Indonesia hopes to attract Islamic finance
Updated
The Indonesia government is hopeful new Islamic finance laws will entice foreign investment in the growing sector but the the country still has a long way to go to get it's share of the growing market.
Presenter: Stephanie March
Speakers: Dr Muhammad Syafii Antonio, expert committee of the Central Bank of Indonesia; Dr Greg Fealy, senior lecturer in Indonesian Politics at the ANU
MARCH: The Islamic finance market is now worth around $700 U-S billion.
Asian countries like Malaysia, Singapore and Hong Kong have been leading the way in the fast-growing sector, but despite being home to ten percent of the world's muslim population, Indonesia has so far been slow on the uptake.
FEALY: For much of the Suharto period there was a very unsympathetic government attitude towards this Islamic industry.
Dr Greg Fealy is a senior lecturer in Indonesian Politics at the Australian National University.
FEALY: Although they were happy to sponsor pure religious activity they didn't like any thing which they saw as sectarian, or which would be seen as empowering the Islamic community in a way that could make it a centre of opposition or alternative ideology.
MARCH: But all that is now changing.
The Indonesian government recently passed a new law aimed at opening up Islamic investment opportunity.
Dr Muhammad Syafii Antonio, from the Central Bank of Indonesia; says they are working hard to change the image of Islamic banking in both government and civil society.
ANTONIO: the issue of Islamic bond is a strategic instrument for the national economy and we have to see the Islamic instrument not from narrow base religious approach but from a wider approach how to accelerate the growth and development of Indonesia.
MARCH: At the moment Islamic investment only makes up around 2.3 percent of Indonesia's national bond market. Dr Antonio says with the new changes in legislation that could increase to 5 percent within the next two years.
ANTONIO: The pass of the parliament act is great news for the industry and the government is aiming to issue 15 trillion - or US$1.5 billion in bonds, maybe in September or October.
MARCH: Whilst they are still strides away from the volume of Islamic investment seen in neighbouring Malaysia, Indonesia still has the largest number of Islamic financial institutions in the world.
ANTONIO: We do have three fully fledged Islamic banks, and about 25 Islamic divisions of conventional banks, and we have around 106, or 110 Islamic rural banks. So in terms of players Indonesia is bigger, and in terms of market Indonesia is promising, so Indonesia is too big to be ignored.
MARCH: The Indonesian government is hoping that new laws will attract investment from the Middle East.
FEALY: The Indonesian government is hoping that if it can create the right kind of legal environment, if it can meet the kind of strict conditions that Middle Eastern investors set then there is potentially billions that can flow into indon.
MARCH: Indonesian politics exert Dr Greg Fealy says Indonesia is still a long way off countries like Malaysia, where clear regulations and transparency make an inviting environment for Islamic investors.
And Dr Antonio from the Central Bank says there are still many challenges ahead.
ANTONIO: the challenges [are] of course the quality of the service, the quality of administration, the quality of socialisation and information dissemination as well the routine should be conducted by the government institution as well as how to educate the market and how we can build the trust to foreign and strategic investors.
