CIMB offers 1st Indonesian fixed returns (1023)

CIMB Group Holdings Ltd, Malaysia's second-biggest Islamic bank, is introducing Indonesia's first Shariah-compliant fixed returns on deposits, five years after their adoption in its home market.

PT Bank CIMB Niaga Syariah, a unit of the Kuala Lumpur- based bank, started offering the accounts to lenders on June 24 and plans to introduce them for consumers, Badlisyah Abdul Ghani, the head of Islamic banking at the parent, said in a July 4 interview. Indonesia's Islamic finance assets total 147.9 trillion rupiah (US$15.6 billion), trailing Malaysia's RM350.4 billion (US$110 billion), partly because depositors only receive floating payments based on profits or price swings.

The introduction of the Interbank Commodity Murabahah system, in which goods are bought and then resold with a pre- agreed mark-up, will allow banks to cater for customers who want to lock in payments in the future. While Indonesia has 12 times as many Muslims as Malaysia, its Islamic corporate debt sales amount to 2 percent of Malaysia's total.

"This one product will open the doors for other Islamic offerings using the same Shariah principle in Indonesia," Badlisyah said. The change will hop transform "the industry to be as deep and broad as that seen in Malaysia," Badlisyah said.

The fixed-rate contracts will be traded on the Jakarta Futures Exchange and can be based on commodities deemed Shariah- compliant, including raw agricultural and mining products, as well as processed goods such as cement and fuel, Andam Dewi, the head of research and development at the exchange, said in an e- mailed response to questions on July 13. The contracts can also be used to develop Islamic tools for hedging against currency movements and different rates of return, she said.

‘Very Good Response'

"We have seen a very good response from market players, as the product reduces uncertainty," Dewi said. "We are optimistic Bank Indonesia will release regulations so similar products can be used for hedging purposes."

Shariah-compliant banks in Indonesia currently lend funds to one other based on a profit-sharing contract, called mudharabah, in which one party provides funds and the other provides labor after they agree to the proportion of earnings to be distributed. The process serves as the basis for deposits offered by lenders, which represent 78 percent of total Islamic banking assets in the country, according to data from Bank Indonesia. Shariah-compliant deposits increased 39 percent to 115.2 trillion rupiah at the end of May from a year earlier. -- Bloomberg