policy Direction and Paradigm
Legal Basis
Economic authorities
The Process of Islamic Banking Regulation and Types of
Bank Indonesia Regulation
Outline
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Robust Domestic Economy (Less Affected by Global Financial Crisis)
Supportive Social and Political Situation
More than 200 million are Moslem Population
Social Driven Islamic Banking Development
Domestic Orientation (strong domestic demand)
Real sectors oriented (around 80% financing for SMEs).
Coopetion with Conventional Banks
An independent National Sharia Board and Fatwa Issuance
Sharia Based with Selected Sharia Compliance contracts.
Unique Characteristics of the Indonesian IB
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10.5
8.1
5.9
4.4 4.33.6
2.9 2.61.5
0
2
4
6
8
10
12
5 years average growth China and BBB-/BBB/BBB+ peers country (%)
•GDP is among the highest one in ASIA
•Inflation in January 2013 remained subdued
and arrive at 4.57%(yoy) which is within target
range of 4.5%±1%
9,17
2,41
3,72
6,44
5,67
7,02
4,61
3,56
4,504,57
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
10,0
J-09 M-09 M-09 J-09 S-09 N-09 J-10 M-10 M-10 J-10 S-10 N-10 J-11 M-11 M-11 J-11 S-11 N-11 J-12 M-12 M-12 J-12 S-12 N-12 J-13
yoy (%)Headline Inflation
Source: BPS, (2012)
Headline Inflation
Source: Indonesia Statistic Bureau (BPS), Bloomberg, Moody’s (Ministry of Finance Presentation on Feb 28, 2013
Economic Performance
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Exchange Rate
Rp is relatively stable between Rp9600/USD-
Rp9700/USD with a monthly average of Rp9654/USD
Roles of Banking in the Domestic Economy
The role of the Indonesian banking is not yet optimal to
support the real sector. Credit to GDP ratio is relatively
low compared to the ASEAN countries
The Indonesian Credit to GDP ratio stands between
26%-32%, almost the same as Philippines and Brunei.
While others, especially Thailand and Singapore has more
than 100% credit to GDP ratio. Malaysia is following them
with a growing ratio from 96% to 112%
ECONOMIC PERFORMANCES
2008 2009 2010 2011
Indonesia 26.60 27.70 29.10 31.70
Singapore 106.70 109.90 100.00 112.60
Malaysia 96.70 111.60 110.70 112.20
Phillipines 29.10 29.20 29.60 31.80
Brunei 35.20 44.50 40.90 31.80
Thailand 113.00 116.40 123.90 140.100
20
40
60
80
100
120
140
160
Indonesia Singapore Malaysia Phillipines Brunei Thailand
2008
2009
2010
2011
%
Economic Performance
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Labor Productivity
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Labour Productivity, Current Price
Labour Productivity, Riil Price
0%
5%
10%
15%
20%
25%
0
200
400
600
800
1000
1200
2004 2005 2006 2007 2008 2009 2010 2011 2012
Minimum Wage Minimum Wage Growth
Minimum Wage
Aug-12: 6.14%
5.8%-6.1%
5%
7%
9%
11%
2007 2008 2009 2010 2011 2012 2013target
Sept-12: 11.66%
9.5-10.5%
6%
9%
12%
15%
18%
2007 2008 2009 2010 2011 2012 2013target
Unemployment Rate Poverty Level
6Source: Ministry of Finance Presentation on Feb 28, 2013
OTHER INDICATORSSocial and Economic Performance
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VISION
MISSION
Islamic Banking Development in Indonesia
Establishing a strong and sound Islamic Banking System which is consistent
towards the implementation of sharia principles in the spirit of justice, general
well-being and balanced-living, to promote social prosperity in term of material
and spiritual
To create a conducive environment for developing competitive and efficient
Islamic Banking which complies to sharia principles and prudential standards,
as well as which has capability of supporting real economic sector through
the implementation of share-based financing and trades with real underlying
transactions to promote national economic growth
Islamic Banking Development in Indonesia
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Vision and Mission
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Fatwas & Islamic
Principles
Prudential Banking
Regulations
Operational &
Product of Islamic banking
Economic growth & real sector, reducing
poverty and unemployment
Islamic Banking Development based on Blueprint...
