The government has recently taken several crucial steps key to the future development of the Islamic finance industry in Indonesia, including the decision to move all Hajj funds to Shariah compliant banks. RIZKY WISNOENTORO talks with a cross-section of industry professionals to evaluate what impact this might have on a sector that so far, has not yet reached its full potential.
Indonesia is a vast archipelago with highly complex socio-dynamics. In the census of 2010, Statistics Indonesia (the national body of statistics) reported a total population of 237.64 million people including non-permanent resident (homeless people, sailors, boat people and remote communities). Standing as one of the most populous countries in the world, Indonesia is also the most populous Muslim in the world. The 2010 Pew Research Center Forum on Religion and Public Life noted that the total Indonesian Muslim population makes up 13% of total Muslim population in the world. In December 2012 the Muslim population was reported to stand at 204.85 million according to the ‘Map of the World’ website. Despite its poverty problems, the Human Development Index (Statistics Indonesia, 2011) named the ‘Ibu Pertiwi’ (or ‘Mother Earth’, the national personification of ‘Tanah Air’, the Indonesian motherland) as one of the most promising countries for business purposes.
The Indonesian Shariah banking industry is a good example of this, and has managed to grow from a grassroots level into a significant industry. Lately, the Indonesian government has launched several maneuvers that may affect the future reputation of the Indonesian banking industry. In addition the ASEAN Free Trade Area (AFTA), which according to the ASEAN AFTA Council has now been virtually established, is also highly anticipated.
Hajj funds and the distribution dilemma
There is estimated to be more than IDR50 trillion (US$4.85 billion)-worth of Hajj funds in Indonesia. As reported by various Indonesian media sources, the director general of Hajj and Umrah at the Ministry of Religious Affairs, Anggito Abimanyu, stated that IDR11 trillion (US$1.07 billion) currently remains in non-Shariah banks, publicly known as conventional banks. However, the public is getting smarter and more critical. The process of social dynamics has resulted in a vocal call pressing the urgency of bringing Islamic financial products and services back into the Shariah banking industry. It refers to a specific notation on the Hajj funds.
Due to public demand, the government has finally decided to move the entire portfolio of Hajj funds into Shariah banks. It has been reported that the government has pledged to implement the policies this year (2013) or at the latest by May 2014.
Why so tempting?
Due to the large Muslim population, the Hajj business appears tempting for the financial industry in Indonesia. With the strong presence of conventional banks, the Hajj business has become a tug of war between Shariah and non-Shariah banks. Prayudha Moelyo, the head of Syariah Business Unit at Bank Danamon Indonesia, has suggested that essentially, the Hajj business is the manifestation of the public’s trust in a bank under the religious veil.
The temptation problem has been caused by the ratio between the limited quota and the total number of the Hajj Jama’ah. There are a cumulative number of people on the ‘waiting list’ of Hajj embarkation who have already paid the initial deposit. This generates a huge cumulative amount of funds. At this point, argues Prayudha, the banks who manage the Hajj funds must focus on three pillars: compliance to Shariah principals, advantages/benefits for the customers, and risk-free fund management.
Kusumarjono, the head of the Kuningan branch office of Bank Tabungan Negara (BTN), a state-owned conventional bank, has a similar personal view. At the operational level, it seems that the conventional banks should not be worried as the margin of Shariah banks is higher. He supports the plan to convert the Hajj funds. However, in his personal opinion, the Shariah margin could be lowered in order to reduce the debtors’ burden.
On one hand, the conversion of Hajj funds might be seen as a blessing for Shariah banks especially in relation to their assets incremental. But what does it really mean to Indonesian Shariah banking practitioners? Through discussions with some practitioners, I found an interesting phenomenon.
Dr Imam T Saptono, the director of business at Bank BNI Syariah, argues that by having a solid nationwide network, including Shariah channelling offices, his company will support the government plan to convert the Hajj funds to Shariah banks. However, considering the large amount of Hajj funds, Shariah banks in Indonesia must anticipate the potential problem of disbursing funds. At this point, the Ministry of Religion must support the implementation by conducting a further investment policy.
Dedi Wibowo, the senior manager for improvement processes at BRI Syariah, has a similar concern. In spite of his positive perception, Dedi explained his personal anxiety that the distribution of Hajj funds must be well-anticipated.
What does it mean for Indonesian Muslims?
I believe that Indonesian Muslims are unique, culturally complex, and therefore it’s not wise to quantify their in-depth perception. Thus, I tried to obtain the point of view of the leaders of the two most prominent Islamic organizations in Indonesia: Nahdlatul Ulama and Muhammadiyah. I discussed the question with Muhammad Aqil Irham, the secretary-general of Nahdlatul Ulama’s Gerakan Pemuda Ansor, and Mustofa Nahrawardaya, a young leader of Muhammadiyah. In their view, the maneuvers of the Indonesian Ministry of Religion is significant. Muhammad, for instance, has long been waiting for the government to make such a strategic decision. In his argument, there is an urgent need for the Hajj funds to be moved to Shariah banks. It is, he said, also relevant due to the vast growth of the Shariah banking industry in Indonesia at the moment.
