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Hedge Fund Monthly
Islamic Financial Products in Indonesia
Bernardo Vizcaino, Eurekahedge March 2007

Being the world’s most populous Muslim nation, Indonesia is certainly a market that gathe rs a lot of attention in this developing industry. There is no lack of interest as it presents a sizeable marketplace (a population of 242+ million) and caters to the growing appetite for emerging market products (forecasted GDP growth of close to 6% for the next five years).

Indonesia has also recently revamped its regulatory framework through its supervisory body (Bapepam) as it pertains to these financial products and services. Indeed topics addressed by the regulator in the last 12 months alone range from capital adequacy in Shariah-based banking as well as conversion of commercial banks from conventional into Shariah-based operations.

Financial Institutions

There is roughly a dozen Islamic fund houses managing Shariah-compliant funds in the country (as seen in Table 1), with several more in the pipeline. They are also serviced by a variety of financial institutions providing other types of Islamic products – take for instance, the custodial services offered by Bank Niaga, Deutsche Bank and BNI. The number is indeed respectable but it must also be placed in context, in particular, when considered against the number of conventional products already in the market. However, it is interesting to note that for the most part all of them are indigenous to the country and this in turn presents a rich source of local talents, as they have been able to develop Shariah products locally and independently from other markets. This is also a departure from other Islamic markets where local players are up face-to-face with either regional or global institutions that have
Table 1: Shariah-based Asset
Managers in Indonesia
AAA Securities
Bhakti Asset Management
BNI Securities
KRESNA Securities
Lautandhana Investment Management
Mandiri Securities
PNM Investment Management
Recapital Asset Management
established operations and are actively competing for market share. Indonesia certainly lives up to expectations as an untapped marketplace.

Mutual Funds

The above fund houses have developed a rather young range of Shariah-compliant mutual funds. These have, on average, three- to four-year track records and a relatively small asset size (average not more than US$2 million) compared to their Malaysian or Saudi Arabian cousins – partly due to their focus on local investors. Table 2 below provides a sampling of these funds with some performance statistics. As emerging market products, they have certainly exhibited high volatility (with an average 8.96% standard deviation for the sample) although this risk has offered equally high returns (average of 19.87% year-to-date returns for these seven funds).

Table 2: Sample Shariah-compliant Mutual Funds
Fund Name
YTD (%)
Annualised Return
Ann Std Deviation
Inception Date
AAA Amanah Syariah
Jun 2005
BIG Dana Muamalah
Jun 2006
Insight I-Hajj Syariah
Jan 2005
IPB Syariah
Dec 2005
Lautandhana Syariah
Dec 2005
PNM Amanah Syariah
Jan 2004
PNM Syariah
Jan 2004
Source: Eurekahedge

Equity and Fixed Income Securities

The above mutual funds are primarily equity based and operate in a stock market with a market capitalisation of approximately US$81 billion (compared to Malaysia’s US$181 billion and Kuwait’s US$130 billion). The number of stocks remains relatively low with about 380 listed on the Jakarta Stock Exchange but it must be noted that not all of these are Shariah compliant (whereas Malaysia has more than 1,000 stocks with 886 of these being Shariah compliant).

Fixed income securities present a similar picture with a total of 161 listed bonds, with only a smaller portion being Shariah based. Table 3 reviews a shortlist of these bonds, which together have a notional amount of 2 trillion Rupiah (in contrast with the total value of issued bonds of 100 trillion Rupiah).

Table 3: Sample Shariah-compliant Bonds
Name of Securities (Bonds)
Maturity Date
Syariah Mudharabah Indosat
PT Indosat Tbk
6 Nov 2007
Syariah Mudharabah Berlian Laju Tanker
PT Berlian Laju Tanker Tbk
28 May 2008
Syariah Mudharabah Bank Bukopin
PT Bank Bukopin
10 Jul 2008
Syariah I Subordinasi Bank Muammalat
PT Bank Muammalat Indonesia
15 Jul 2010
Syariah Mudharabah Ciliandra Perkasa
PT Ciliandra Perkasa
26 Sep 2008
Syariah Mudharabah Bank Syariah Mandiri
PT Bank Syariah Mandiri
31 Oct 2008
Syariah Mudharabah PTPN VII
PT Perkebunan Nusantara VII
26 Mar 2009
Syariah Ijarah I Matahari Putra Prima
PT Matahari Putra Prima Tbk
11 May 2009
Syariah Ijarah Sona Topas Tourism Industry
PT Sona Topas Tourism Industry Tbk
28 Jun 2009
Syariah Ijarah Citra Sari Makmur I
PT Citra Sari Makmur
9 Jul 2009
Syariah Ijarah Indorent I
PT CSM Corporatama
11 Nov 2008
Syariah Ijarah Berlina I
PT Berlina Tbk
15 Dec 2009
Syariah Ijarah I HITS
PT Humpuss Intermoda Transportasi Tbk
17 Dec 2009
Syariah Ijarah Ricky Putra Globalindo
PT Ricky Putra Globalindo
7 Dec 2010
Syariah Ijarah Indosat
PT Indosat
21 Jun 2011
Syariah Apexindo Prama Duta
PT Apexindo Prama Duta
8 Apr 2010
Source: Bank Indonesia

Future Scope

Islamic finance in Indonesia distinguishes itself for being a homegrown industry and in certain respects has a more developed Islamic market than some of its neighbours (such as Brunei and Singapore). The local financial institutions are well positioned to take advantage of their expertise and match it with a foreign partnership (CIMB and Bank Niaga being examples of this).

The above also indicates there is considerable scope for these products to grow in their share of the market (for instance, Islamic bonds represent only 2% of the total), even more so if one considers the rich source of human capital and fresh regulatory perspective. As an emerging market in every sense of the word, Indonesia does face several challenges in terms of market and credit risk, and transparency, but it does allow for substantial returns for those willing to take the extra step. Watch this space.



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