Shariah banking could take 5% of Indonesian banking

Shariah banks’ assets grew to US$21.8 billion in 2012 from 2011.

Bank Indonesia, the central bank, expects the market share of Shariah banking to reach 5% in the second quarter of this year.

Bank Indonesia Governor Agus Martowardojo said the bank believes that progressive Shariah banking and financial development needs to be managed strategically. With the development of a blueprint, the growth of Shariah banking will be more significant, he said.

“To increase the financing contribution of Shariah banking toward the economy, it is important to develop a strong and comprehensive Shariah financial system. That includes Shariah banking, non-Shariah banking and a Shariah stock market,” Agus said.

He noted that there is a strong tie between Shariah banking, the takaful industry, or Islamic insurers, and Shariah stock markets.

Up to 80% of Shariah lending goes to micro, small and medium enterprises. Islamic lenders comply with the Shariah law that prohibits the receipt of interest payments by receiving a pre-arranged percentage of revenue to repay a loan.