BANKING - Shariah Banks Look to Farmers In an Effort to Grow Lending

Indonesia’s largest Shariah-compliant banks plan to increase lending to rural areas, where total agricultural loans have doubled over the past five years.

Bank Muamalat Indonesia is seeking to boost lending tenfold outside cities in 2011 after opening 30 new branches last year, said Luluk Mahfuda, head of Islamic corporate banking. BCA Syariah said it would add 15 outlets aimed at small businesses this year. (full story)


Islamic lenders accounted for 1.8 percent of the Rp 91 trillion ($10.4 billion) in loans to the farming industry in 2010, figures from the central bank show.

Offering services to growers of palm oil, cocoa and corn will help Islamic banks meet the government’s target of expanding assets by 55 percent this year, according to Bank Indonesia.

It will also reduce farmers’ dependence on illegal money lenders, known for their violent collection practices, according to Irfan Syauqi Beik, a lecturer at Bogor Agricultural University.

Indonesia is the world’s biggest producer of palm oil and the third-largest grower of rice. Agriculture contributes about 15 percent to gross domestic product, Beik said. About 40 percent of the nation’s 116 million total workers are engaged in farming, he added.

People in poor communities don’t typically have collateral to put up for loans so they turn to wealthy individuals or money lenders, Beik said.

Mudarabah provides a means of financing that avoids the payment of interest, which is banned under Islam. The contracts, whereby one party gives capital and the other labor, are ideal for the farming industry because of their profit-sharing nature, according to Mulya Siregar, director of Islamic banking at the central bank.

“The beauty of profit-and-loss sharing is that banks and the farmers are partners. It’s not simply a debt, but both parties bear the risk together,” he said.

Soegiarto Pribadi, from BCA Syariah, said the bank was targeting well-established businesses with good track records.

Indonesia has 11 Islamic banks. Total assets for the industry rose to Rp 100.3 trillion last year from Rp 67 trillion at the end of 2009, according to BI data.

“There is certainly an opportunity for the Islamic banks, but not without challenges,” said Anton Gunawan, chief economist at Bank Danamon Indonesia. “What is important for lower-income people in farm areas is accessibility and speed of getting loans.”

Bloomberg 
Source : http://www.thejakartaglobe.com/business/shariah-banks-look-to-farmers-in-an-effort-to-grow-lending/428102 - March 10, 2011