Halim Alamsyah: Inclusive Islamic financial sector development
Opening remarks by Dr Halim Alamsyah, Deputy Governor of Bank Indonesia, at the
3rd International Conference on Inclusive Islamic Financial Sector Development, Jakarta,
28 August 2014.
* * *
His Excellency: Prof. Dr. Didin Hafiduddin, CEO of National Zakat Authority;
Representative of IRTI-IDB: Prof. Dr. Abdul Ghafar Ismail;
His Excellency: Associate Prof. Dr. Ahmad Zaki Hj Abd Latiff, Director of Institut Kajian Zakat
Malaysia;
Prominent speakers; and,
All participants,
Assalamualaikum Wr. Wb, and good morning to all of you.
It is a great pleasure for me to welcome you in this conference on Islamic financial sector
development in Jakarta and welcome to Bank Indonesia's building.
I am pleased to see that the development of Islamic financial industry could take place in
many frontiers including asset size, products and services, and also financial sectors. This
conference proves the industry's ability to move towards better quality in servicing the
market.
Supported by internationally qualified experts, it is not overdo if I expect at the end of the
session, this conference will produce strategic initiatives and measures to give the Islamic
Finance a greater and significant role in the economic development.
Distinguished Guests, Ladies and Gentlemen,
The 2007/2008 Global Financial Crisis (GFC) has taught us a valuable lesson that merely
depending on monetary policy alone is insufficient to achieve macroeconomic and also
financial system stability. We learned that the source of crisis has shifted from macro side
(fiscal and monetary) to micro side (financial agents). Therefore, it is necessary to
complement monetary policy with microprudential policy and macroprudential policy.
Indonesia has a specific experience on this matter, as we have also been a severe
economic crisis in 1997/1998 that brought a wide-range impact with an expensive cost to
the economy, social and politics. At the time, we had to do a very tough effort to regain
credibility and resources to pursue our target of social welfare and prosperity. This
experience has fortunately brought us to be more alert to financial disturbances, leading us
to come through the GFC relatively unscathed.
Considering those facts, we are very grateful that, as a mandate from G-20 summit, the
Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS) and
other standard-setting bodies are now working hand-in-hand to design a better institutional
arrangement, tools and instruments to promote effective monetary and macro-prudential
policy. In line with that, it is also agreeable that the High Level Committee of the Islamic
Financial Services Board (IFSB) members called for the Islamic Financial System to
strengthen regulatory and liquidity infrastructures as well as building a healthy and
beneficial linkage to the real sectors.
Excellencies, Ladies and Gentlemen,
Besides all the advances in monetary and macro-prudential policies to strengthen financial
stability, we are at the stance that structural policies is also crucial in supporting financial
system resillience. Lesson from the 1997/1998 crises, we learned that micro and small
enterprises were relatively resistant to economic shocks, giving significant contribution to
financial and economy recovery. Hence, structural policies need to be promoted to advance
wealth distribution to more people, particularly low-income class.
In regard to this concept, Islamic social sector that covers Zakat and Awqaf systems can
play very important role in accelerating economic development and supporting financial
stability. In Indonesia, as studied by Bank Indonesia's researchers in 2012, total of all zakat
potential from various sources is approximately Rp217 trillion or equivalent to
USD22.6 billion. This number is equal to 3.4% of Indonesia's 2010 Gross Domestic Product
(GDP). However, the realisation of those potential zakat is still below our expectation. Recent
data recorded only Rp2.7 trillion or 1.2% of total zakat potential has been received. This is
our home-work to explore ways to boost this number.
Unlike the other commercial sources of fund, the zakat funds would never cause
unnecessary burden to the economy since the type of the funds is not commercially
claimable, and hence, no excessive social cost will occur. The same also goes to the Awqaf
sector where, as a matter of fact, more people are endowed with low cost assets. Again,
potential benefits from those assets has not been materialized yet, because most of the
assets are still poorly managed. Based on data from Indonesian Awqaf Board, Awqaf land
has now reached not less than four billions of meter square, a very significant source if we
can optimized them.
With this huge potential of Zakat and Awqaf land, we can expect a significant drive to
economic development. I personally believe that these ideas are in-line with those of the
governments, as well as multilateral development banks (MDBs). For this reason, it is not
surprising if central banks and other regulatory bodies put their attention to enhance zakat
and awqaf system. One of the areas to be improved is the regulatory aspect, which includes
zakat core principles to provide reference for the establishment of zakat system in the OIC
member countries. Financial deepening program in many countries should also promote
product innovation and enhancement to give a wider access to broader segments of people,
which is in line with the program of Islamic Development Bank, African Development Bank,
Asian Development Bank and the World Bank. This in turn will bring substantial benefits to
support national poverty alleciation program.
Distinguished Guests, Ladies and Gentlemen,
Please allow me to close my speech by expressing my appreciation and sincere gratitude to
all speakers and participants for the willingness to join this event. I also would like wish you
all a fruitful discussion and deliberation in this important event. As I mentioned before, I
believe that with the support of internationally reputable academics and market players, we
can reach significant outcomes to promote zakat and awqaf system.
Finally, I am delighted to officially open "the 3rd International Conference on Inclusive Islamic
Financial Sector Development", enjoy the discussion and the rest of session at Bank
Indonesia Museum in the evening. Thank you very much, wassalamualaykum warahmatullah
wabarakatuh.