T

he government decided on Tuesday to immediately establish a new national committee to develop the sharia financial industry, which still holds a small market share.

The committee is to be led by President Joko '€œJokowi'€ Widodo and will comprise a number of relevant ministers. The Indonesian Ulema Council (MUI) will act as its advisory board.

Among the committee'€™s tasks is to harmonize laws, National Development Planning Minister Sofyan Djalil said.

'€œMatters related to wakaf [money for religious purposes] and alms, as well as raising awareness of the products, will also be pushed by the committee,'€ Sofyan told a press conference after the meeting at the Presidential Office.

The decision was made following a limited Cabinet meeting on Tuesday where Jokowi heard input from ministers, Bank Indonesia (BI) Governor Agus Martowardojo and Financial Services Authority (OJK) chairman Muliaman D. Hadad.

According to Sofyan, Cabinet Secretary Pramono Anung would soon draft a presidential regulation regarding the committee.

The government recently offered a number of tax facilities and relaxations for Islamic banking
industry as part of its fifth economic policy package introduced late last year.

In an effort to help Islamic banks grow their assets, the OJK has also decided to relax some rules, including a comprehensive '€œcodification'€ which allows sharia banks to launch new products without the need to seek a permit from the OJK and only the requirement to report regularly.

Agus welcomed Jokowi'€™s decision, saying '€œthe regular financial sector and sharia financial sector complement each other'€.

'€œThis [decision] is in line with the ongoing structural reform in Indonesia,'€ he added.

The National Development Planning Board'€™s (Bappenas) National Mid-Term Development Plan (RPJMN) for the period of 2015-2019 includes the establishment of a committee to improve Indonesia'€™s sharia financial industry.

Muliaman said the committee could help to improve coordination between related institutions overseeing the sharia financial sector.

The committee is also expected to increase sharia banks'€™ market share, which have remained below 5 percent of total assets in the domestic banking industry for many years, prompting a public anecdote describing the '€œ5 percent trap'€.

'€œWe must get out of the trap,'€ Muliaman said, later expressing his hope that Indonesia could catch up with Malaysian sharia banks'€™ market share of around 21 percent.

'€œIn the next 5 or 10 years, it is not impossible that we could catch up with Malaysia,'€ Muliaman added.

The national committee will resemble the Malaysia International Islamic Financial Centre (MIFC), which is led by the Malaysian prime minister to ensure that all policies on the sharia financial industry are well implemented.

Malaysia, the world'€™s top issuer of sukuk (Islamic bonds), 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 finance industry.

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

During the Tuesday meeting, Jokowi said the financial industry was still a promising sector despite the economic slowdown.

'€œHowever, we want to have breakthroughs in order to increase the role of sharia banking in accelerating national economic development,'€ Jokowi added.