The sharia compliant banking sector in the country continues its rise.

According to the Jakarta Post the use of sharia compliant banks is expected to grow by up to 50% in 2006 because of increased support for the practise from regular banks and the government in Jakarta. In the year to come banks will allow “office channeling” whereby sharia customers will be able to open accounts at any branch of a bank rather than the present system of separate branches.

Presently the sharia banking area accounts for 1.1 percent of total funds held in Indonesian financial institutions. Before 2003 the practice was extremely rare and has only come into prominence due to the Indonesian Ulema Council fatwa of that year declaring bank interest to be an illegal profit, or “riba”.

From 2006 all funds held by the government in hajj pilgrimage accounts will be given over to the sharia compliant bank system. Some 200,000 Indonesian pilgrims each year pay 25 million rupiah, or about $2500, up to a year in advance, to go to Mecca.

The government is also lowering the capital requirement for setting up new sharia banks from 3 trillion rupiah to 1 trillion. The central bank estimates that by 2011 the share of the sharia compliant secor will rise to about 10%.