Challenges of Islamic Banking in 2016

Increasing competition in the financial services industry will negatively affect the performance of Islamic banking because it is still constrained by several problems such as lack of capital, financial resources, human resources and IT are not needed. Rezkiana Nisaputra

Jakarta-Islamic banks are expected to contribute in supporting the economic transformation in productive economic activity, high value-added and inclusive, especially by exploiting demographic dividend and the prospect of high economic growth, so the role of Islamic banking may seem significant for the community.

The greater the growth of Islamic banking, the more people who are underserved. Ever expanding range of Islamic banking Islamic banking showed greater role for the economic development of the people in this country. Islamic banking should appear as the front guard or a locomotive for the realization of financial inclusion.

But in its development, Islamic banking faces a number of challenges that must be faced with a wide range of strategic measures. Therefore, it is expected the national economy in 2016 will be recovered, especially with the number of infrastructure projects and improvements in the central and local government budget absorption.

Chairman of the Indonesian Association of Islamic Economics (IAEI) Agustianto Mingka assess, in the construction of infrastructure projects are being intensively implemented by the government, should be able to take the role of Islamic banking. In this case the Islamic banks can perform a nice fellow syndicated financing Islamic banks as well as join (syndicated) with conventional banks.

It is predicted that in 2016, the growth of Islamic banking assets estimated to be around 15%. Thus the growth of third party funds (DPK) and the financing is still around in these figures. Although Islamic banking asset securitization program will be conducted in Indonesia on Islamic banking, it seems, is the new road program in early 2017, but the agency issuing the EBA SP Sharia move faster.

He revealed that in 2016 will be marked by the level of the financial services business competition intensifies, because the entry into force of the ASEAN Economic Community (AEC) which for the banking industry it is stated in the ASEAN Banking Integration Framework (ABIF). Increasing competition in the financial services industry will negatively affect the performance of Islamic banking because it is still constrained by several problems such as lack of capital, financial resources, human resources and IT are not yet qualified.

Meanwhile, in order to develop the banking industry syariahu to be a superior player and play a significant role in Indonesia, there are some strategic challenges and which should be a priority for the Islamic banking stakeholders. First, the innovation of financial products and Islamic banking which is the main pillar in the development of Islamic banking industry.

Islamic banks need to have innovative products that are increasingly diverse in order to develop properly. This effort is absolutely necessary because Islamic banks lately experienced a slowdown in growth and even decline in market share compared to the conventional. Islamic bank product innovation is a necessity, so that Islamic banks can re-grow and compete with conventional banks and other institutions.

Actually a lot of profitable business opportunities for Islamic banking, such as international trade finance, sindicated financing, Margin During Construction (MDC), hybrid take over and refinancing, factoring, KPRS pivot, financing reimburs, IMBT and Ijarah Maushifah fizz Zimmah, and Musharaka Mutanaqishah. Akad Mutanaqishah Musharaka can be applied in 11 product and business needs of customers.

"But until now Islamic banks generally do not develop these products, sehinngga products is still very limited. In the future, particularly in 2016, Islamic banks should develop creative and innovative products for example by applying musyarakah mutanaqishah, "said Agustianto some time ago in Jakarta.

Then the second challenge, asset securitization Islamic Bank. One key to success is a Sharia mortgage securitization (tawriq) asset. Securitization will increase the availability of funds to Islamic banks. In this concept of asset securitization, Islamic banks transform risky assets (financing) in the form of cash (fresh money) which can then be used for business expansion and can also be channeled back to those who need funds. The fresh money obtained from an agency issuing the EBA buy productive assets of Islamic banks.

"The advantage of this financing securitization, among others, banks do not have to wait much longer (10-15 years) to get back the funds already disbursed to customers, especially long-term financing such as mortgage financing," he said.

During this time the use of securitization in Islamic banking has not received significant attention and has not practiced, because there are no regulations and the needs of Islamic banks would securitization is not urgent. At the end of 2015, the Financial Services Authority (FSA) issued regulations on securitization to penerbiatan Secured Asset Securities (EBA) Syariah through POJK No. 20 in 2015.

Publishing product EBA Islamic Participation Letter will address gaps Islamic banking assets and liabilities in housing finance. Islamic banking in Indonesia is expected to utilize products EBA-SP sharia for funding, so that the Islamic banks can perform more comprehensive financing expansion or network expansion.

The third challenge Islamic banking, is concerned about the quality of assets. All banks in Indonesia, both conventional and Islamic hit by a slowdown in lending growth and accompanied by increasing the ratio of nonperforming loans (non-performing loans / NPL for banks konvensinal and NPF for Islamic banking). This is because external stress factors, such as the weakening of the Chinese economy and uncertainty of Fed interest rate that they will affect the domestic economy, including the banking sector which is closely linked to the financing of the real sector.

Therefore, Islamic banks must remain alert to the upward trend in next year's financing problems that affect the quality of assets. Conventional banks are also facing serious challenges of credit quality. Of the various media, all state-owned Bank President stated that the main challenge in 2016 is about the quality of credit (financing).

