Islamic Finance in the Era of Finacial Service Authority (OJK

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Abdul Qoyum, SEI, M.Sc.Fin Presented in Seminar Nasional Convention Hall UIN Sunan Kalijaga Yogyakarta 08 February 2014

Outline
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Islamic Finance? statistics of world Islamic finance Islamic finance in Indonesia (Islamic banking, sukuk, islamic equity, islamic unit trust, etc) Problem of Islamic finance development in Indonesia Some Policy of OJK in developping Islamic finance.

Islamic Finance
Islamic finance or shariah finance?............ 1. Financial system which is developped based on an islamic worldview 2. Financial system based on Islamic value 3. Islamic finance objective is to realize maslahah (manfaat and berkah) and realize maqosid syariah. Dharuriyyat (religion, self, mind, progeny and wealth), hajiyyat and tahsiniyyat. 4. Basic principle of islamic finance: no riba, no gharar, no maysir and halal activities. 5. Islamic finance is finance which is based on Iman, Islam and Ihsan.

low and stable inflation. 3. 2. Islamic finance is Real-sector base finacial system 1.Islamic Finance. Support international Trade. not debtbase. Alleviate poverty... Islamic finance is Equity base Financial system. optimal level of economic growth. Islamic finance should support economic activities. low unemployement. .

Competitiveness in Islamic Finance .

Indikator Keuangan Islam Dunia .

Statistics .

Islamic Finance Assets .

Islamic Banking .

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Sukuk Market .

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Knowledge Indicator .

Governance .

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Shariah Governance .

CSR Fund and Awarness .

the annual growth of Islamic banking (Islamic Banks / BUS/ UUS) was recorded 32% with total assets of Rp229. 3 billion and total deposits of Rp174 trillion. bank offices is 2932. . The number of Islamic banks listed 11 banks. 5 billion.October 2013. UUS is 23 units and BPRS has reached the number of 160. increase of 269 compared 2012. total financing Rp179.

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000 40.000 0 Jan-09 Mar-09 May-09 Sukuk Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sovereign Sukuk (SBSN) issuance Sep-12 Nov-12 Jan-13 Mar-13 SUKUK (SBSN)* .000 120.000 60.In Billion Rupiah 100.000 20.000 80.

245 2 United Arab Emirates 3. Global Corporate Islamic Bond Ranking by Deal Nationality Full Year 2012 Rank Deal Nationality Deal Value (USD million) 1 Malaysia 15.1 2.asiamoney.065 3 Saudi Arabia 2. and United Arab Emirates.com. .1. Singapore.7% with total value USD373 million after corporates from Malaysia. According to www.7 13. Saudi Arabia.8 12.asiamoney.182 Sources: www. currently Indonesia companies’ ranks as fifth in term of geographic ranking for corporate sukuk issuance accounted for 1.Table 1.9 0. of issuance 73 7 4 2 4 2 2 94 % share 68.7 0.com No.4 100.0 the number of companies issuing sukuk in Indonesia is very few.4 1.683 4 Singapore 529 5 Indonesia 373 6 Hongkong 196 7 Japan 91 Total 22.

company still prefer for using another source of fund to finance their investment activities. company still underestimate with the quality of sukuk in supporting company growth. Second. It indicates some points: first. 204. Total Sukuk Outstanding (Rp Billion) 7100.Sukuk Issued by company is very few.58 Government /Sovereign sukuk. Third. Total Sukuk Outstanding as April 2013 BUMN Sukuk.1. very few study that address some issue how sukuk can contribute significantly to the value of company (capital structure theory) Figure 4.05 Corporate Sukuk. 323. Author calculation .61 Sources: International Islamic Financial Statistic (IFIS).

