Sharia banks are taking in stride Bank Indonesia’s plan to effect a new regulation on minimum down payments for housing and vehicle loans at their institutions, saying the central bank’s policy will not significantly impinge on their loan activities.

“The policy won’t dampen consumer demand for such loans,” OCBC NISP Bank’s sharia business unit head Koko Racmadi said in Jakarta recently.

OCBC NISP adopts the musyarakah mutanaqisah (MMQ) financing scheme from Islamic finance products. MMQ is a type of housing loan in which sharia banks act as the owner of the house and gradually yield ownership to customers, who effectively act as its renter.

“We target our housing loans to grow by about 40 percent this year, with targeted disbursement of
Rp 600 billion. We are optimistic about better growth through our more effective market penetration,” he said.

“I think both housing and vehicle loan demand will display a growing trend in future, in tandem with the development of sharia banking.”

BI announced that minimum down payment for housing loans under the murabahah or ishtina financing scheme would be set at 30 percent, the same as for conventional banks.

However, for purchase of a house under the musyarakah mutanaqisah (MMQ) and Ijarah Mutahiya Bittamlik (IBT) financing schemes, the down payment will be 20 percent at the highest.

The new “financing to value (FTV)” policy, to take effect on April 1, 2013, followed the central bank’s previous requirement of a minimum 30 percent down payment for housing and vehicle loans at conventional banks. The latter policy went into effect in June 2012.

BI’s monitoring of the results of that regulation found many prospective bank borrowers switching from conventional banks to sharia ones, because “they want to take advantage of the difference in timing of effectiveness for conventional and sharia banks,” the central bank stated.

“Our analysis indicates there is an increase in the sharia banks’ portfolio for both loans by 13 percent of total portfolio to Rp 148 trillion.”

BI also said previously the down payment for two and three-wheeled vehicles was set at the lowest rate, 25 percent, for both non-productive (private) and productive (commercial usage) vehicle categories.

Business director of PT BNI Syariah Imam T Saptono predicted the new regulation might cause a slight decline in housing and vehicle loans ranging from 5 percent up to 10 percent.

”The FTV regulation for conventional banks … has led to a decline in loan disbursement by about 10 percent. So I think the new policy for sharia banks will give similar effect. But in general, the effect is not significant,” said Imam.

Imam said BI data showed vehicle loans declined from Rp 108.3 trillion in June 2012 to Rp 103.2 trillion in September 2012; housing loans also declined from Rp 242.5 trillion in June 2012 to Rp 231.9 trillion in September 2012.

Other banks report brisk business in their sharia loan activities.

CIMB Niaga Syariah continues to make inroads in the property financing market due to the high demand for houses, said head of sharia business unit of PT Bank CIMG Niaga Tbk Saefudin Noer.

“We see high growth of demand for housing loans and so the financing business for property sector is quiet promising,” he said.

He said the bank’s sharia loan disbursement as per Dec. 31, 2012, reached Rp 1.302 trillion, an increase of 115.43 percent from the previous year’s total Rp 604.54 billion.

The head of the sharia business unit of PT Bank Permata Tbk, Achmad Kusna Permana, said the minimum down payment requirement would not deter prospective housing loan applicants.

“I’m sure customers won’t object to the down payment of 20 percent, which is lower compared to the down payment of 30 percent set at conventional banks,” he said.

Concerning vehicle loans, the new policy would place a heavier burden on buyers of two-wheeled vehicles, who currently pay from 5 percent to 10 percent in down payment, but would be required to pay 25 percent.

However, there would not be a significant effect on the purchase of four-wheeled vehicles because consumers in this segment were already accustomed to paying 20 and 30 percent down payments.

Permana reiterated his confidence in consumers’ continued trust in sharia banking products.

“If there is a decline, then it will be no more than 10 percent for housing loans,” he said.

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