Prudential SupervisionShariah Supervision
Sound and strong Islamic banking which
supporting the creation of stable, sound, and
efficient financial system
Indonesia’s
Financial and
Banking
Architecture
National 10
Years Master
Plan
Framework of the Islamic Banking Development
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IAI
Baznas
Basyarnas
Associations
UUS
Depositors
- Public
- Government BPRS
- Foreign (limited)
BMT
Non bank
Islamic
Insurance/Takaful
Islamic Capital
(Sukuk) Market
Islamic Banks
Medium and Large
Business
Small and Micro Business
Guarantee
Deposits (LPS)
Islamic Stock Market
Central Bank
Investment Certificate
National Sharia BoardIslamic Banking
Committee
Real Sectors
Sharia Supervisory Board
Islamic Money Market
Infrastructure of the Indonesian Islamic Banking
1010
LINKAGE FINANCING AND INTEGRATION
Financing types
Executing: Islamic Banks place funds in Islamic non banks Channeling:
Islamic non banks are only intermediary (channel)
Delivering: Partnership between Islamic financial institutions
IAI
Baznas
Basyarnas
Associations
UUS
Depositors
- Public
- Government BPRS
- Foreign (limited)
BMT
Non bank
Islamic
Insurance/Takaful
Islamic Capital
(Sukuk) Market
Islamic Banks
Medium and Large
Business
Small and Micro Business
Guarantee
Deposits (LPS)
Islamic Stock Market
Central Bank
Investment Certificate
National Sharia BoardIslamic Banking
Committee
Real Sectors
Sharia Supervisory Board
Islamic Money Market
Financing:
BUS+UUS
with non
bank like
BMT
(>100.000
units),
Islamic
cooperative
(KJKS), 156
BPRS
Infrastructure of the Indonesian Islamic Banking
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POLICY DIRECTION :
• Expansive and prudent preparing condusive regulation in supporting
growth with effective supervision
• Innovative, educative and comprehensive provide financial services to
community through product development with intense public education
• Internationally qualified and domestic oriented directing domestic
dominance with international operational quality
• Selected open supporting national economy by inviting international
investor beside domestic investor concern to justice and equality
• Human capital investment supporting human capital development who
has capability, competency and good faith
Policy Direction
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POLICY PARADIGM :1. Directed Market Driven directing market preference to build Islamic
Banking industry which sound, strong, and consistency in Islamicprinciple
2. Fair Treatment building fair competition in Islamic Bankingindustry
3. Gradual & Sustainable Approach priority and development focusbased on situation and condition, also building in stages andcontinuity.
4. Sharia Compliance Industry regulation and infrastructuredevelopment suitable with Islamic Principle
5. Professional Each development effort based on expertiseconsideration and good governance
Policy Paradigm
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Vision and Mission of
the Islamic Banking Industry
High Qualified
HRD
Supported
Infrastructure
Strategic Alliances
and Synergy
Product and Market
Development
Effective Regulation
Supervision
Effective Banking
Structure
Utilizing Depositors
7 Pillars of Development
Legal foundations, related regulatory standards, standard setting, and fatwas
Sharia Akhlaq Ukhuwah
Aqidah
BLUE PRINT PERBANKAN SYARIAH
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Blue Print of the Development of Islamic Banking
1414
SUPPORTED REGULATIONS AND ACTS
Central Bank Act No. 23 of 1999 (amended by Act No. 3
of 2004).
Banking Act No 7 of 1992 (amended by Act No. 10 of
1998).
Deposit Insurance Act No. 24 of 2004
Islamic Banking Act No. 21 of 2008.
Islamic Sovereign Bond (Sukuk) Act No. 19 of 2008.
Government Law No. 25 of 2009 (income tax for sharia
transactions).
Tax Neutrality in Government Law no. 42 of 2009.
Microfinance Act No. 20 of 2008
Zakah (Islamic levy) Act No. 23 of 2011.
Waqf (endowment) Fund Act No. 41 of 2004.
