Indonesian bank to offer public shares in its Islamic finance arm

Jakarta

ONE of Indonesia's largest banks said it would sell shares to the public this month in its Islamic finance division - in part because it would help the lender cope with fast accumulating piles of money from customers eager to save for pilgrimages.

BRISyariah, a subsidy of state owned Bank Rakyat Indonesia (BRI), says its customers are ploughing an estimated 2 trillion rupiah (S$184 million) into savings accounts earmarked forhajj pilgrimages to Mecca.

The bank estimates that, within five years, such deposits will eclipse all other savings at the bank, which currently stand at over 26 trillion rupiah.

"The savings are growing fast," Muhammad Hadi Santoso, BRISyariah's president director, told The Business Times in a recent interview. "It's a nice problem to have."

Known as dana hajj, the savings amount to a S$9.5 billion pool of capital that accumulates every year among the 31 lenders that the government allows to collect the money.

Indonesia's government has recently restricted the savings to syariah banks - those that lend and pay returns without charging interest.

The trouble is, outside of government sukuk bonds, which comply with this practice, lenders have few options to reinvest the funds.

That means that depositors can expect little if any return on the better part of what would amount to a year's salary for many here.

The funds are typically tied up for at least 15 years before being cashed out to pay for the pilgrimage.

"It's very cheap cost of capital," Mr Hadi said. "We must find ways to use it."

The lender expects to raise 5 trillion rupiah in paid-up capital, paving the way, under Indonesian regulations, to launch its own third party Islamic financing funds.

BRISyariah expects to raise as much as S$156 million by selling a 27 per cent stake in the bank. The preliminary offer period wraps up on April 20, with the share sales slated early next month.

The lender also hopes to use the funds raised to ratchet up lending into the online shopping and infrastructure projects.

The investment bottlenecks are a reality check on the so-called halal economy.

Although much discussed for its potential, says Febrio Kacaribu, research fellow at the Institute of Economics and Social Research, it remains only a tiny portion of the overall economy.

One example is the fact that less than 6 per cent of all assets under management are owned by syariah banks.

"Indonesian middle income households, who are the main spenders in the economy, tend to have a Western lifestyle," Mr Kacaribu said. But religious leaders make matters worse by taking a hard line on how the money is to be used.

Until recently, they baulked at letting the government channel any of its 100 trillion rupiah in hajj savings into badly needed infrastructure projects on worries that they were too risky.

Even so, last year may have seen a breakthrough of sorts when state owned toll road operator Jasa Margo issued sukuk bonds to help its future financing needs.

For now, though, government Islamic bonds are the main investment vehicle for hajj savings. As of the end of last week, it held 8.7 trillion rupiah, up from 7.4 trillion rupiah at the end of 2017.

Tapping into hajj savings amounts to cheap capital that is unlikely to be withdrawn prematurely. At least saving for the main pilgrimage is to Mecca is a requirement for all Muslims.

Amassing the minimum of 25 million rupiah required to take the pilgrimage does not ensure departure will soon follow. This year, Saudi Arabia will allow Indonesia, with about 220 million Muslims, only 228,000 slots. That means waits of anywhere between 15 and 30 years for many.

Expanding investment opportunities for hajj savings that are in line with Islamic traditions may help lift returns and make saving for the important trip just a little easier for people like Ning Suwarno.

The 40-year-old housewife stashes away about 1 million rupiah a month into a hajj fund at BRISyariah's bigger rival, Bank Mandiri Syrariah.

She hopes to have enough sometime next year, when she will register for a slot.