Islamic Center of Pittsburgh, PA, August 1 2009

Fundamentals of F d t l f

ISLAMIC FINANCE and BANKING

Some Countries Experiences
Ascarya y

Center of Education and Central Banking Studies

AGENDA
Islamic Economic Concept Islamic Finance Concept Islamic Fi I l i Financial Institutions i l I tit ti Islamic Finance and Banking in Malaysia Islamic Finance and Banking in Indonesia

Conventional Economic Concept WesternPremises

Religionandmoralityarenotreleventtosolveeconomicproblemsof humankind.Economicproblemswouldbetterbesolvedusingthelaw ofeconomicbehavior.

Secularismineconomy

Assumptions
Thereisnolifeafterdeath ThereisnoaccountabilitybeforeAllah

Happinesscanbeachievedwithmaterialmeans

Conventional Economic Concept EconomicMansBehavior

SelfInterest Consumption p Maximizeincomeandsatisfywants

EconomicBehavior
Freemarketsystem Survivalofthefittest

Competition

SocialDarwinismhasspreadtotheeconomy

Conventional Economic Concept

Definition

Thesciencewhichstudieshumanbehaviorin satisfyinghis/herunlimited satisfying his/her unlimited wants using limited usinglimited resources (factorofproductions). Themaineconomicproblemsarescarcity and The main economic problems are scarcity and choices.

Islamic Economic Concept

Needs, Wants & Factor of Productions
Seeyounot(Omen)thatAllahhassubjectedforyouwhatsoeverisintheheavens andwhatsoeverisintheearth,andhascompletedandperfectedHisGracesupon you,(Luqman[31]:20). Andthecattle,Hehascreatedthemforyou;inthemthereiswarmth(warm clothing),andnumerousbenefits,andofthemyoueat(AnNahl[16]:5). WithitHecausestogrowforyouthecrops,theolives,thedatepalms,thegrapes, andeverykindoffruit(AnNahl[16]:11). AndthatitisHe(Allah)Whogivesmuchoralittle(orgiveswealthand And that it is He (Allah) Who gives much or a little (or gives wealth and contentment)(AnNajm[53]:48). AndgivenotuntothefoolishyourpropertywhichAllahhasmadeameansof supportforyou,(AnNisaa[4]:5). Andverily,heisviolentintheloveofwealth(AlAadiyaat[100]:8).

Islamic Economic Concept

Needs, Wants & Factor of Productions

WahaihambaKuengkauberkeinginanAkupunmemiliki keinginan JikaengkausandarkanapayangengkauinginkanpadaKu,maka Jik k d k k i i k d K k akanAkucukupkanapayangengkaubutuhkan Namunjikaengkautidaksandarkanapayangengkauinginkan Namun jika engkau tidak sandarkan apa yang engkau inginkan padaKu,makaakanakuberikankeletihandankesengsaraan SesungguhnyaapayangterjadiadalahapayangAkuinginkan Sesungguhnya apa yang terjadi adalah apa yang Aku inginkan (HaditsQudsi)

Islamic Economic Concept

Needs, Wants & Factor of Productions Islamic Norms Wants

Zuhud& Q Qanaah Needs Factorof Productions

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Islamic Economic Concept

Definition

Thesciencewhichstudieshumanbehaviorin satisfyinghis/herworldlyneedsinordertoachieve satisfying his/her worldly needs in order to achieve falah (successinthisworldandinthehereafter, [2]:5,[3]:200],[23]:1,[87]:14,[91]:9) [2] 5 [3] 200] [23] 1 [87] 14 [91] 9) HumanbehaviorinIslamisrelatedtoshariah fundamentalsasaguidancetobehaveandtendto fundamentals as a guidance to behave and tend to humanfitrah.
9

Islamic Economic Concept ThemainIslamiceconomicproblemistoensurethe The main Islamic economic problem is to ensure the circulationofassets/wealthamongpeople,sothat theycanmaximizetheirpurposeinlifeasAllahs th i i th i i lif All h serventtoachievefalahinthisworldandinthe hereafter. EconomyinIslamisaCOLLECTIVE activity.