46 6933.04 48.93 9.74 4. PT M atahari Putra Prima Tbk M ayora Indah Tbk M etrodata Electronics Tbk M itra Adi Perkasa (M API) PT Adhi Karya (PERSERO) PT Adira Dinamika M ulti Finance PT Berlian Laju Tanker PT Pupuk Kaltim Timur PT Sumberdaya Sewatama PT Tiga Pilar Sejahtera Food PT Titan Petrokimia Nusantara Salim Ivomas Pratama Summarecon Agung.1 204.67% TOTAL Corporate Banking/Financial Banking/Financial Energy Retail M anufacturing Food M anufacturing IT Retail M anufacturing Construction/Property Car rental/leasing transportation Chemical M anufacturing Water Power (Utilities) Food M anufacturing Chemical M anufacturing Food M anufacturing Construction/Property 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 BPD Sulawesi Selatan Bank Nagari Sumatera Barat Aneka Gas Industri.08 % Government Related Entities (BUM N) Banking/Financial Telecommunication 1 2 Bank M uamalat Syariah PT Indosat M udharabah Al Ijarah 105.23 12.7 9.24% 100% TOTAL GRAND TOTAL .6 323.58 4.94 48.1 25. PT M udharabah M udharabah Al Ijarah Al Ijarah M udharabah Al Ijarah Al Ijarah M udharabah M udharabah Al Ijarah Al Ijarah Al Ijarah Al Ijarah Al Ijarah Al Ijarah Al Ijarah 11.58 7628.62 10.58 30.61 93.15 7100.ISSUE TYPE SEC TO R NO ISSUER TYPE O F SUKUK AMO UNT (IDR MILLIO N) % Sovereign Sukuk Government Government 1 2 TOTAL M inistry of Finance Perusahaan Penerbit SBSN Indonesia Short Term Ijara Al Ijarah 167.95 98.69 22 29.24 4.66 21.05 2.29 13.88 20.

2) Murabahah sukuk. 13) Sukuk of existing leased assets. 3) Musharakah sukuk. 7) Musaqah sukuk. and 14) Sukuk of future assets on lease contract. 4) Mudarabah sukuk. namely 1) Istisna sukuk. of issuance) Muda ra bah 33% Al Ija rah 67% Sources: International Islamic Financial Statistic (IFIS). 10) Sukuk of existing services.Albeit AAOIFI has issued standards for 14 different types of sukuk structure. Figure 4. 9) Salam sukuk.4. Author calculation . 6) Muzara’ah sukuk.Corporate Sukuk Structure Corporate Sukuk in Indonesia by Akad (No. the common sukuk structure in Indonesia are either ijarah or mudharabah. 8) Mugharasah sukuk. 5) Wakalah sukuk. 11) Sukuk of future service. 12) Sukuk if existing owned assets.

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Requisite of the good Islamic financial system Good Islamic Financial System Shariah Advisory Strong Risk Management Supportive legal frameworkk Good Educational System Effective Regulation Active Research in Islamic Finance Sound Corporate and Shariah Governance Society awareness Robust Accounting Disclosure and .

takaful.Problems of Islamic finance development in Indonesia  Human resources Gap  Academicians and Practitioners Gap  Low level of Research and product development in all areas of Islamic finance (islamic banking. Bank BUMN Syariah. islamic bond/sukuk. islamic unit trust.  2014 Challange (General election. zakat institution. Bank Wakaf. islamic money market. etc. The fed policy etc) . islamic capital market. Dana Haji.  Slow development paradigm. OJK as full regulator.)  Awareness is very critical.

integration of islamic finance in the international financial systems. the need for consumers confidence.OJK as Regulator Argument for regulation  Chapra-Khan theory Systemic objectives. the correction of other market imperfections and failures. potential moral hazard. the protection of depositors. compliance with syariah.  Llewellyn’s Theory Potential systemic problem.  Drage’s Theory Instability of financial systems. Bank failure. the need for monitoring of financial firm. .

 Coordinate with all university which are provide islamic finance education.  International body in Islamic Finance (AAOIFI. training etc. It is very important to support the rule of OJK to regulate and supervise the financial institution especially related to many issue that arises in islamic finance.  Islamic financial system  OJK-Shariah advisory council as the highest authority  Indonesia international islamic financial centre  Strengthening synergies between financial system OJK should responsible for increasing the integration of Islamic finance into the international finacial system.The Policy by OJK  Provide a legal. this institution will develop new product in Islamic finance that maybe relevant and workable in islamic financial institution. IILM.  Human capital development  Establish a research center for shariah and islamic finance which is under OJK. IFSB. regulatory and supervisory infrastructure. IIFM) . This is more important due to the AEC 2015. In addition. The role of OJK is to provide the standard curriculum which is relevant the industries  Establish university in Islamic finance which provide a scholarship.

 Shariah governance OJK should regulate the issue of Shariah governance in Islamic financial institution. .

OJK  Declare as Islamic Financial Hub  Issue a islamic finance master plan (cover Indonesia timur)  Coordination with all ministry in supporting islamic finance  Human resource Gap  Product development (bottom-up approach and topdown approach) and (Fast Line and SAC Line) (good for corporate and also for SMEs)  Islamic economic civilization .

