The industry has long recognized that Indonesia’s potential in Islamic
fi nance and banking is huge. As a country with the highest Muslim
population in the world, it is easy to see why. Despite the realization,
the country’s market in Shariah compliant products and services is
barely tapped. This may be due to its lacking a strong fi nancial and
legal system.
Hoping to penetrate the burgeoning and lucrative market, the
government led by President Susilo Bambang Yudhoyono has made
strong political statements to make the republic more Islamic fi nancefriendly.
The recent passing of a new bill on Islamic Shariah debt by its parliament on Tuesday would certainly help the country.
Apart from legal issues, there are others that must be tackled as soon
as possible or the nation’s aspiration to play a larger role in Islamic
fi nance will be affected. “With market share of less than 2%
currently, Islamic fi nance players in Indonesia need to roll up their sleeves and work harder in order to achieve the national target of 5% by end of 2008.
This can be achieved by introducing innovative products through more
effective distribution channels, in addition to improved services rendered
to the customers,” said Saiful Yazan Ahmad (pic), president director of
Takaful Indonesia, which is the biggest Takaful player in the industry.
Demand for Islamic fi nance in Indonesia is growing signifi cantly
thus the future depends on whether players can fulfi ll the minimum
expectation of the existing and potential customers, he told Islamic
Finance news.
Takaful is one of the services in Islamic fi nancing that the republic is
looking into. There seems to be a slow surge in the Takaful industry in
Indonesia, most notably by Takaful Indonesia, which has been around
since 1994.
“The Indonesia market is huge due to, among others, the low
penetration of the population (of about 206 million Muslims).
Malaysia’s insurance market may be considered as rather ‘saturated’
due to its small population relative to the number of the players in the
market,” said Saiful.
Foreign companies are always seeking opportunities to tap the market,
which have led to a string of mergers and acquisitions (M&As) in the
Takaful industry. The latest deal is the acquisition of PT Anugrah Life
Insurance by Maybank’s insurance arm Mayban Fortis Holdings.
Commenting on the development that involves yet another Malaysian
company, Saiful said the industry had expected the merger to take
place after Maybank bought a stake in Bank International Indonesia
(BII) late last month.
He believed the merger will now complement each other especially in
the bancassurance sector. But then are M&As the “be all” for companies looking to set up in Indonesia? Of course not, said Saiful, who admitted that M&A is the most used strategy for business expansion.
He said the process to set up a new company is lengthy and fi lled with
red tape which can be tiresome and disheartening. “Things may not go
the way you would expect, so M&A is a safer bet,” he said.
Saiful however cautioned that companies looking to expand via M&A
must be prepared to conduct extensive research and analysis before
signing on the dotted line. If one is not careful, a merger can literally
bite you hard, said Saiful.
In order to make M&As succeed, full participation and understanding
is required from the local employees which may be a tricky business
as the locals may have a negative view of the foreign investors and
shareholders.
Saiful said that human capital, technology, distribution channels and
innovative product development need to be addressed. A strategic
marketing approach needs to be taken that will require the expertise
of experienced consultants.
For shareholders who are considering venturing into Indonesia’s or
any other market through M&A, he said it is extremely important for
them to have a strong strategic management and development team
that is reliable and knowledgeable. He added that everyone involved
in any M&A implementation needs to be “hands on” throughout the
entire process.
But with foreign companies merging or acquiring local entities, where
does that leave existing local players like Takaful Indonesia? Saiful
said the merger will not upset the current market demographic and as
far as Takaful Indonesia — the current industry leader — is concerned,
there is very little effect. He said Anugrah makes up only around 3%
of the country’s Takaful market and that this is not likely to change
drastically.
What is clear is that the presence of foreign investors in the republic
will eventually create a more competitive Takaful market, which will
then enhance the standard of the local companies. Who knows, locally
owned institutions may even one day compete with global insurance
companies and corporations.
www.islamicfi nancenews.com
By Elmira Azlan