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Principles of Islamic Economics

SovereigntybelongstoAllah(AlMalikalMulk)andHeistheAbsolute(Ash Shamad).Ownerofallthatexist(AlMaalik)(QSAliImran[3]:26,QSIbrahim[14]:2, ) ( ) (Q [ ] ,Q [ ] , QSAlMulk[67]:1); ManisHisviceroyontheearthbutnottherealowner(QSAlBaqarah[2]:30,QS Faathir[35]:39); Faathir [35]:39); WorldlythingsthatmanpossessesoracquiresareAllah'sblessings,thereforehis lessfortunatebrothershaveadueshareinhisbrother'swealth(e.g.zakah); Abstainfromwastefulandluxuriousliving; Wealthshouldnotbeaccumulated;Wealthshouldalwaysremainincirculation; Economicexploitationofeverykindhasbeeneliminated,suchasriba andmaysir; l f k dh b l d h b d Removalofgravedisparitiesintheeconomicconditionsofindividuals,thus eliminatingclassconflicts,bydividingone'spossessionsafterhisdeathamonghis g , y g p g heirs; Layingoutcertaincompulsoryandvoluntaryobligationsontheindividualshaving substantialmeansforthepoormembersofthecommunity(zakah,infaq,shadaqah, substantial means for the poor members of the community (zakah infaq shadaqah waqf,etc.).
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Islamic vs. Conventional Economics

IslamicMan(social Islamic Man (social andreligious man)
Limited Needs EnoughResources, Uneven Distribution Unlimited Wants

EconomicMan Economic Man (social man)

LimitedResources, UnevenDistribution Uneven Distribution

Distribution/Economic Problems
Choicesamongalternatives (guidedby Islamicvaluesanncollectiveinterest) Islamic values ann collective interest) Integratedexchanges&transfers underIslamicethics,distortion d I l i thi di t ti free,marketpower

Economic/Distribution ob e s Problems
Choicesamongalternatives (guided byselfinterest) by self interest) Exchangesguidedbymarket power Sources :Mannan,1992;Sakti, 2007, modified

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The History of Economy in Islam

Islamiceconomicandfinanceessentiallyisnotanewdisciplineasa Islamic economic and finance essentially is not a new discipline as a reactiontoconventionaleconomicandfinancephenomenon. IslamiceconomicshasbeeninexistancesincetheemergenceofIslam Islamic economics has been in existance since the emergence of Islam itself(15decadesago),sinceitisanintegratedpartofIslamasa systemoflife. Islamisbelievedtobeawayorconceptoflivethatcoverseconomyas oneofhumanactivities. Therefore,itcanbeconcludedthateconomyinIslamisconsideredas religiousactivityoribadahineconomicactivity.

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The Essence of Economic Activities in Islam

NEEDSFULFILLMENTTO NEEDS FULFILLMENT TO ACHIEVEFALAH ATTITUDETOWARDS WEALTH

Grow,DistributeandTrade ofWealth

ActivitiestoSeek,Manage andSpendWealth

INVESTMENT Mudharabah& Mudharabah & Musyarakah

TRADE Murabahah, Murabahah

SOCIAL Infaq,Wakaf, Infaq Wakaf Shadaqah&

REGULATION Zakat, Zakat Inheritance&

Ijarah,Istisna,
&Salam

Hadiah, Hibah

Kharaj,Jizyah

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ZAKAH, ZAKAH RIBA, RIBA MAYSIR

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Zakah
AtTaubah[9]:103,ArRuum[30]:39

Functions of Zakah

Control Function F ti Sosio-Ec Function F ti

Zakah is not only an effort of funding to distribute (socio(socioeconomic function, [9]:60). More importantly, zakah is an effort of controlling (control function) peoples wealth to be circulated/ invested in the economy. i t d i th

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Zakah
The Implications of Zakah
Fulfilltheneedofpoormembersofthecommunity. Narroweconomicdisparities. Decreasesocialproblems;criminality,prostitution,homeless, beggaretc. Maintainpeoplespurchasingpowerinordertomaintain businesssector.Inotherwords,zakahmaintainspeoples minimalconsumptionstokeepeconomyrunning(DEMAND). i i l ti t k i (DEMAND) Encouragepeopletoinvest,nottotokeepthewealth/assets idle(SUPPLY). idle (SUPPLY)

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Zakah
The Implications of Zakah in the Economy
P S0 S1 S2

