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Jakarta Post

Bank Indonesia says Islamic banking can help SMEs compete

  • Arif Gunawan S.

    The Jakarta Post

Surabaya   /   Wed, October 28, 2015   /  04:08 pm
Bank Indonesia says Islamic banking can help SMEs compete  bi: Money talks – Deputy governor of Bank Indonesia Perry Warjiyo gives the keynote speech at the Indonesia Sharia Economic Festival 2015 on October 28 in Surabaya. (Photo: Bank Indonesia)

Money talks: Deputy governor of Bank Indonesia Perry Warjiyo gives the keynote speech at the Indonesia Sharia Economic Festival 2015 on October 28 in Surabaya. (Photo: Bank Indonesia)

Bank Indonesia (BI) has acknowledged a new challenge for the national economy '€“ the rise of global small and medium enterprises (SME) and their increased penetration of the local domestic market.

According to BI, in order to compete, local SMEs need to be strengthened through massive financing, including through Islamic banking.

'€œThe challenge is getting more serious as the economy opens up with developments like the Asean Economic Community (AEC) agreement, which will come into effect soon, leading to massive corporate foreign investments that will bring foreign SMEs to Indonesia,'€ BI deputy governor Perry Warjiyo said on Wednesday in Surabaya.

Perry said that there was a different trend developing in the global business model. Previously, in the 1980s and 1990s, conglomerates dominated global business expansion. But now, he said, SMEs were following conglomerates'€™ examples and expanding internationally.

South Korean and Japanese corporations, Perry explained, often bring along their SMEs to countries where they invest, to supply parts for automotive products, or to support logistics and processes.

'€œThis is the growing trend in the global business model, and has become my personal worry. We'€™re not talking about developing Islamic financial services as they are, but the development of Indonesia'€™s economy and business environment in general,'€ he asserted.

In respond to that, Perry believes that sharia financing could be a good strategy for developing Indonesian SMEs because it is basically founded on a community based economy, such as Islamic boarding schools and Islamic lecture groups and relies on collective capital from Islamic cooperatives and joint ventures.

BI, he further said, have started a pioneer program for developing SMEs through Islamic banking in East Java, particularly Surabaya, as the region is considered the most promising province in Indonesia for Islamic banking.

Energi Agro Nusantara'€™s president director Misbahul Huda said that businesspeople needed to see the added value of the Islamic principles offered by sharia-based financial services, such as better infrastructure and a fairer system than that applied in conventional banking.

'€œIn some cases, we find that Islamic banking is like conventional banking in terms of margins. Though, the service is sometimes worse than conventional banking, due to the limited infrastructure,'€ he said. (dan)

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