BANKING - All that glisters for Bank Rayat Syariah

Local press is reporting that Indonesia’s Bank Rayat Indonesia Syariah – the Shari’ah compliant subsidiary of stateowned Bank Rayat Indonesia – has launched a new product that will allow customers to buy gold
as an investment in installments.

BRI Syariah hopes that by offering customers the opportunity to buy the physical commodity in small quantities as an investment that it would be able to attract new people from a broader demographic
into the Islamic banking fold. (source)
Ventje Rahardjo, BRI Syariah’s president director told The Jakarta Globe that the bank would offer up to IDR400bn ($46.4m) in total financing for customers to buy gold, with wannabe investors able to pay
in installments of between six months and 15 years.


However, the attraction of this fund is that investors can lock in today’s spot price for gold and then phase their repayments over an extended time period. Rahardjo said: “Imagine that in 1998 gold was around IDR78,000 ($9.09) per gram, and now it’s already over IDR400,000 ($46.65) per gram.”


He continued: “How many have regretted not buying it at that time? With this facility, customers can buy gold at the current price and pay that in monthly installments.” One word of caution though is that the price of gold is currently at a historical high, and although the signs are there that the value of gold will continue to increase, investors do risk locking in an artificially high price – which they will have to repay. Although similar funds, of a Shari’ah compliant and conventional nature, have been established in gold-mad India and the GCC, this is the first time that a fund of this nature has been launched in South East Asia.


The new fund will utilize both Qard Hasan and Ijarah contracts. First the investor would take out a Qard Hasan, or short-term funding loan, to buy the gold. The investor would then immediately deposit the
gold in the bank’s vault, and the bank would then use an Ijarah contract to ‘rent’ out the gold to other financial institutions.


The investor would only need to repay the amount of the loan he took out. Rahardjo thought that this product would appeal to Indonesia’s burgeoning middle classes, as they had increasing disposable income and werelooking for easy to understand, low risk and accessible investment opportunities. A gold fund ticked all of these boxes. He said: “I think the‘hardcore’ Shari’ah market is finished. For Islamic banking to expand, it has to see itself as part of overall banking, not as an alternative.”

In other news BRI Syariah is considering the issue of Sukuk in the next one to two years to support expansion Rahardjo said.

At the end of May, BRI Syariah’s total financing was almost IDR6tr ($700m), about a third of which came from consumer financing. Rahardjo said the bank wants to reach IDR9tr ($1.1bn) in financing by the end of 2011. This will erode the lender’s capital adequacy ratio to 15% by the end of the year, Rahardjo claimed.