P*

D0

D1

D2

Q0

Q1

Q2

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Riba
[30]:39,[4]:161,[3]:130132,[2]:275279 Definition f Riba literallymeansanexcess andinterpretedasany unjustifiableincreaseofcapitalwhetherinloansorsales. j p Everyincrease,whichiswithoutiwad (equaivalentcounter value)isriba(IbnalArabi). Equivalentcountervalue:work&effort(kasb),risk(ghurm), Equivalent counter value: work & effort (kasb) risk (ghurm) liability(daman).
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Riba
The Implications of Riba Thehigherthewallthefewer The higher the wall the fewer thewaterflows similarly Thehighertheinterestrate, The higher the interest rate thefewerthecapitalor investmentflowstothereal investment flows to the real sector
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Riba
Riba vs Trade
RIBA Return Determination Assurance Always Ex ante Yes Interest Not always Ex post No TRADE Profits or Loss

Thatisbecausetheysay:"TradingisonlylikeRiba (usury),"whereas AllahhaspermittedtradingandforbiddenRiba (usury)([2]:275). Allah has permitted trading and forbidden Riba (usury) ([2]:275)

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Riba
The Implications of Riba
Theworldvolumeoftransactioninfinancialmarket(currencyspeculation and derivativemarket)isUS$1.5trillioninoneday,whiletheworldvolumeof transactionoftradingintherealsectorisUS$6trillioninoneyear(2004). t ti f t di i th l t i US$ 6 t illi i (2004) During19702007therehavebeen395episodesoffinancialcrises(bankingcrisis, currencycrisisandsovereigndebtcrisis),including42twincrisesand10triple crises. International Financial Institutions voting powers are in the hands of a few developed countries, such as: 24% in WTO, 48% in IDB, 60% in ADB, 61% in WB and 62% in IMF. Thedebtsofdevelopingcountrieshavealwaysbeenincreasing(morethanthree trillionUSdollars in2004),sothateveryman,womenandchildrenofdeveloping trillion US dollars in 2004) so that every man women and children of developing countries(accountedfor80%ofworldpopulation)incuredebtofUS$600,where averageincomeofthepoorestcountryislessthanONEDOLLARaday.

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Riba
The Implications of Riba Prohibition Optimalizetheflowofinvestmenttotherealsector; thereisnobarrierofinterest/riba. Ensurefairnessandequality;thereisnopartyexploitor beexploited. p

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Riba
Riba Prohibition in the Real Sector
Theabsentofribaintheeconomy(realsector)preventsthe concentrationofwealthinthehandsofafew,whichpotentallywill exploittheeconomy. Theabsentofribapreventsdisturbancesintherealsector,suchas inflationandinefficiencyinmacroeconomic. fl ff Theabsentofribaencouragesfair,stableandsustainableeconomic activitiesthroughthemechanismofproductiveprofitlosssharing. ti iti th h th h i f d ti fit l h i

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Maysir
Game of Chance or Speculation [2]:219,[5]:9091

Trade
TheneedofCapital p Probability y Relationtothereal sector / Increase /Increase Aggregate Supply? Yes Yes Yes Y

Gambling
Yes Yes

No

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Interest System vs. PLS System

InterestSystem MoneyCreation& Concentration RealSector Contraction C i
PLS System y Accelerate Economic Growth Wealth & Income Distribution Real Sector Expansion Productivity & Job y Creation

HinderEconomic Growth G h Inflation

Source: Sakti (2007)

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Maysir
The Implications of Maysir Prohibition Encourageproductiveinvetmentactivitiesinthereal g p sectorthatwillincreaseAgregat Supply. Agregat Supply Preventeconomicbubble,sothatitwillpreventfinancial , p crisis.

