Report of The 2ND D-8 Working Group on the Development of Islamic Financial Services Industry Workshop on The Role of Islamic Microfinance in Economic Prosperity and Community Empowerment
11-13 NOVEMBER 2011 JAKARTA, INDONESIA
Agenda Item 1: Welcome and Opening Remarks
1.The Islamic Banking Directorate of Bank of Indonesia and BRI Syariah as co-hosts organized the Workshop on the Role of Islamic Microfinance in Economic Prosperity and Community Empowerment from 11-13 November 2011. The workshop was attended by delegates from the following 6 member countries of the D-8: Republic of Indonesia, Islamic Republic of Iran, Malaysia, Federal Republic of Nigeria, Islamic Republic of Pakistan, and the Republic of Turkey. Also the Secretary-General of the D-8, Dr. Widi A. Pratikto, attended the Meeting. The full list of delegations is attached as Annex I.
2.The Director of Islamic Banking Directorate, Bank of Indonesia, Dr. Mulya E. Siregar, welcomed the participants to the Meeting. He highlighted the role of the Islamic finance, particularly the Islamic micro institutions which aimed at improving economic prosperity empowering people. The text of his welcome remarks is attached as Annex II.
3.The D-8 Secretary-General, Dr. Widi A. Pratikto, underlined in his opening remarks the importance of Islamic finance and the need for a strategy for developing inter-linkages among D-8 member countries, banking institutions in particular. As noted by him, the growing demand for Islamic finance has increased and conventional players have been urged to develop and expand the market share of Islamic finance banking. The text of his speech is attached as Annex III.
4.The workshop was officially opened by the Deputy Governor of Bank of Indonesia, Dr. Halim Alamsyah. In his keynote speech, Mr. Alamsyah emphasized that the Islamic micro finance in Indonesia is driven mostly by the Islamic rural banks (BPRS) and Baitul Maal wa Tamwil (BMT). In his view, the role of universities also needs to be enhanced and improved to find the most ideal concept of Islamic microfinance. Furthermore, the Islamic microfinance has contributed to wealth distribution and increased economic prosperity by providing access to funds for the communities in need through microfinance based on Sharia principle. The text of his speech is attached as Annex IV.
Agenda Item 2: Adoption of Agenda
5.The agenda was adopted without any amendment (Annex V).
Agenda Item 3: Islamic Banking Development and Islamic Microfinance in Indonesia: Policy, Concept, and Practices
6.The Director of Islamic Banking Directorate, Bank of Indonesia, Dr. Mulya E. Siregar, briefed the participants on the development of the Islamic banking in Indonesia. He stated that due to the global financial crisis in 1999, the major conventional banking institutions suffered significantly except for the Islamic banking institutions. Since then, Indonesia has further developed the experience with Islamic banking through the establishment of Bank Muamalat, BRI Syariah, and Bank Syariah Mandiri. In recent years, Islamic banking in Indonesia has grown in number significantly; from 5 banks in 2008 to 11 banks in 2011. Islamic Banking in Indonesia is a part of an overall policy on micro banking as an alternative in business financing, which is closely linked with the social program based on Corporate Social Responsibility (CSR) as reflected in such projects as the social fund and BMT. The presentation is attached as Annex VI.
Agenda Item 4: Conventional Microfinance in Indonesia (banking type): Policy, Concept and Practices
7.The Director of Credit, Rural Bank, and MSME Directorate, Bank of Indonesia, Mr. Edi Setiadi, enumerated the following criteria for the operation of rural banks in Indonesia: to be established and owned by Indonesian citizens; to be located closely to the community in remote areas; establish and implement simple procedures for provision of services; concentrate on the provision of short-term loans and deposits; and also focus on micro business sector such as agricultural and Small Medium Enterprises (SMEs). In his view, the role of rural banks in Indonesia is an intermediation of financing and building a strong community-based bank as well as focusing on accessible and efficient microfinance. The presentation is attached as Annex VII.
Agenda Item 5: Implementation of Modified Conventional Microfinance Model through Islamic Microfinance in Supporting SMEs
8.The Director of BRI Syariah, Mr. Ventje Rahardjo, stated that Bank Rakyat Indonesia Syariah (BRI Syariah), a subsidiary of PT, had been established in January 2009, BRI which is a pioneer of micro banking in Indonesia. Furthermore, he elaborated on the products of BRI Syariah; consisting of funding, lending, banking transaction, and also wealth management such as takaful, asset management, as well as gold-related business. BRI Syariah is an autonomous financial unit approaching rural areas with Islamic banking system. The presentation is attached as Annex VIII.
Agenda Item 6: The Role of Universities in Developing Concept, Entrepreneurship and Human Resources in Islamic Microfinance
9.The Director for Islamic Economics and Development Studies (CIEDS) of Universitas Islam Indonesia (UII), Yogyakarta, Mr. Mohammad Bekti Hendrie Anto, underlined the importance of micro financing as a tool to alleviate poverty in developing countries, especially since around 70% of employment came from small businesses. He stated that currently the Government of Indonesia pays special attention to Islamic micro finance through supporting research in this field in universities as well as in other finance institutions. As the oldest university in Indonesia, the UII focuses on the development of the Islamic micro finance by conducting research in order to educate people and also to facilitate building a better micro finance system for the entire community. The presentation is attached as Annex IX.
