Sharia banks told to

Sharia banks should diversify their services away from mostly SMEs and start to progressively cater for corporations as well, to speed up growth.

"Sharia banks should also tailor services to catering for the needs of local corporations. Otherwise, the target of reaching 5 percent of *volume of* the banking industry in two years cannot be reached," Muliaman D. Hadad, deputy governor of Bank Indonesia, said Tuesday.

Hadad told a seminar on the industry - which was organized by the Indonesian Chambers of Commerce and Industry (Kadin) - that the sharia banks had channeled most of their financing to SMEs.

Until March 2009, Sharia banks' total financing reached Rp 40.6 trillion (US$4 billion), which accounted for 2.1 percent of the total financing of local banks. About 70 percent of this, or around Rp 28 trillion, was allocated to SMEs.

With total assets amounting to Rp 53.5 trillion, the sharia banks have aimed to increase their share of the national banking market from 2.1 percent now to 5 percent by 2011.

"Despite their robust growth, the development of the sharia banks has not yet come up to expectations. I see that there is a gap between what we have been doing now and future expectations," he noted.

According to him, the sharia banks had robust growth from the 1990s up until 2004 when they experienced an average of 60 percent growth per year. However, during the last five years, the average growth of the sharia banks' decelerated to 46 percent per year, although still higher than the 13 percent growth of the conventional banks.

He said that to accommodate the needs of corporations, there were a number of potential sectors that the sharia banks should target.

"The sharia banks should target the potential sectors of agriculture - especially food, energy, healthcare, technology, and education."

According to him, considering that Indonesia has the world's largest population of Muslims, Indonesia should become the hub of the sharia banking business in Asia.

"Britain has become the hub of sharia banking in Europe. In Asia, Malaysia is becoming a hub. Singapore and Hong Kong are also trying to do the same. We should try to make efforts to develop sharia banking so that we become the hub here."

Worldwide, sharia banking total assets have reached more than $250 billion with an average capital growth of 15 percent per year.

In order to accelerate growth, sharia bank expert Syafii Antonio, who is also the CEO of the Tazkia Group, noted that Islamic banking should be considered as an infant industry for at least 10 years before it is able to sustain growth by itself.

"During that time, the government should design its laws to the need of giving tax incentives and creating conducive condition for its development," he said, adding that countries like Malaysia and Britain have given such incentives to Islamic banking.

Ventje Raharjo, the president director of BRI Syariah said the government should provide lower taxes, including lower income taxes to the Islamic banking sector.

"If there is no incentive, it will be difficult for Islamic banking to reach the 5 percent target," he said.

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