Several investors from the Middle East want to set up new banks or invest in existing lenders in Indonesia, an Indonesian government envoy to the region said.

Alwi Shihab, President Susilo Bambang Yudhoyono's special envoy to the Middle East, said that the Kuwait Financial House, the biggest Islamic lender in Kuwait, and a consortium of investors from Saudi Arabia, Yemen, Qatar and Bahrain are interested in setting up new banks, but he did not say whether these would be conventional or sharia banks.

He also said that Qatar National Bank is considering buying a majority stake in a conventional bank.

Indonesia, the world's most populous Muslim nation, is keen to develop its market for sharia investment products and attract more investment from the Middle East.

Indonesia's parliament this year passed a revised bill on value added tax (VAT) which scrapped double taxation on transactions in Islamic financial markets, a move which many analysts expect will help to attract more funding from Islamic investors.

'The Middle East sees Indonesia as a place to invest,' Shihab said. 'The Kuwait Financial House was waiting for the tax ruling on sharia and they're satisfied after the changes.'

The central bank estimated sharia banking assets could climb to 57-68 trillion rupiah ($6.04 billion) this year and grow to 72-124 trillion rupiah in 2010, compared with 50 trillion rupiah in 2008.

Despite the growth, sharia banks remain relatively small compared with conventional banks which had assets of more than 2,300 trillion rupiah at the end of 2008. – Reuters