www.businessislamica.com - Tony Hidayat - In Indonesia’s banking industry the size of Islamic banking is still
small. In January 2012, the assets of Indonesia’s banking industry
reached Rp 3,598 Trillion, while the assets of Islamic banking at the
same period only reached Rp 144 Trillion, or a share of only 4%.
One of the reasons behind this is the limited existence of an Islamic
banking office network. An office network—which consists of a branch
office, sub-branch offices and cash offices— is the center of banking
transactions and the proximity of the bank becomes the customer’s
dominant factor for using its banking services. In January 2012, the
office network of national banking was up to 14,820 branches, while that
of the Islamic banking only reached 1,943 branches. (source)
Fortunately, Islamic banks can implement certain regulations which
allow them to perform Islamic banking services within their parent
bank—which is a conventional, helping increase their market share in the
scope of things. The Shari’ah Service in a parent bank is divided into Delivery Channel and Office Channeling. Delivery channel is a Shari’ah Service that is performed by an Islamic commercial bank within a parent bank, while Office Channeling is done by the Islamic Business Unit in the parent bank.
The Shari’ah Service follows the Islamic windows system in
Malaysia, where the Islamic bank’s product is sold through the parent
bank. Even though Islamic banking products can be sold in the parent
bank, the Islamic bank cannot sell their parent bank’s products.
By early 2012, Shari’ah Services counters in the form of Office Channeling existed in 1,277 branches. Whereas the Delivery Channel— newly done by BRI and BNI Syariah—was already in existence in around 700 branches.
Compared to when there was no Shari’ah Service policy, the
number of national banking office networks now reaches 8,236 branches
compared to only 458 branches in 2005. At that time, the national
banking assets reached $1,470 billion while the Islamic banking assets
only reached Rp 20.9 billion. In other words, the market share of
Islamic banking when there were no Shari’ah Service policy reached 1.42
percent.
Indeed, the growth of Islamic banking assets is still dominated by
rapid organic factors, which is the establishment of Islamic banks. But
it can’t be denied that the existence of Shari’ah Service is
instrumental in increasing the market share of Islamic banking. In fact,
one of the Islamic Business Units, Permata Bank Syariah, in 2010, had
60% of their deposits obtained from their Office Channeling (Republika,
27/12/2010).
Shari’ah Service policy began in early 2006 via the PBI No.
8/3/PBI/2006. Currently, there are 24 Islamic Business Units that have
been implementing Office Channeling with the amount of Office Network reaching 1,277 branches. This number increased rapidly compared to six years ago when Office Channeling
was first introduced. At that time, it was just 10 Islamic Business
Units with the number of office networks as much as 456 branches, so
over six years there was an expansion of about 180 percent.
Later on, the success of Office Channeling (which is reserved only for Islamic Business Units ) was modified by the Bank Indonesia by issuing Delivery Channel Policy. A Delivery Channel allows the Islamic Commercial Bank to sell its products in their parent bank, but not vice versa.
The Benefits of Shari’ah Services
The Shari’ah Service provides many advantages, both for the Islamic banks as well as their parent bank, including:
First, Increase the market penetration of Islamic banks. Islamic banks can widen the business area and reach areas that don’t have Shari’ah banking branches.
Second, Increase in productivity and efficiency.
Islamic banks can extend the office network with a low investment cost.
This will increase the productivity of business and cost efficiency
such as human resources cost, operational cost, venue cost, etc.
Third, Harness the power of parent company’s brand.
Islamic banks can utilize the brand image of their parent company to
more easily reach new customers, primarily through walk-in customer
traffic.
Fourth, Islamic banks can manage the existing parent bank’s customers. Well, for this one, the parent bank need not worry of the risk of customer removals (displacement risk) to Islamic banks.
Fifth, Helping raise low-cost funds i.e. savings. It will lead to the boosting of low-cost funds from retail customers such as savings
Sixth, to help increase Islamic Business Unit assets before the deadline to spin off implementation in the year 2023.
Whereas for the parent banks, the provision of these services also provides a variety of benefits like such as:
First, Get the Fee Based Income
from the Venue Fee from providing an Islamic banking counter and from
the administration fee of Islamic bank’s sold products.
Second, Precaution against the move of
parent bank’s customers to another Islamic bank (outside the group of
companies). The Parent bank can direct its existing customer base into
the Islamic bank within the group.
Third, Risk Control becomes easier because the Islamic bank and parent bank are still in the same group. Because the shareholders are the same then the decision making processes and policies can be done more quickly.
Fourth, it represents an alternative in the achievement of business targets. Employees of parent bank who become the key persons or person-in-charge in the Shari’ah Service have more choices in achieving their business targets thus helping improving their performance appraisal.
Optimization of Shari’ah services
In order to guarantee the Shari’ah service can be
carried out optimally, there are several requirements that must be met.
These requirements include, among others:
First, The human resources of parent bank who become the key people behind the Shari’ah Service should have good knowledge of Islamic banking products.
Therefore, the Islamic bank must facilitate the granting of effective
and periodical Islamic banking product training for the key person.
Second, Islamic banks must have IT systems that are integrated with the parent bank’s IT systems in order for the transaction of Shari’ah Service to be recorded in real time and online at Islamic banks.
Third, Effective social networking
needs to be done to inform society—especially the existing parent bank’s
customers— of the existence of Shari’ah Services at conventional banks.
Fourth, to support the effectiveness of Shari’ah Service, intensive controls need to be implemented. For example, the Islamic bank should provide a Quality Assurance or a Shari’ah Service manager dedicated to the control of the Shari’ah Service.
Fifth, improve the competitiveness of the Islamic bank with the parent bank
Shari’ah Service is a new service strategy
that must be adopted by Islamic banks in Indonesia. Islamic banks
should be able to convince their parent bank to open the Shari’ah Service.
On the other hand, parent banks should also look at the wider
interests, i.e. shared interests of the group. The Parent bank must not
assume that Shari’ah Service is a competitor, but rather a complimentary service to it. In the future, if run optimally, Shari’ah Services
will improve the Islamic banking market in Indonesia so that Islamic
banking would be instrumental in the development of the national
economy.
About Author
Tony Hidayat is an Islamic Bank Researcher and Strategic Analyst. He
has a bachelor’s degree of economics from the University of Malaysia. He
can be reached at: tonihidayat@gmail.com or by calling +62817 798 271, +621 9111 7908
Source: http://businessislamica.com/2012/07/12/the-shariah-service-in-indonesias-conventional-banking-system/ - July 12, 2012
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