Despite having the world’s largest population of Muslims in Indonesia, the country has started to use Islamic banking reasonably late. However, Indonesia has loyal customers of Islamic banks.
At present, there are two fully-fledged Islamic banks and around eight Shariah branches of conventional banks. Conventional banks began opening Shari’ah branches after the enactment of dual system banking by the government in 1998. For instance, Bank Indonesia intends Islamic banks to reach a 5% market share over the next ten years.
Islamic Financial Institutions
There are several Islamic financial institutions in Indonesia. One of them is the Bank Muamalat Indonesia which was founded in 1991. Bank Muamalat Indonesia (BMI) functions based on the principles of Islamic banking. It works with nearly 3,000,000 customers throughout Indonesia and Malaysia.
Bank Indonesia has formed an Islamic Banking Development Committee, which comprises the Oversight Committee, Expert Committee, and Working Committee. It has reviewed current regulatory instruments and diligently worked on developing a complete set of rules and measurements. We use them to foster a conducive environment for the development of Islamic banking. Moreover, Bank Indonesia is currently developing regulations on operational guidance and accounting standards for Islamic banks. Other than that, Bank Indonesia has actively engaged in educating the public about Islamic banking, describing it as an alternative interest-free system.
The attitude of the public has changed positively towards the Islamic Banking industry after good education and efforts. The public demonstrates a better understanding of the Islamic system, and consequently, industry experts expect further potential growth of Islamic banking in Indonesia.
Currently, Islamic banking assets have shown rapid expansion up to US$1.7 billion when compared to US$874.4 million in 2003, demonstrating a 94.4 % growth. Such results increased Islamic banking assets from 0.7 % to 1.2 % in total banking assets.
Bank Syariah Indonesia (BSI)
Three state-owned Islamic banks (BUMN) officially merged in February 2021, notably Bank Syariah Mandiri, BRI Syariah, and BNI Syariah. Bank Syariah Indonesia is the new name for the three banks (BSI). The merger policy is in line with the Indonesian Islamic Economics and Finance Masterplan (MEKSI) 2019-2024.
With the introduction of Bank Syariah Indonesia (BSI), the country’s largest sharia bank, Indonesia is attempting to expand its currently limited sharia finance sector.
The estimated total assets of the merged entity will reach 214.6 trillion Indonesian rupiahs ($15.2 billion), with total equity of 20.4 trillion Indonesian rupiahs ($1.4 billion).
Bank Syariah Indonesia will rank among Indonesia’s top 10 banks in terms of assets and the top 10 Islamic banks in the world in terms of market capitalization.
Nowadays, Islamic financial institutions have gained the public’s trust and support, particularly young people. The country plans to develop more and more Islamic financial products to meet the needs of unbanked people and establish more interest-free financial institutions in the coming years.
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