Indonesia will let Shariah-compliant banks hedge against exchange-rate movements to spur growth in Islamic financial assets and narrow the gap with Malaysia’s industry, which is seven times larger.     

Bank Indonesia, the National Shariah Board and the Indonesia Institute of Accountants have approved the instruments, available in Malaysia since 2006, Adiwarman Azwar Karim, Jakarta-based vice chairman of the board’s Islamic capital market working committee, said in an Aug. 3 interview. The central bank said it is working on regulations, declining to say when they would be finished.     

The Islamic finance industry will grow 15% annually in the next decade, after syariah- compliant banking assets surged in Asia in the past year, according to a global standards-setting body.

Holdings in Malaysia rose 27% to RM344bil in the 12 months to April 30, according to the central bank. In Indonesia, they climbed 43% to 144.3 trillion rupiah (US$15.2bil), official data show.

S&P Indices announced Friday the launch of the S&P/OIC COMCEC 50 Shariah Index, which is designed to measure the performance of 50 leading Shariah-compliant companies from the member states of the Organization of Islamic Cooperation (OIC). The Index has been designed in partnership with the OIC.

Yields on Indonesia’s Islamic bonds posted their first weekly decline this month on speculation supply will wane after the government rejected bids at an auction for the first time since March. 

The yield on the 5.45 percent sukuk due January 2022 fell one basis point this week to 6.72 percent, the first drop since the period ending April 29.  

The rapid international expansion of Islamic finance reflects its ability to remain competitive and to increasingly meet the complex requirements of the global financial community.

With various countries now intensifying efforts to develop their respective Islamic financial capabilities, it is becoming increasingly vital to build deeper relationships between the key markets for Islamic finance and also between the leading industry players in each of these jurisdictions.

Central banks from seven Muslim countries yesterday launched a regulatory body to oversee the booming Islamic investment market. The Islamic Financial Services Board (IFSB) was inaugurated here by founding members Malaysia, Saudi Arabia, Indonesia, Iran, Kuwait, Pakistan, Sudan and the Islamic Development Bank.

Indonesia's shariah banking sector has been growing 40.2 per cent annually over the last five years, outpacing conventional banking's annual growth of 16.7 per cent over the same period.

Halim Alamsyah, deputy governor of the central bank, Bank Indonesia, expressed confidence that shariah banking would comprise 15 to 20 per cent of the country's banking industry in 10 years, from 4.1 per cent currently.

Global Islamic insurance sales rose nearly 20 per cent to US$8.3 billion (Dh30.48bn) in 2010, but opportunities still abound for further expansion, a new report has found.

Takaful contributions in the UAE grew by 28 per cent to reach $818 million during the year, said Ernst & Young's World Takaful Report 2012.

Global Islamic insurance contributions surged 19 percent in 2010 to $8.3 billion helped by Saudi Arabia, the world’s biggest oil exporter, which made up more than half the industry, an Ernst & Young report said.

The six-nation Gulf Cooperation Council, which also includes the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait, made $5.68 billion of Islamic insurance or takaful contributions in 2010, and South East Asia $2 billion, according to the World Takaful Report 2012 e-mailed today.

Malaysian and Indonesian pension funds, which have a combined $192 billion of assets, say plans to increase holdings of Islamic bonds are being hampered by a shortage of investment-grade sukuk.

Kuala Lumpur-based Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan), Malaysia’s two biggest pension managers, and PT Jaminan Sosial Tenaga Kerja (JAMSOS), Indonesia’s largest retirement fund, say they want more Shariah-compliant debt in order to diversify portfolios that must hold investment- grade securities.