Islamic Finance in the Spotlight
Islamic Development Bank discusses education and perception of Islamic finance at forum co-hosted by BKPM and KADIN
Tuesday, May 31, 2016
To coincide with its Annual General Meeting held in Jakarta last month, the Islamic Development Bank (IDB), in collaboration with the Indonesian Investment Coordinating Board (BKPM) and the Indonesian Chamber of Commerce and Industry (KADIN), hosted a private sector forum at the Jakarta Convention Center on May 17.
The private forum was well attended by members of the IDB Group, including the Islamic Corporation for the Development of the Private Sector (ICD), the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), the International Islamic Trade Finance Corporation (ITFC) and private sector companies from IDB member countries.
Islamic finance was a key highlight of the panel session, discussing the latest updates on the Islamic finance system, as well as the challenges revolving around it. Daud Vicary Abdullah, President of the International Center for Education in Islamic Finance at the University of Malaysia, chaired the panel and spoke of how Islamic finance is experiencing three major challenges to its development: educating people about the system; encourage a correct and comprehensive understanding for the right perception of the system; and the availability of sufficient cross-border liquidity.
However, education and perception were the big issues that generated enthusiastic debate for the entire session.
“I think we need to raise more awareness [on Islamic finance], it is very important,” said panel member Hani Salem Sonbol, Acting CEO of ITFC Eng.
Herry Hymanto, Director of Bank Danamon’s Islamic Window, also highlighted that understanding the language of Islamic finance needs attention, as people still mix it with religious and cultural aspects of language.
“I think we need understandable local language,” he said. “That is the real challenge”
Abdullah spoke of how at first it was a struggle for him to understand Islamic finance, especially because of the language. Islamic finance’s three main products are in Arabic: mudaraba, murabahah, and musyarakah. He also spoke of an emerging perception that there is no innovative development of the products, and that should be a concern for the development of Islamic finance.
However, other speakers disagreed, with Emirsyah Satar, the former Garuda CEO representing KADIN, said that he believed that it all comes back to “know-how” and skill in selling Islamic finance products.
“If it is cheaper, easier and gives benefit, people will always use it,” he said. “Some 78 percent of Indonesia’s population is Muslim, but the Islamic finance market only accounts for 5 percent of the total market. I think this is about how to sell it.”
He also said that cost still matters, noting that “there is still a perception that it [Islamic financing] is costly.”
The forum also touched on other issues related to investment challenges and export credit insurance, showing that it has evolved as a platform for the private sector to develop innovative solutions to pressing issues.
“We believe that this forum will boost trade and investment among member countries and heighten public awareness on Islamic trade finance in Indonesia and globally,” said Hani Salem Sonbol, CEO of ITFC in his closing remarks.
“The changes in trade financing regulations in Indonesia encourages us to take real action in order to make adjustment to these changes, and provide Islamic trade finance solutions that contribute to the socio-economic development and growth in the country,” he said.