Tenggara Strategics, Jakarta – Indonesia's second-largest Muslim organization, Muhammadiyah, has decided to divert trillions of rupiah funds from state-owned Bank Syariah Indonesia (BSI), the country's largest sharia bank, to other sharia banks. This move has raised concerns about its impact on BSI but also reveals the financial strength of the Islamic organization that many were unaware of.
Muhammadiyah recently requested BSI to transfer the bulk of its funds to Bank Syariah Bukopin, Bank Mega Syariah, Bank Muamalat, regional sharia banks and other banks that have been collaborating with the religious organization. Muhammadiyah explained that the decision was taken due to too much of Muhammadiyah's funds being placed in BSI, which could pose a concentration risk from a business perspective. Additionally, the organization wishes to uphold its commitment to supporting sharia banking by contributing to the creation of healthy competition among sharia banks.
No specific details have been openly released regarding the amount of funds that Muhammadiyah will withdraw from BSI, but according to media reports, the withdrawn funds total more than Rp 13 trillion (US$815 million). The news about Muhammadiyah's fund withdrawal from BSI only reveals its financial strength. With members mostly concentrated in urban areas, Muhammadiyah's line of businesses are mostly in education and health services. Muhammadiyah schools, universities as well as hospitals are spread all over Indonesia. With its financial strength, Muhammadiyah is relatively independent from the government.
Muhammadiyah's fund withdrawal from BSI coincides with the recent issuance of Government Regulation (PP) No. 25/2024 that allows religious mass organizations such as Muhammadiyah to manage mining areas designed for special mining business permits (WIUPK). Soon after the issuance of the regulation, the country's largest Muslim organization Nahdlatul Ulama (NU) applied to manage a coal mining concession in East Kalimantan, which the government promised to grant to the NU. Muhammadiyah, however, refused to apply.
The plan for Muhammadiyah to withdraw its funds from BSI actually emerged as early as 2020, shortly after BSI was formed from the merger of state-owned sharia banks. At that time, this plan emerged due to the bank being perceived as too large and robust, with total assets reaching Rp 214.6 trillion. Consequently, the organization considered supporting other sharia banks that are deemed "closer to the community". Moreover, at that time, Muhammadiyah intended to observe the policies and actions of BSI before ultimately deciding to withdraw its funds. Currently, Indonesia's sharia banking is dominated by BSI, as data from the Financial Services Authority (OJK) show that BSI's financing and assets accounted for more than half of the total sharia banking sector as of the first quarter of 2024, reaching Rp 247 trillion (US$15 billion) and Rp 358 trillion, respectively.
Following Muhammadiyah's decision, concerns arose about its impact on BSI. The bank had recorded a continuous drop during its trading session at the Indonesia Stock Exchange (IDX), falling 20 basis points (bps) to Rp 2,260 per sheet on June 5, and decreasing further to Rp 2,180 per sheet on June 7. By the end of the week, BSI's stocks closed in the red. Additionally, the state of the bank's liquidity was questioned. However, according to the Financial Services Authority (OJK), BSI remains highly liquid, given that such transfers are a common occurrence, resulting in no issues related to the organization's fund withdrawals from BSI.
What we've heard
According to a Muhammadiyah member, Muhammadiyah's withdrawal from BSI is related to the appointment of a commissioner position at BSI. "There are indications that Muhammadiyah is disappointed with this commissioner position," said this source.
The source explained that the government had previously asked the organization to submit a name to be proposed as a state-owned enterprise (SOE) commissioner. Muhammadiyah then submitted the name of secretary-general Abdul Mu'ti. "But the government announced another name," said the source.
Recently, the SOEs Ministry appointed Gerindra Party politician Felicitas Tallulembang, who was a member of the House of Representatives from 2014 to 2019, as commissioner of BSI. The source explained that SOEs Minister Erick Thohir had maneuvered to align with Prabowo's camp. Consequently, several SOE commissioner positions have been given to Gerindra Party members, such as the president commissioner of PT Pertamina and the president commissioner of MIND ID.
The source insisted that Muhammadiyah's withdrawal of funds was not related to the mining concession polemic, as the organization itself is divided, one faction does not object to the government's policy, while another, led by Abdul Mu'ti, strongly opposes it.
The source added that issues between President Joko "Jokowi" Widodo's administration and Muhammadiyah had not only arisen at this time. Previously, Muhammadiyah was disappointed because a member of the organization did not fill the position of minister of education and culture. In past administrations, this position was always filled by a Muhammadiyah member.
[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]