BSI, which was launched on Monday, is the result of a merger of three state-owned banks’ sharia subsidiaries, namely Bank Syariah Mandiri (BSM), BNI Syariah and publicly listed BRI Syariah. The government expects the bank to serve some 15 million customers as it seeks to develop the country into a sharia finance hub.

Anugerah Mega Investama director Hans Kwee said the benefits of sharia banks, such as waived administrative fees for certain savings options and fairer credit card exchange rates, would likely to entice some customers to make the switch.

“There are a lot of benefits of sharia banking that attract even those who are not Muslim. Among Muslim consumers themselves, I think as they get older, they want to comply with Islamic rules of finance, and they will switch to sharia banks. So the prospect of sharia banking is bright,” he told The Jakarta Post on Tuesday.

For credit cards, for example, sharia banks do not apply a traditional interest rate system and instead impose a fee that is generally lower than that of conventional credit cards.

Although Indonesia is the world’s largest Muslim-majority country, sharia finance makes up just 9.9 percent of the country’s total financial sector because of low demand attributed to low financial literacy and inclusion.

Despite this limited penetration, sharia finance assets grew 21.48 percent year-on-year (yoy) to Rp 1.77 quadrillion (US$125.31 billion) last year, while loan disbursement increased 9.5 percent. This growth stood in contrast to the 2.41 percent contraction in loan disbursement recorded by the conventional financial sector, according to the Financial Services Authority (OJK).

Hans said this was because sharia banks had arrived much more recently than conventional banks. The number of clients of sharia banks would go up over time, he added.

“Most sharia banks that have done well during the pandemic are state-owned, and as such, they can choose their clients and borrowers, so they are less affected,” Hans said, adding that sharia banks tended to be more prudent than regular banks with regard to loans.

BRI Syariah, for example, booked a 235.14 percent increase in profits to Rp 248 billion in 2020. In comparison, state lender Bank Mandiri booked a 37.7 percent yoy drop in net profit to Rp 17.1 trillion last year.

With the formation of BSI, Hans said, sharia banking was poised for good performance, especially as BSI was one of the 10 largest banks in the country.

BSI is the seventh-largest bank in Indonesia by total assets, according to the bank’s director, Hery Gunardi. As of December, BSI’s total assets stood at Rp 240 trillion, above his prior estimate of Rp 220 trillion to Rp 225 trillion. Meanwhile, its total financing was Rp 157 trillion, and its third-party funds stood at Rp 210 trillion.

“Usually the bigger the bank, the better their business is, but we still need to wait for BSI’s development and their financial report to really predict the future performance,” Hans said.

Read also: Sharia finance thrives despite pandemic, to further grow in 2021: OJK

At the bank’s launch ceremony, Hery said he aimed to improve the bank’s business processes by strengthening risk management, human resources and digital technology.

“We are focused on serving small and medium enterprises [SMEs], retail and consumers, as well as developing wholesale management with innovative products including global sukuk [sharia-compliant bonds],” he said, adding that BSI’s infrastructure could also be used to optimize alms and waqf (Muslim religious trusts).

Hery previously said the bank aimed to be an underwriter for global sukuk of up to $300 million annually, Kontan reported.

He is also seeking to ensure that the bank will have total assets of Rp 390 trillion, disburse Rp 272 trillion in financing and collect Rp 335 trillion in funding by 2025, under a conservative growth projection.

President Joko “Jokowi” Widodo said he applauded the performance of the country’s sharia banks.

“We are known as the world’s largest Muslim population, and that has become our global identity, which we are proud of. Therefore, it is only appropriate that Indonesia becomes one of the leading countries in the development of the sharia economy,” he said in a speech on Monday.

Jokowi added that Indonesia’s sharia banks should be inclusive, welcoming clients from any religious background, and that they should serve the underbanked by leveraging digitalization.

BSI also had to attract and be relevant to Indonesia’s younger generations, he said, and should create products catering to various segments, including retail, SMEs and corporations.

Read also: Jokowi aims to awaken ‘sleeping giant’ by merging state-owned sharia banks

Institute for Development of Economics and Finance (Indef) executive director Tauhid Ahmad said that to appeal to the younger generation, sharia banks should cater to the growing demand for easy banking experiences, such as digital payments and investment products.

“They can also simplify sharia banking terms, which are usually in Arabic, so that more people can understand them. This is a new approach to attract consumers aside from the appeal that Muslims would opt for sharia-based finances,” he told the Post in an interview on Monday.

There were still ample opportunities for sharia banks to compete with fintech firms to capture the SME market, Tauhid added, including by approaching the growing number of SMEs that sold Islamic and halal products.

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