T

he government'€™s plan to establish a brand new national committee on the Islamic financial industry will clear ground for a regulatory framework to boost sharia banks, which make a small contribution to the overall banking industry, banking regulator the Financial Services Authority (OJK) says.

Sharia banks'€™ market share remained below 5 percent of total assets in the domestic banking industry for many years, prompting a public anecdote describing the '€œ5 percent trap'€, OJK head of sharia banking department Ahmad Buchori said.

'€œWe hope that the committee will be launched soon. The committee will be led by the President, or at least the Vice President, while its membership will comprise all ministers,'€ Buchori said.

The National Development Planning Board'€™s (Bappenas) National Mid-Term Development Plan (RPJMN) for the period of 2015-2019 had included the establishment of the National Sharia Financial Committee (KNKS) to improve Indonesia'€™s sharia financial industry.

The national committee would resemble the Malaysia International Islamic Financial Center (MIFC), which is led directly by the Malaysian prime minister so as to ensure that all policies on the sharia financial industry will be well implemented in that country.

'€œMalaysia has a top-down approach for its financial sector, so that all policies, including tax incentives for the sharia financial industry have been done well so that its sharia economy is flourishing. On the other hand, Indonesia has always conducted a bottom-up approach,'€ Buchori said.

Malaysia, the world'€™s top issuer of Islamic bonds (sukuk), has formulated 12 examples of tax incentives for investors and existing companies seeking to issue debt papers to aid expansion, in a bid to support the country'€™s sharia financial industry.

Half of Malaysia'€™s overall corporate and government bonds are sharia-compliant, underscoring the significant role of the sharia financial industry in the neighboring country'€™s funding.

Meanwhile, Indonesia'€™s corporate sukuk only accounted for 3.2 percent of overall outstanding corporate bonds and the government sukuk is 10.6 percent of the total government debt papers.

In the stock market, sharia mutual funds account for 4.63 percent or Rp 11.25 trillion of the country'€™s total mutual funds, OJK data shows.

In the banking industry, assets struggled to exceed the 5 percent goal since four years ago, with Buchori attributing slowing economic growth and weaker rupiah to difficulties in meeting the target.

As soon as the committee is launched, the OJK will also start to promote its complete roadmap to boost the sharia financial industry, Ahmad added.

OJK chairman Muliaman Hadad recently said that the roadmap for the banking industry would include the mega-merger of three state sharia banks, Bank Syariah Mandiri, BNI Syariah, BRI Syariah, and one sharia unit of state lender Bank Tabungan Negara (BTN). This merger is expected to yield a sharia banking giant that is more financially capable of tapping into market potentials.

OJK data shows that sharia banks'€™ total assets grew 12.4 percent as of last year, far below 24.3 percent in 2013. Meanwhile, financing growth stood at 8.3 percent in 2014, a drop from 24.8 percent in the previous year.

'€œHowever, we are optimistic that this year'€™s financing of sharia banks will grow 25.8 percent, while their assets will increase by 19.51 percent, based on their business plans submitted to the OJK,'€ Buchori said.

Despite having a small market share, the domestic sharia banking industry remains attractive for investors, including foreign ones. Ahmad said at least one investor from the Middle East had filed a proposal to the OJK recently to acquire a major share of a local sharia bank, stating that '€œthe review process is still ongoing'€.