Legal Basis
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Fiscal Authority
Government
Economic Development
Bank Indonesia
BankingNon Bank Financial
InstitutionsFinancial Markets
Financial Sector
Authority
Monetary Authority
OJK
USD83B
USD441B
USD371B
Banking
Non Bank
Financial Markets
Government conducts fiscal policiesOJK conducts financial sector policiesBank Indonesia conducts monetary policies
More than USD900 billion funds managed by OJK
OTORITAS EKONOMIEconomic Authorities
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FINANCIAL SECTOR AUTHORITY MONETARY AUTHORITY FISCAL AUTHORITY
Islamic Banks
Bank Infrastructure
IRB Banking Education
IRB Health
Pension funds Social
Pawnshop
Insurance Productive sector Mapping
Mutual funds Industry per area
Multifinance Agriculture per project
Trading per tenor
Bond market
stock market
Private Projects
Non
Bank
Financial
markets
Government
Projects
Corporate
sukuk
Government
ProjectsBank Indonesia
Economic Activities
Government
sukuk
Islamic
Windows
Islamic Non
Banks
per economic
scale
Flow of funds
flow of funds
Economic Authorities
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Issues OJK Bank Indonesa Impacts
License Fully done by OJK
Transferred to OJK
System, HRD, mechanism, etc
Regulation Fully done by OJK for
microprudential
Macroprudential regulation
including IB
Coordination between OJK & BI
Supervision Fully done by OJK Dialihkan dari BI ke OJK
System, HRD, mechanism, etc
Information System
Join and Share with OJK
Join and Share with OJK
SDM, IT, coordination
Education and Socialization
Division of education and socialization
No more Fully authority of OJK
Research Division of research
Some department for
macroprudential
Macro & Micro prudential research
Bank Indonesia and OJK
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1. Financial sector stability, micro prudential and
supporting macroprudential, monetary stability and
economic stability
2. Protecting customers especially small customers
and public community.
3. Optimizing banking institution as sources of funds
to support economic development program.
4. Integrating banking, non banking and financial
markets
5. Anticipating banking fraud.
The Need for Islamic Banking Regulation
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I. A new product needs BI’s approval (if it is not listed in a codification book),
II. Establishment of a new Islamic bank
III. Islamic bank’s management and ownership
IV. Prudential asset quality, minimum capital, bank rating
V. Payment System/ Financial market/Monetary SBIS, Islamic interbank money market, statutory reserve (GWM)
VI. Islamic Banking Monthly report
Types of Islamic Banking Regulation
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Establishing a New
Islamic Bank (Rp.
1 trillion)
Conversion of
Conventional to Islamic
Bank
(Rp. 100 Billion)
Dual System Bank
(Islamic Business Unit/ UUS)
(Rp. 100 Billion)
Islamic
Banking
Services
Spin Off UUS to IslamicBank(Rp. 500 Billion Rp. 1 Trillion in 10 yr)
Establishing a New Islamic Bank
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International i.e. :
- IFSB (Islamic Financial Services Board) Head quarter is in Malaysia
- AAOIFI (Accounting and Auditing Organization for Islamic Financial
Institution) Head quarter is in Bahrain
- BIS (Bank for International Settlements) Head quarter is in
Switzerland
National i.e. :
- Relevan regulation principles in conventional banking
- Fatwas/opinion of the Sharia National Board
- Accounting Standard
- Consideration & input from Islamic banking industry best practices
References of Islamic Banking Regulation
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Decision Making Process of the Islamic Banking Regulations
BI’s
Board of
Governor
Bank/ Sharia Banking Committee/National Sharia
Board/Sharia Bank Association/Other party
Islamic Banking Regulation Initial DraftInformation
& Input
Islamic
Banking
General
Policy
Other Team/Department
Regulation Team
Information & Input
- research result
- bank supervision
- licensing practices
Final and Legalised of
Regulation
BI’s Other Departments
BI’s Islamic Banking Department
Regulation
Explanation
Regulation
Explanation
1
Information
&
Input
KEP and RDG
Legal Review and finalised draft
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Legal
Review
by DHk
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3
4
DHk = Legal Directorate ; KEP = Banking Evaluation Committee/Forum ; RDG = Board of Governor ‘s Meeting
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Rifki Ismal is both a central banker and lecturer.
He earned bachelor degree in economics from
University of Indonesia, master in economics from
University of Michigan, ann arbor (USA) and PhD in
Islamic economics and Finance from Durham University (England).
An Associate Professor in Islamic Banking and Finance is from the
Australian Government (Australian Center for Islamic Financial
Studies)
Short Bio