BRI Syariah, a subsidiary of state-owned Bank Rakyat Indonesia, has launched a new product that allows its customer to buy gold in installments, in a bid to draw broader segments of the population to Islamic banking.
The bank plans to provide Rp 400 billion ($46.4 million) in financing for customers to buy gold, president director Ventje Rahardjo said on Wednesday. (source)
The bank plans to provide Rp 400 billion ($46.4 million) in financing for customers to buy gold, president director Ventje Rahardjo said on Wednesday. (source)
The first scheme of its kind in Indonesia, Precious Metal Ownership (KLM) is intended to appeal to the young, middle-class population because of its long-term investment appeal, with customers able to pay in installments from six months to 15 years, Ventje said.
“Imagine that in 1998 gold was around Rp 78,000 per gram, and now it’s already over Rp 400,000 per gram,” he said. “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.”
The product utilizes two Shariah contracts, qardh and ijara . Under qardh, the bank loans money to the customer to buy the gold, and the debtor is only required to repay the amount borrowed. The customer must keep the physical gold in the bank’s vault which, under ijara, is rented out by the bank.
Islamic finance must match the level of service and innovation of conventional banking, Ventje said, and that means taking unique approaches.
“I think the ‘hardcore’ Shariah market is finished,” he said, “For Islamic banking to expand, it has to see itself as part of overall banking, not as an alternative.”
Total Islamic lending in Indonesia reached Rp 75.7 trillion by the end of April, compared with Rp 1,843.5 trillion in conventional banking, according to Bank Indonesia data.
At the end of May, BRI Syariah’s total financing was almost Rp 6 trillion, about a third of which came from consumer financing. Ventje said the bank wants to reach Rp 9 trillion in financing by the end of 2011. The high target will erode the lender’s capital adequacy ratio to 15 percent by the end of this year, he said.
As of May, its capital adequacy ratio was at 20 percent. Although the bank has the full support from its parent company, it did not rule out selling sub-ordinated sukuk to bolster its capital.
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