I

em>Indonesia’s Islamic banking industry has long been in a situation called “the five-percent trap” in which the industry’s assets cannot expand beyond 5 percent of the country’s banking industry despite having the largest Muslim population in the world. Dubai Islamic Bank (DIB) group chief executive officer Adnan Chilwan talked with The Jakarta Post’s Prima Wirayani recently on the misunderstanding of the positioning of Islamic banking, which he says has contributed to the sluggish growth in the attractiveness of the country. It is this that led his firm to acquire more than 39 percent of local sharia lender Panin Dubai Syariah Bank. Below is an excerpt from the interview.

Q: What kind of distinction do you wish to bring with Panin Dubai Syariah Bank?

A: Islamic banking in Indonesia has not been positioned in the way that we tend to position it. I don’t want to criticize any positioning, what is right and what’s wrong, that’s not my intention. We’ve learned a lot from our experiences about eight countries and we want to bring those experiences to Indonesia. And by that I mean that we want to make sure that we position the bank correctly. Islamic banking should be open to all, allowing everyone to experience it. And how do you do that? You do that if you have the best structure, the best product, the best value proposition. You know, customers are looking for convenience, for excellence.

If you have a bank that has all these ingredients in place, whether it’s a conventional or Islamic bank, I think that’s what customers would choose. Why do Indonesians choose one bank over another? I think they do that only if they see that the bank is progressive, has something for them and the bank is meeting their requirements and needs, and that’s what we do in every country in which we operate.

We do not come to customers and say that we are more Islamic than other sharia-compliant banks. All sharia banks operating in Indonesia are Islamic, they are all sharia compliant and they do not compromise the ethics and principle of sharia.

I think the positioning should change. You don’t need to advocate to customers that you need to choose us because we are sharia compliant. Show to customers that you need to come to Panin Dubai Syariah because the bank meets your requirements, that the bank has the technology and the bank has products that meet your needs, has the right package, competitive in price, accessibility, a large network and so on.

In the past, Islamic bankers had the positioning wrong as we are in a very competitive environment.

For DIB to be in the top four banks from the UEA’s conventional and Islamic banks, to become a bank that has a US$15 billion balance sheet and has a net profit of more than $1 billion per year is an achievement. And how we did that is exactly what we want to do in Indonesia.

Approaches that we have tried in many parts of the world, I think, will work in Indonesia because it is a very natural place. Here consumers have the tendency to look at sharia banking if you give them the right banking. Consumers will not come to you just because you are sharia compliant.

Indonesian consumers are very sophisticated. It’s the reason why, in my opinion, we need to change the positioning. I would also encourage and request all my fellow Islamic banking practitioners operating within Indonesia to change their positioning.

You said that you met with President Joko “Jokowi” Widodo last year and talked about the country’s Islamic banking. Can you share with us more about the meeting?

It was not a one-on-one meeting, it was a large meeting with the President addressing a crowd. In the forum he said that he wanted to make Islamic banking a pillar of his national agenda and he had a plan to increase the penetration of Islamic finance from 3 percent to 11 percent, if I’m not wrong, by 2020. And, I think the country is making excellent progress in terms of the economy.

So when we heard a country pays attention to Islamic banking and makes Islamic banking a part of its national agenda, it makes us very happy, it makes our job easier. What I know of is that the President himself is chairing the national committee and he has taken it upon himself to talk about Islamic banking and finance at every forum that he attends.

We want to play a small part in the large vision that the country has.

Why does the DIB choose Indonesia while there are other countries in Southeast Asia that already have bigger and developed Islamic banking markets?

Malaysia absolutely has a developed Islamic banking and economy but Indonesia still has potential to grow. I think we want to play an active role in the development of a country rather than going into a developed country. We always try to start at the very beginning. We don’t want to go into a country that is already developed.

When we heard the country has a plan to include Islamic banking in the national agenda, I think this was good news for us and the reason why we choose Indonesia is because it has the most natural inclination toward Islamic finance with 250 million [citizens the majority of which are] Muslims, underpenetrated Islamic finance market that is less than 5 percent and, to top the list, the national agenda that the country has. So, it’s the population, penetration and intention.

These are the three things a bank like us looks at and that’s the reason why we have chosen Indonesia and when I look back I see that we took the right decision.

What is your next plan for Indonesia, especially for Panin Dubai Syariah?

Our plan is that this is the start of a very long journey and we hope we can add some value to the economy and to the country itself. We definitely have a clear plan and that is shared with the right people. A lot of people and banks want to come to Indonesia to do Islamic banking. The regulator has chosen DIB and we want to make a difference.

What differences do you see in terms of the development of Islamic banking in the two countries?

I think that there are a lot of similarities. We come from the same culture, from the same humble, modest people and we are very active in terms of economy. There is much potential both in the UEA as well as in Indonesia. So I think that from my perspective I don’t see differences, I see opportunity. I don’t see challenges, I see strengths. From that perspective I feel that Indonesia has a great economy, an economy that will really become very strong and the country has the ambition to become the strongest economy.

What can Indonesia learn from other countries whose Islamic banking industries are more developed?

Because the penetration of Islamic banking in Indonesia has yet to reach a high [level] as we want it to, I think there’s a lot to learn. Indonesia realizes that it wants to develop Islamic banking, which is in my opinion the right mind-set. I think it also tells you about the leadership of the country where it wants to learn from experience, from everyone around. There’s a lot to learn and when you invite people like DIB into the country, we bring our experience and expertise. We make a stronger local bank in form of Panin Dubai Syariah.

We work in eight other countries but there is no single approach. It depends on rules and regulations applied in each country. For Indonesia, because foreign ownership is capped at 40 percent, the right thing to do for us is to look at a partner who has a like-minded culture and the reason for that is when you’re far from your domicile jurisdiction, you need to know about the local knowledge.

Yes, we started Islamic banking [in 1975] but definitely we don’t have the local knowledge and local understanding about Indonesia. So it was very important for us to go into Indonesia with the right local partner.