Jakarta – The growth of sharia-based finance in 2007 was just 30.1 percent, less than the 34.2 percent advance seen the previous year, due to a rise of non-performing transactions, according to Bank Indonesia.

BI director for banking Ramzi A. Zuhdi said Monday that last year's gross non-performing sharia transactions reached 6.26 percent, thus demanding increased attention from banks. Net non-performance in 2007 was 4 percent, he said.

"That problem forced the sharia banks to shift their focus away from boosting (sharia) finance services," he said as quoted by Antara, adding that fierce competition with conventional banks charging low interest rates also triggered the slowdown.

However, he said he was optimistic that the growth of sharia finance year would again this year be at least 30 percent because of the effect of expected regulations protecting against double taxation.

Customers of sharia-based finance – which forbids interest – sometimes pay double taxes, once on the goods they purchase from the sharia banks and once again on debt installments.

By contrast, conventional banking customers who receive cash loans pay interest on their loans but no additional tax. "Under the new planned rules, sharia financing will be better because it is expected to be cheaper," he said.

Ramzi said sharia banking had big potential in the country although the number of customers was still very small compared to the 85 million conventional banking customers.

He said BI was encouraging sharia banks to offer new banking products to attract customers, adding that the central bank also planned to promote sharia banking through a sharia economic festival. (ind)