Indonesia to Increase Use of Islamic Banks

The Indonesian government should increase the use of Islamic banks, particularly for state expenditure, to help grow its still relatively small share in the domestic banking industry, an Islamic financial practitioner stated.

The Indonesian government should increase the use of Islamic banks, particularly for state expenditure, to help grow its still relatively small share in the domestic banking industry, an Islamic financial practitioner stated.

The financial authorities have made every effort to boost the Islamic financial sector by issuing several regulations, yet the governments support to develop Islamic banks is not optimum, Mohammad B. Teguh remarked.

“In several countries, the Islamic banking industry is growing at a faster pace as their governments use Islamic banks. However, the use of Islamic banks by our government is still limited,” he pointed out.

Teguh noted that the Islamic banking industry had grown rapidly not only in predominantly Muslim countries, such as Malaysia, but also in Singapore and Great Britain, which have a heterogeneous community.

“For instance, Islamic banks are used for maintaining the payrolls of nearly 50 percent of the civil servants,” he stated.

Indonesia, which adopts a dual or conventional and Islamic-compliant banking system, should be able to follow suit without having to violate the rules, he emphasized.

“It depends on the political will of the government. The regulations (issued by the financial authorities) have been in place,” he said.

The Indonesian Islamic banking industry currently holds less than five percent share of the conventional banking market, which reaches more than Rp6,000 trillion. Data from the Financial Services Authority revealed that the national Islamic banks currently had combined assets worth Rp290 trillion.