Thus, in 2016 the management of financing problems remain the biggest challenges for Islamic banks to the front. To face these challenges, the Islamic bank should continue to tighten underwriting standards and proactively monitor customers in industry sectors affected by the general economic slowdown.

For that Islamic banks, should form the rescue division completion of financing problems. Islamic banks should improve the competence of its human resources in order to overcome financing problems and is able to restructure the financing by sharia. "Going forward, we not only equip HR experts and competent in the field of restructuring financing, but also experts in preventing the occurrence of financing problems," he explained.

While the fourth challenge, namely to strengthen the capital and business scale of Islamic banks. Islamic bank capital needs to be significantly strengthened so as to have sufficient scale effort to expand. To achieve that, the FSA has encouraged Conventional Parent Bank's commitment to optimize its role and increase its commitment to develop Islamic banking services to achieve a minimum share of above 10% of the assets BUK parent.

The role is a form of business process development activities leveraging between Islamic banks and financial institutions in the same group as integrative efforts. Strategy leverage this model is very significant in enhancing the competitiveness of Islamic banks and BUS BUK competitors in regional markets that have economies of scale and high efficiency. In addition to enhancing the competitiveness that is also quite important, this program will significantly reduce operating costs.

In addition, in order to strengthen its capital, banks are expected to be more active Sharh offer shares to the public, especially to retail investors expected increasing in line with rising middle-income groups to the top. In line with an offer to the public, the bank's shareholders expected to remain the controlling institutions to participate in providing additional capital.

The fifth challenge faced by Islamic banking is competition in collecting customer funds, especially low-cost funds (CASA). So far, Islamic banks is still low-cost composition in terms of funding, such as current account deposits. According to the data, the fund's bank Sharh of 8%. Pesaingan DPK not occur with conventional banking institutions but also occurs with non-bank financial institutions (IKNB) such as takaful and mutual funds. Therefore, the last few decades of commercial banks began looking for non-deposit funding sources.

Third party funds for the banks is like blood, without which the banking institutions will be lethargic and listless. Therefore, Islamic banks should be able to dig and get cheap funds. In addition to giro wadiah, waqf funds should be achieved and maintained sharia banks in significant amounts. The government in this case the director general of the tax should provide intensive to the placement of funds in the bank waqaf Sharh form of tax exemption.

"Strange, if the government freed pensun funds from taxes, while waqaf whose function is obviously to worship and social representing the proceeds belong to God, and then charged to tax as ordinary funds," he explained.

Financing challenges will also be faced by Islamic banks, namely the emergence of financial institutions foreign multinational purchase (acquisition) of private finance companies in Indonesia. Banks or Financial Institutions foreign excess cost funds, such as Japan. The interest rate they offer to finance companies is very low, so that the Islamic banks far less than the pricing of the multinational banks.

"Islamic banks should be included in the management of funds both central and local government, including funds of SOEs and enterprises," he added.

The sixth challenge, namely the strengthening of human resources. In the development of Islamic banking is the main pillar of human resources. Provision of competent human resources with a sufficient amount into an absolute demand for Islamic banks, especially in the face of the MEA. Therefore, management of Islamic banks should prioritize the creation of a competent and qualified human resources to continue to conduct training and workshops or graduate school.

"HR quality Islamic banking is a force that can promote the growth of Islamic banking business," he said.

While the latter challenge, is to improve the technology of Islamic financial system. Classic problem that should not be overlooked, even should the priorities are the technological aspects. These aspects should be a major concern Sharh bank. Islamic banks should invest danaya in the provision of information technology (IT). In the midst of the current era of digital financial use of IT in business processes has been expanded and became a necessity.

Current consumer trends have made the Internet become one of the main needs. It can be seen from a surge in Internet users, especially during the era of smartphones today. Related to these developments, Islamic banks can not miss in upgrading the technology used. The benefits that can be perceived by Islamic banks with cutting-edge IT systems is an increase in the number of customers and cost efficiency.

"If these things can be achieved then the performance of Islamic banks will be better next year," said Agustianto.

Meanwhile, Head of the Department of Islamic Banking FSA Ahmad Buchori once said, a number of factors have influenced the development of Islamic banking in 2016 are getting better when compared with 2015. Among them is the increased economic growth.

"That obviously will be driven by economic growth, next year there is also a convertible Bank Aceh it will definitely push the share of Islamic banks. We hope also to be formed National Committee for Islamic finance, so it will encourage Islamic banks to grow more rapidly. In addition, Bank Syariah Mandiri already BOOK 3, so the chances of their activities more diverse, "he said.

Related market share of Islamic banking, Buchori said that until October 2015 the FSA noted the share of Islamic banking is still below 5%. However, the FSA remains optimistic to reach the target market share in 2016. "For our market share next year are more optimistic due to the projected growth in almost all institutions expect economic growth will be higher in 2016," said Buchori.

On average, he explained, in 2016, Islamic banking is expected to grow between 12% -13%. "Not daring growth target to above 20%. Current consolidation phase is nearing completion and next year already started to rebound. Clearly 2016 will be higher than 2015, "he said. (*)