Could you provide a brief journey of how you arrived where you are today?
I began my career with the Shariah banking research and regulation team of Bank Indonesia in April 1999 as a vice manager. The team was established with the Banking Act No 10/1998 which states that it is possible for a bank to operate based on Shariah principles. From a small team of 10 people, it then became the Shariah banking bureau in 2001. In 2002, I became the bureau’s head of Shariah research development and regulation team. Later in 2003, the bureau became the Sharia Banking Directorate. In 2006, the board of governors appointed me as the directorate’s head of Shariah banking research, development and regulation bureau. I have been the director of the directorate since June 2010.
What does your role involve?
The directorate of Islamic banking is the banking regulator for the industry. This directorate also supports the monetary management directorate in preparing regulations for the Islamic money market. I am involved in developing the blueprint for the Islamic banking industry 2002 – 2015. With the government’s cooperation and other related parties, we help build the Islamic capital market, Islamic multifinance and non-banking Islamic financial institutions.
What is your greatest achievement to date?
From two Shariah banks and one Islamic window, we now have 11 Islamic banks, 23 Islamic banking windows and 150 Islamic rural banks, with asset growth of 38% per year in the last five years. Shariah banks have performed well with 96.4% financing to deposit ratio and only 3.9% non-performing financing in the last five years. Further, the Islamic Banking Act and Sukuk Act of 2008 strengthen the legal operations of the Islamic banking industry and foster the development of the Sukuk market. Indonesia has some advantages such as the world’s biggest Muslim population, Islamic banking operations with no application of debatable Islamic contracts; and support from the government, Islamic scholars and public.
Which of your products / services deliver the best results?
Our products are in the form of banking regulation and supervision. We have issued various banking regulations such as risk management in Islamic banks, product developments, capital adequacy ratio, as well as including reference to the standards of the IFSB and AAOIFI. Further, we have created the blueprint for the development of Islamic banking industry (2002-2015). Such programs have shown positive results.
What are the strengths of your business?
The high growth of the country’s Islamic banking industry is based on the robust performance of Shariah banks, contributing to the development of the economy through financing SMEs which dominates 95% of Islamic bank’s financing. Islamic banks mostly finance the business, trading and construction sectors. The growth of Islamic banks’ branches, the office channeling program which allows customers to deposit money in any conventional bank and, various Islamic products have illustrated the strength of this industry.
What are the factors contributing to the success of your company?
The central bank particularly the directorate of Shariah banking works with the National Sharia Board, Indonesian Accountant Association, government, parliament, market players, academic and all related parties to develop the Islamic banking industry. The stability of the Indonesian economy also allows the industry to grow.
What are the obstacles faced in running your business today?
The market share of the Islamic banking industry (3.3%) is still very small compared to conventional. The industry also faces obstacles such as — limited human resources, limitation in the Islamic financial market instruments, lack of Islamic banks and government funds. However, such obstacles are being mitigated through the active involvement of the banking regulator, market players, academic and Islamic scholars.
Where do you see the Islamic finance industry in, say, the next five years or so?
In the next five years, the industry would have exceeded 5% market share. We have planned to achieve a double digit market share in 2015 to 2020. With the current performance of the Islamic banking industry, such a market share would correlate with bigger contribution of the industry to the economy. Moreover, the growing Islamic capital market especially the Sukuk market will play a significant role. Currently, the volume of the Indonesian government Sukuk since 2008 is INR44.4 trillion (US$4.44 billion) out of US$134 billion globally and there will be more issuances in the next five years.
Name one thing you would like to see change in the world of Islamic finance.
We realize that Islamic finance is developed based on Shariah legality and tries to mimic conventional finance with certain modification to comply with Shariah principles. I hope Shariah finance develops based on Shariah economic substance that may harmonize the financial and real sectors. Shariah finance should introduce products to support real sector development and create services and products which have a multiplier effect on the economy. In other words, Islamic finance should not contribute to the bubble economy. This requires a paradigm shift based on Shariah economic substance. I realize that it is not easy as customers are not ready. Therefore, we should do it step by step