. Sukuk BNM. Cagamas Sukuk. Islamic Negotiable Intrument (BBM akad). Islamic Accepted Bills.Islamic Money Market Instrument  Mudharabah interbank investment. Malaysian Islamic Treasury Bills. Commodity Murabahah (bursa sukussila)Government Investment Issue.Negotiable Islamic Debt Certficate (BBA). Sell and buyback agreement. BNM Notes.

Salam. Murabahah.Sukuk     Sales based (BBA. Ijarah Muntahiya bittamlik) Partnership (Mudharabah and Musyarakah) Agency based (Wakalah bil istismar) Issue:  Sukuk Debt or Equity?  Sukuk trading  Sukuk pricing  Sukuk Default  Sukuk Rating . Istishna’) Lease-Based (Ijarah.

Derivative Product  Forward Wa’d-I Product  Islamic Forex Swap  Islamic Cross Currency Swap  Islamic Profit Rate Swap  Islamic Option  Islamic Structured Product .

economic power in the real sector (industry and trade).OJK and Islamic Economics OJK has an important agenda in realizing Islamic economic civilization.) 2. and Shariah based business culture. QS Thaha : 124 (Welfare is Shariah based) 3. C. Welfare 1. Economic Independence optimization of the local potential. QS Al-Hasyr : 7 (Distribution of assets) B. Sovereignty and Economic Governance (maslahah and maqosid syariah base) . as well as security and social order. QS Quraisy : 1-4 (indicator: Islamic value system. basic needs fulfillment and distribution systems. the quality of human resources. 3 Pillar in Islamic Economic Civiliztion A.

Wassalamu Alaikum .

Appendix .

BNM Notes. Sukuk BNM. Sell and buyback agreement.Negotiable Islamic Debt Certficate (BBA). Cagamas Sukuk. . Islamic Accepted Bills. Commodity Murabahah (bursa sukussila)Government Investment Issue. Islamic Negotiable Intrument (BBM akad). Malaysian Islamic Treasury Bills.Islamic Money Market Instrument  Mudharabah interbank investment.

Sukuk     Sales based (BBA. Salam. Istishna’) Lease-Based (Ijarah. Murabahah. Ijarah Muntahiya bittamlik) Partnership (Mudharabah and Musyarakah) Agency based (Wakalah bil istismar) Issue:  Sukuk Debt or Equity?  Sukuk trading  Sukuk pricing  Sukuk Default  Sukuk Rating .

Derivative Product  Forward Wa’d-I Product  Islamic Forex Swap  Islamic Cross Currency Swap  Islamic Profit Rate Swap  Islamic Option  Islamic Structured Product .

Product Development .

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& Products Screening DJIM Non-Permissible Activities: •Pork Production •Tobacco • Alcohol • Gaming MSCI Islamic Index Negative Screen • Alcohol • Tobacco • Pork-related products • Conventional Financial services S&P Shariah Index Excludes: •Pork Production • Cloning ( Non-Halal Food Products) •Alcohol Beverages •Gambling FTSE Islamic Index Non-Permissible Activities: •Pork Production •Non-Halal Food Products •Alcohol Beverages •Gambling • Conventional Financial Services •Entertainment •Defense/weapons • Gambling •Interest based Financial Institution •Pornography •Arms. Defense •Tobacco •Interest based Financial Institution •Entertainment( casinos…) •Arms. Weapons • Music •Non Halal food • Hotels •Activities Contrary • Cinema to Islam • Adult Entertainment •Gold & silver trading as •Activities Contrary to cash on deferred basis Islam •Activities Contrary to Islam .Step One : Activity. Defense •Tobacco •Defense. Industry.

Industry.Step One : Activity. • Trading that is prohibited according to Shariah • Conventional financial institutions • * Transactions that contain elements of bribery (risywah ) Excludes: SAC ( S C ) AAOIFI Non-Permissible Activities: Non-Permissible Activities: • Interest related • Not to engage in prohibited •Financial sevices based on riba business • Gambling • Gambling/ Gaming •Alcohol Beverages • Manufacture and/ or sale of non halal products • Arms Manufacturing • tobacco •Insurance both life and general •Defaulter Company • Non Halal Food • Mutual Funds both open-ended and close ended • products or services that • Conventional can deprave one’s morals insurance and are harmful •Entertainment •Stockbroking or share trading in Shari’ah non-compliant securities . & Products Screening Meezan islamic index Jakarta Shariah index Negative Screen • Gambling and games considered as gambling.

