The Islamic finance sector in Indonesia is expanding
Jakarta: Indonesian Islamic banks maintained double-digit asset growth last year, while rural and non-banking segments made further gains, expanding the sector’s consumer base in South Asia’s largest economy. South East.
Indonesia has the largest Muslim population in the world, but this potential has yet to fully translate into the country’s Islamic banking sector which remains underdeveloped, lagging behind neighboring Malaysia.
Islamic banking assets rose 24.2% to 242.3 trillion rupees ($21.4 billion) last year, giving the sector a 4.9% share of total banking assets, according to data from the Indonesian Financial Services Authority or Otoritas Jasa Keuangan (OJK).
Indonesia’s 11 fully-fledged Islamic banks added Rs 32.7 trillion in assets in 2013, an increase of 22.2%, while the country’s 23 Islamic branches added Rs 14.5 trillion in assets , an increase of 30.5%.
But beyond commercial banking, Islamic finance is making inroads in other areas that could help it tap into the country’s large consumer base – with a predominantly Muslim population of 240 million.
There are now 163 Islamic rural banks in Indonesia which showed a 24.1% growth in assets in 2013 to reach 5.8 trillion rupees, bringing their share of total rural banking assets to 7.5%.
Such growth has occurred despite the size of their branch network which has remained almost unchanged with 402 branches across the country.
In a separate OJK report, Islamic finance companies increased their assets fivefold in 2012 to reach 22.7 trillion rupees. There were 35 such businesses in Indonesia at the end of 2012, after 21 opened that year. Even Islamic pawnbrokers made gains, they held a 9.8% share of total funding for this segment in December 2012, according to the latest available data from the OJK.
Muslim charities in Indonesia have also built up large pools of assets that could support poverty reduction efforts, according to a study released Tuesday.
Regulators are also considering rolling out initiatives to develop other areas of Islamic finance.
The OJK is now a full member of the Malaysia-based Islamic Financial Services Council, a major standards body for the industry. It said last week that it would implement risk management guidelines for Islamic insurance companies.