Sharia Banking in Indonesia ~ 3 Wood

Indonesia is trying to tap into the growing sharia banking industry.

RPT-Indonesian parliament passes sharia banking bill

"JAKARTA, June 17 (Reuters) - Indonesia's parliament passed a new sharia or Islamic banking bill into law on Tuesday in a bid to tap the potential of the Islamic finance sector in the world's most populous Muslim nation.




The sharia banking law allows foreigners to establish sharia banks in partnership with Indonesian citizens or local entities and also offers commercial banks the option of converting their business into sharia-compliant banks. Around 85 percent of Indonesia's population of 226 million people are Muslim. But Southeast Asia's largest economy has been slow to tap the fast-growing Islamic finance market.



"We hope this law can increase the turnover of sharia banking in Indonesia ... By 2013, sharia banking is expected to reach 5-10 percent of market share, compared to 2 percent currently," said legislator Dradjad Wibowo."So what is sharia banking? "Sharia, or Islamic law, bans payment of interest, allowing money to be earned only from physical assets. It also bars investment in alcohol, tobacco or gambling.The country's Islamic banking industry is still less than 5 percent of the total assets of Indonesia's domestic banks. That compared with a ratio of more than 12 percent in Malaysia."




Given the lack of interest earnings and limitations on investment exposure, I have some doubts as to how big sharia banking can get. However, this can become a significant impact on the banking industry. A lot of oil money is going into these banks."Global Islamic assets are growing at an annual pace of 20 percent and are set to hit $2 trillion in 2010 from the current $900 billion, thanks to a flood of petrodollars, Ernst & Young said in February."

I'll keep monitoring this. Stay tuned.


~ 3 Wood

The Beatles ~ Money

SEE ALSO: Al-Jihad bi-al-Mal - Financial Jihad Against the Infidels