HSBC Holdings PLC, Europe’s biggest banking company by market value, may become the first foreign company to enter Indonesia’s growing market for consumer loans and financial services that comply with Islamic law.
“We are quite keen to enter the retail market,” Mahmoud Abushamma, the head of HSBC Syariah, the London banking company’s local Islamic unit, said in an interview in Jakarta. “There is a good possibility the bank will enter that area in the next 12 months.”
HSBC already manages $1.75 billion of assets in Indonesia. In October 2003 it became the first foreign banking company to offer companies there financial advice and loans that conformed with Islamic law, which bans the payment of interest and investments in the alcohol, tobacco, and gambling industries.
About 85% of Indonesia’s 238 million people are Muslim. Its central bank expects Islamic-compliant banking assets to expand more than twelvefold by 2011, to $18 billion. “Indonesia has the world’s largest Muslim population, so one would naturally go where the numbers are,” said Kelvin Miranda, who manages $210 million of assets at Asian Asset Management Sdn. in Kuala Lumpur, Malaysia. “Banks want a piece of the pie. Indonesia is a far more positive story now. There is increased investor confidence, and growth is relatively strong.”
Investors said HSBC will probably compete with other Western banking companies, such as Standard Chartered PLC and Citigroup Inc., in trying to win customers in Indonesia. The government expects the country’s $222 billion economy, Asia’s sixth-largest, to expand 5.5% this year; that would be the largest growth in nine years.
“The market is on the up. The economy is looking positive,” said Mr. Abushamma, who moved to Jakarta in 2003 after working at HSBC Amanah Finance, the banking company’s U.K. Islamic unit. Before joining HSBC in 1999 he had been a senior associate for global Islamic finance in London at Australia and New Zealand Banking Group Ltd., the third-largest Australian lender.
HSBC is vying with Arab and Asian lenders to serve the growing market for financial services for the world’s Muslims, including those in Europe and the United States. Last year the United Kingdom licensed the Islamic Bank of Britain, the first bank in Europe to offer only mortgages and accounts that comply with Islamic law.
Banks can offer Muslims “ijarah,” or lease agreements that let them buy a property, such as a home or a car, on a customer’s behalf. The customer then rents the property from the bank until the bank’s investment, plus an agreed-upon profit, has been paid. Also, Muslim account holders can receive a share of the returns on investments made with their money instead of interest.
Between $200 billion and $500 billion of global banking assets comply with Islamic law, and the number is growing 10% to 15% a year, according to the U.K. Financial Services Authority. HSBC said on its Web site that $60 billion to $80 billion of Islamic funds are being managed worldwide.
“It is an expanding market,” said Salam Saadeh, the head of business and products development at Shuaa Capital, an investment banking firm based in Dubai in the United Arab Emirates, which manages about $1 billion of assets in the Middle East and North Africa. “You cannot ignore it. There are a lot of different clients who strictly invest according to shariah principles.”
