Dian Kuswandini, The Jakarta Post, Jakarta | Sat, 05/31/2008 12:08 PM | Business
Sharia-based banking likely needs more time than it expected to achieve its target of securing a 5 percent market share of the country's lucrative banking industry -- thanks to a lack in clear policies, human resources and a sluggish promotional campaign.
Bank Indonesia director for sharia banking Ramzi A. Zuhdi said sharia-based banking businesses only accounted for 1.98 percent of market share in February, a slight rise from 1.64 percent in the same period last year.
Ramzi said the sluggish growth was mainly attributable to problems in policies, human resources and advertising.
"Slow progress in the drafting of new regulations after the enactment of the law on Islamic bonds has hampered development of sharia banks," Ramzi told The Jakarta Post, adding that low availability and poor quality of human resources also exacerbated the condition.
"To achieve the 5 percent market share, sharia banks need around 30,000 employees, but at the moment they only have around 8,000.
"The skills and knowledge of the existing workers are far below professionals in conventional banks."
He said despite intensive worker training provided by the central bank, no significant progress had so far been seen.
Flawed promotion strategies have also been blamed for the industry's sluggish growth, as sharia banks are mostly reluctant to spend big on advertising.
"Sharia banks only spend a small amount on advertising. The money spent on advertising by all sharia banks is equal to the advertising costs of a conventional bank like Bank Mandiri," Ramzi said.
However, the central bank remains upbeat the industry can achieve its long-term target of securing 10 percent of market share by 2013.
"Sharia banks may fail in achieving the short-term target, but Bank Indonesia is optimistic they can achieve the long-term one. We still have five years to go for that," said Ramzi.
The optimism, he said, was based on the business' remarkable growth in total lending, which grew 30 percent and 26 percent respectively in 2007 and 2006.
As of February, combined assets of sharia banks in Indonesia was estimated to be worth Rp 37.55 trillion (US$4 billion), up from Rp 1.7 trillion in 2000.
The number of sharia bank offices also increased to more than 1,200 in March from 480 in the same period last year.
Ramzi said many foreign investors were attracted to sharia-based banking as the business was deemed to have promising prospects, given that Indonesia has the largest Muslim population in the world.
Starting a sharia bank only requires Rp 1 trillion in start-up capital, as compared to Rp 3 trillion for a conventional bank.
Sharia-based banking likely needs more time than it expected to achieve its target of securing a 5 percent market share of the country's lucrative banking industry -- thanks to a lack in clear policies, human resources and a sluggish promotional campaign.
Bank Indonesia director for sharia banking Ramzi A. Zuhdi said sharia-based banking businesses only accounted for 1.98 percent of market share in February, a slight rise from 1.64 percent in the same period last year.
Ramzi said the sluggish growth was mainly attributable to problems in policies, human resources and advertising.
"Slow progress in the drafting of new regulations after the enactment of the law on Islamic bonds has hampered development of sharia banks," Ramzi told The Jakarta Post, adding that low availability and poor quality of human resources also exacerbated the condition.
"To achieve the 5 percent market share, sharia banks need around 30,000 employees, but at the moment they only have around 8,000.
"The skills and knowledge of the existing workers are far below professionals in conventional banks."
He said despite intensive worker training provided by the central bank, no significant progress had so far been seen.
Flawed promotion strategies have also been blamed for the industry's sluggish growth, as sharia banks are mostly reluctant to spend big on advertising.
"Sharia banks only spend a small amount on advertising. The money spent on advertising by all sharia banks is equal to the advertising costs of a conventional bank like Bank Mandiri," Ramzi said.
However, the central bank remains upbeat the industry can achieve its long-term target of securing 10 percent of market share by 2013.
"Sharia banks may fail in achieving the short-term target, but Bank Indonesia is optimistic they can achieve the long-term one. We still have five years to go for that," said Ramzi.
The optimism, he said, was based on the business' remarkable growth in total lending, which grew 30 percent and 26 percent respectively in 2007 and 2006.
As of February, combined assets of sharia banks in Indonesia was estimated to be worth Rp 37.55 trillion (US$4 billion), up from Rp 1.7 trillion in 2000.
The number of sharia bank offices also increased to more than 1,200 in March from 480 in the same period last year.
Ramzi said many foreign investors were attracted to sharia-based banking as the business was deemed to have promising prospects, given that Indonesia has the largest Muslim population in the world.
Starting a sharia bank only requires Rp 1 trillion in start-up capital, as compared to Rp 3 trillion for a conventional bank.