Agenda Item 7: Country Presentation and Discussion on Islamic Microfinance: Malaysia and Turkey
10. The Malaysian presentation introduced country’s dual financial systems: the conventional system and the Sharia system. The Islamic micro finance in Malaysia aims at improving the economic well-being and the quality of life by actively promoting savings, investment, and the practice of financial management as well as providing the facilities. The presentation is attached as Annex X.
11. The Turkish presentation informed that the Islamic banking system has been implemented in Turkey since 1980s and it is still growing. At the beginning, the focus was to develop the money market in short-term loans. Moreover, micro finance in Turkey has been expanding also due to the trend of economic growth and growing general prosperity. The presentation is attached as Annex XI.
Agenda Item 8: Government’s Policy and Regulatory Framework in Supporting Islamic Micro Finance Development
12. The Deputy Minister for Financing Affairs, Ministry of Cooperative and Small Medium Enterprises (MCSMEs), Dr. Ir. Pariaman Sinaga, highlighted the current status of cooperatives and SMEs in Indonesia. He stated that in order to achieve prosperity, economic opportunities need to be provided widely to the entire community, especially to the poorer segments of the society. Government support is essential through the management training, promoting ways of entrepreneurship as well as assisting in technical skills. The presentation is attached as Annex XII.
Agenda Item 9: The Role and Practices of “Non-Islamic Micro Finance Bank” (BMT) in Empowering Community Development
13.The Chairman of the Board of Trustees of Baitul Maal waa Tamwil (BMT), Mr. Saat Suharto Amjad, informed that BMT had been acting as a micro finance institution since 1990s. BMT is a cooperative legal entity established by the authority issued by the Ministry of Cooperative and SMEs and has became a means for its members to conduct financial management for many purposes, such as short- and long-term deposit, housing, and education. The presentation is attached as Annex XIII.
Agenda Item 10: The Role and Practices of Linkage Program by “Islamic Commercial Bank” in Supporting Finance to “Islamic Rural Bank”
14.The Senior Vice President of Bank Syariah Mandiri (BSM), Mr. Eka B. Danuwirana, underlined in his presentation on the importance of according priority to consumer funding and micro as well as SMEs financing. Linkage program in BSM is a mutually beneficial cooperation between commercial and rural bank in creating a harmonious market. The presentation is attached as Annex XIV.
Agenda Item 11: The Role and Practices of “Islamic Rural Bank” in Supporting Small Enterprises
15.The Director of BPRS Harta Insan Karimah, Mr. Alfi Wijaya, informed that the BPRS was established in September 1993 and by December 2010, the number of shareholders had grown to 243 people. The Bank’s mission is to contribute to the Indonesian economic development through the national Islamic micro finance network. The presentation is attached as Annex XV.
Agenda Item 12: The Role of Foreign Investment through “Indonesian Islamic Bank” in Supporting Islamic Microfinance
16.The representative of Bank Muamalat, Mr. Ma’mun Zuberi, stated that micro finance in Indonesia is one of the largest in the world with more than 50,000 micro finance institutions (MFIs). In his view, the main challenges currently faced in enhancing micro finance are to be found in these areas: compatible information technology, human resources development, provision of assistance and expertise from the relevant regulatory body. The presentation is attached as Annex XVI.
Agenda Item 13: Country Presentation and Discussion on Islamic Microfinance: Pakistan, Nigeria, and Iran
17. The Pakistani representative informed about the structure of the financial system in Pakistan. He explained the framework of Islamic finance and pointed out that Islamic bank co-exists with the conventional banking system. He further highlighted the Islamic micro finance system and emphasized that the overall mission in the country has shifted from poverty alleviation to financial inclusion. His presentation also included suggestions for solving the problems of Islamic micro finance in Pakistan, including introduction of the framework of micro finance module on real business. The presentation is attached as Annex XVII.
18. The representatives of Iran stated that the Iranian banking system had changed from conventional to Islamic methods since the revolution and the government has adopted the Act of Banking without Riba. The presentation also drew attention to the existence of micro credits institutions in the country such as Banks, Qards Hasana [Charity] Funds, Credit Association, Behzisty [Well-being] Organizations, and Imam Khomeini Emdad [Relief] Committee. The presentation is attached as Annex XVIII.
19. The representative of Nigeria presented the framework of non-interest banking in Nigeria which included Islamic finance banking as well. He also explained the reasons why in Nigeria the use of the term “non-interest banking” was found preferable to “Islamic banking.” He also laid down the framework of regulation and supervision of institutions of non-interest financial services in the country. The presentation also included suggestions on the way forward for non-interest banking system in Nigeria. The presentation is attached as Annex XIX.
Agenda Item 14: Closing Remarks
20. The Bureau Head of Islamic Banking Regulation, Development and Research of Islamic Banking Directorate, Bank of Indonesia, Mr. Tirta Segara, made the closing remarks on behalf of Dr. Mulya E. Siregar, the Director. (Annex XX).
Agenda Item 15: Date and venue of the next D-8 Working Group on the Development of Islamic Financial Services Industry
22. The date and venue of the next meeting of the Development of Islamic Financial Services Industry will be pursued through further diplomatic exchange and will be communicated to the Member Countries as soon as decided.
Agenda Item 16: Consideration and Adoption of the Report
24. The Meeting considered and adopted the Report of the 2nd D-8 Working Group on the Development of Islamic Financial Services Industry.