Mustofa pointed out a sense of urgency to improve the entire Hajj structure. The conversion of Hajj funds from non-Shariah banks to Shariah banks marks a new era of Hajj commencement in Indonesia — not just in relation to the funds, but also in terms of the transparency and integrity of the entire process.
The issue of mergers
The maneuvers of the Hajj fund conversion also seems to be a turning point in the eyes of public; especially, for those who have been calling for the option of pure Islamic treatment in managing their finance. However, are Shariah banks really ready to bake the cake?
This question brings me to another issue in Indonesian media: the merger of state-owned Shariah banks. In anticipation of the AFTA (ASEAN Free Trade Area), the Indonesian minister of state-owned enterprises, Dahlan Iskan, is planning to establish a powerful state-owned Shariah bank. From the public’s vantage point, the minister has two choices: to convert an existing state-owned bank into a Shariah bank, or to merge the Shariah banks under the ownership of state-owned banks to become a larger Shariah bank.
Prayudha Moelyo, with regards to the issue of merger, raises an intriguing dilemma. Considering the relatively smaller business value of Shariah banks in comparison with their non-Islamic holdings, it is understandable for the government to consider the option of merging. But which should be prioritized: enlarging the fish or the aquarium? The values of togetherness and congregation in Islam must be kept in mind, whatever the decision may be.
Having obtained the opinions of the non-state-owned Shariah banks, we must look at how the practitioners from the side of state-owned companies view these issues. Dr Imam T Saptono, whose company is a subsidiary of a state-owned conventional bank (Bank BNI), states that he would prefer to maintain the current conditions instead. But it is important to incorporate the key performance indicators of the Shariah subsidiary business, in order to anticipate the complexity of the legal and corporate culture as the excess of any merger. It will create more dynamic competition and also ease the transfer of knowledge and resources. His confidence is supported by fact that BNI Syariah recorded an incremental growth of 35.8% of assets in the first quarter of this year, supported by a 56.9% growth of financing, as well as 54.36% growth in third party funds, in comparison to the same period in 2012.
So how do the conventional bank officials view this issue? The former deputy general manager of corporate communication at Bank BNI, Asoka Wardhana, argues that a merger will not be easy, and it is important to anticipate the friction between the different corporate cultures of the companies to be merged. Based on empirical evidence, according to Asoka, it takes at least five years for a company to be able to develop a settled corporate culture.
Hope for the future
It is enlightening to observe the government’s willingness to pay more attention towards the Shariah banking industry in Indonesia. More than 20 years after the first Shariah bank was established, the Indonesian Shariah banking industry is still keen for the government to take further actions. Hajj, on the other hand, has always been a hot issue for the Indonesian public. Nevertheless, compliance with Shariah regulations in managing Hajj funds has developed into a significant issue. Are Shariah banks in Indonesia ready to seize the opportunity? Despite the concerns on the distribution side, the Shariah banks themselves seem to be confident.
The government has shown considerable interest in strengthening the Shariah banking industry especially in anticipation of AFTA. All these government policies — including the merger plan — will converge into one significant point: the future reputation of Indonesian Shariah banking industry. I believe there will be at least three important determinant factors that may shape — and also jeopardize — its future reputation: products and services, financial performance and work environment.
Solid financial performance may be considered the backbone of a Shariah bank’s reputation. It is understandable if the government intends to build a stronger Shariah bank structure through a merger. But it must not interfere with its products and services where the public experiences and interacts with the bank directly.
Perhaps Indonesia needs more ‘pillars’ of communication and Shariah education to educate the public with Shariah terms, slogans or language. Having been served by conventional (non-Shariah) banks for more than 100 years, the Indonesian public may not easily understand the Islamic banking system. Therefore, it will take considerable effort to achieve public acceptance and understandings. This is an important baseline for any player who wants to seize the potential growth of Shariah business in Indonesia.
Internally, work environment may be another aspect to be considered prior to the enactment of the merger plan. In the context of business, some might argue that a corporate culture may be shaped in a top-down way by enforcing a code of conduct to the employees. But is it going to be a sincere and natural culture or an artificial corporate culture? From a sociological perspective it can take a relatively long time — even up to hundreds of years — for a group to establish a solid culture. Therefore, based on that analogy, I believe that a strong corporate culture will emerge through a natural process of daily social dynamics within the corporation. Merging the company, then, will trigger a subsequent consequence: colliding the cross-cultures into a dialectic process in order to become a solid corporate culture.
A successful establishment of corporate culture may result in a fringe benefit that the employees will wholeheartedly be the agents of publication for the company. Indeed, it is a powerful intangible capital that can help a bank through the events of crisis. But in contrast, it can also jeopardize the corporate reputation if the process turns backward.
In a nutshell, the Indonesian Shariah banking industry is currently encountering a golden moment. The decisions of the government are reaching a monumental moment in shaping the future reputation of the Shariah banking industry in Indonesia.
Rizky Wisnoentoro is an academic scholar in the fields of financial public relations, international public relations, corporate social responsibility, and strategic reputation management at Taylor’s University, School of Communication. He can be contacted at
[email protected]
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