33% 33% 36 Mth average) < 33% *Non Permissible Income other than Interest Income/Revenue < 5% MSCI Islamic Index S&P Shariah Index Total Cash + Account *Acc Rec/ Market value of Receivables / Total Assets equity ( 36 Mth average) < 33. < Market value of equity ( Sec / Total Assets < 33.33% average) < 33% 33% .33% < 49% Prohibited Income - - Debt *Total debt divided by *Total Debt/ Market value trailing 24-month average *Total Debt/Total Assets < of equity ( 36 Mth market capitalization < 33.Step Two : Financial Screening DJIM *Acc Rec/24 Mth Average Market Cap < 33% Liquidity *Cash + Int Bearing Sec/24 *Cash + Int Bearing Sec/ Cash + Interest-Bearing Mth Average Market Cap.

Step Two : Financial Screening
FTSE Islamic Index *Acc Rec + Cash/Total Asset < 50% Liquidity *Cash + Int Bearing Sec/Total Assets < 33% Account receivables / Total Assets <45% Jakarta Islamic Index Meezan Islamic index (Cash + interest bearing deposits) / total assets < 30%

Interest Income & *Interest Income/Group Income from NonTurnover < 5% (Total interest + income Prohibited Shariah compliant *Non Permissible Income from non-compliant Income business activities/Total other than Interest activities) / Revenue <5% Revenue < 10% Income/Revenue < 5%

Debt

Total Debt/Total Asset < Interest-bearing Conventional debt / total 33% debt/Total Equity < 82% assets < 30%

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Inactivity . Low Trading Volumes 4. Immediate Dividends Disadvantages 1. Accountability 7. Cost-Effectiveness 3. Inability to reinvest dividends 2. Single Transactions 2. Flexibility 6. Passive Management 8. International Limitations 3. Derivatives 5. Taxes 4.Advantages & Disadvantages of ETF Advantages 1. Long Investment Horizon 5.

of the NAV T+3 (if through brokers) Brokers or participating dealers May change throughout the day Less liquid 3% .Difference between ETF and Unit Trust ETF Diversification Transparency √ √ Unit Trust √ Less transparent Fund Information Market price and trading activity data readily available on Bursa Malaysia’s website or via brokers Information available from the fund manager and fund’s appointed agents Liquidity Entry Fee √ Brokerage fee.0.a.5% (for equity fund) Management Fee Purchase Settlement Trade Via Daily Trading Period 0. of the NAV Upfront Agent Fixed throughout the day .75% .a.5% p. clearing fee and stamp duty are applicable when trading on Bursa Securities 0.4% .5% p.

Structure of Al-aqar KPJ REIT 3-58 .

but many also engage in short-term construction financing. 3-59 . operators or developers. In other words they own and operate real estate at the same time extend loans to real estate owners and operators.What’s types of REITs?  Equity REITs owns and operates income-generating real estate which involves a wide range of activities including leasing. It is also offers interest-based loans to real estate owners. development of real properties and tenant services. It involves greater risk since mortgage REITs tend to be more sensitive to volatility in market interest rates.  Mortgage REITs primarily hold long-term mortgages.  Hybrid REITs are a combination of equity and mortgage REITs.

Why invest in REIT? Diversification Stable and recurrent income 3-60 Benefits Comfort of regulations Inflation hedge Relatively cheap compared to real property 60 .

bond funds. money-market funds and a balanced fund.  Unit trust is established by a trust and should spell out some objectives. 3-61  The different types of unit trust can be equity funds.  There are three parties of a unit trust arrangement and are investor. Can be classified income. the investment management company and the trustee. growth and balanced funds. .Unit Trust  A unit trust is an investment system that a fund manager collects money from numerous investors to invest in a portfolio of assets.

3-62 Benefit of Investing in Unit Trust  Diversification of units  Service of professional fund managers  Liquidity  Low capital requirement  Convenience  Access to foreign financial markets  Hedge against inflations .

3-63 Issues in Investing in Unit Trust • • • • • • Market risk Interest rate risk Credit risk Country risk Currency risk or foreign exchange risk. Investment manager risk .

Allows for diversification across different sectors Stable returns Distribution is in dividends Can be traded on the floors of the exchange Return is dependent on performance Distribution is in units Trading is done through the fund manager .3-64 Similarities And Differences REITS UNIT TRUST Real Assets Direct Investment in the underlying asset of a REIT Limited to property sector Financial Asset Indirect investment in the investments held by the Unit Trust.

s.Introduction to Sukuk (Cont…) Sukuk v. Conventional Bonds .