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Zakah, Riba, and Maysir

Islamic Economic System y

Wealth flows
Optimal O ti l investment flows fl Suboptimal Suboptimal investment flows Byantiriba B i ib
AggregateSupply Increases Increases

Investment Investment

AggregateSupply Aggregate Supply Constant

Byzakah Byzakah B k
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Byantimaysir Byantimaysir B i i

AGENDA
Islamic Ecnomic Concept Islamic Finance Concept Islamic Financial Institutions Instit tions Islamic Finance and Banking in Malaysia Islamic Finance and Banking in Indonesia

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Conventional vs. Islamic Finance Ethics

ConventionalFinance (ShefrinandStatman,1992)
Freedom from coercion Freedom from misrepresentation Right to equal information Right to equal information processing power Freedom from impulse Right to trade at efficient prices

IslamicFinance (Obaidullah,2005)
Freedom to contract Freedom from al Riba Freedom from Al Gharar (excessive uncertainty) Freedom from Al_Qimar (Gambling) dan AlMaysir (Unearned Income) Freedom from price control and manipulation Entitlement to transact at fair prices Freedom from Darar (Detriment) Mutual Cooperation and Solidarity l d ld Maslahah Mursalah (Unrestricted Public Interest)

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Islamic Financial System Architecture

Direc Financin ct ng Surplus p Sector PLS Sukuk Other Sukuk Stock Islamic Funds Fund Units Islamic Investment Banks Deficit Sector

Indirect Financing F

Islamic I l i Insurance Policies Islamic Commercial Banks

Surplus Sector PLS Investment Others

Deficit Sector PLS Financing Others

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The Characteristics of Islamic Finance

BasicCharacteristics
Prohibitedfinancialactivities: Riba(interestbased activities) Maysir(speculativemotive) Gharar(unclearinformation) Permissiblefinancialactivities ProfitandLossSharing Profit and Loss Sharing Trade CustodyandServices Social(ZISWaf) Social (ZISWaf) Halaland thayyib objects: yy j Nokhamr Nopork Nopornography p g p y Nopollution 32

IntermediateImplication
No/lessmoneycreation Nomoneywhirlpool/money concentration/bubble Nofinancialdetachment Supportrealsector Trust+Understandingon Trust + Understanding on business&partners Encouragelessfortunate group(dhuafa)involvement group (dhuafa) involvement Nosocial problems p Noenvironmentdamage

MacroImplication
FinancialSystemStability

Jobcreation Economicgrowth Economic growth Povertyalleviation

SocialStability y Environmentprotection

AGENDA
Islamic Economic Concept Islamic Finance Concept Islamic Financial Institutions Instit tions Islamic Finance and Banking in Malaysia Islamic Finance and Banking in Indonesia

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Conventional Bank

DD& DD & Savings

Interest

Creditor

Poolof Fund TimeDep

Loan Interest

Debitor

Interest

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Islamic Bank

DD& DD & Savings

Bonus B

Trade Financing Fee Based Investment Financing

Margin&Fee g

Investor

Poolof Fund TimeDep

Entrepreneur

PLS

PLS

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Islamic Bank
Table

Mudharib

PLS Return

FUNDING
Wadiah Yad Dhamanah Mudharabah Mutlaqah (Unrestricted Investment) Ijarah, Capital, etc. Ijarah Capital etc

FINANCING
PO OOLING FU UND
PLS Financing Trade Financing Lease Financing

Income
PLS Return Margin Fee

Share of Depositors/Investors

Calculation

Income Statement
Main Operational Income (PLS Return, Margin, Fee)

PLS Return
Agent: Mdh Muqayyadah/Restricted Investment

Other Operational Income (fee based income)

Fin Services: Wakalah, Kafalah, etc. Non-Fin Services: Wadiah Yad Amanah

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Takaful (Islamic Insurance)

Definition
Takafulasinsuranceisbasedontheconceptofhelpingeachotheringooddeedsand taqwa(wata'awanualalbirriwattaqwa)andprotection(atta'min).Eachmemberis partofabigfamilythatprotectseachother.Thesystemisorganizedbythe part of a big family that protects each other The system is organized by the eliminationofuncertainty(gharar),gambling(maysir)andinterest(riba).

Mechanism
MemberspooloffundwillbeinvestedincompliancewithShariah.Theprofitswillbe addedtopooloffund,whileclaimsandpremiums(ofreinsurance)willbe subtractedfromthepooloffund.ThenetsurpluswillbedistributedaccordingtoPLS system(mudharabah).Forexample,60%forthecompany(asmudharibor entrepreneur)and40%formembers(asrabbulmaalorcapitalowner). t ) d 40% f b ( bb l l it l )

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Fund Management Concept

Takaful

Surplus S l

38

Fund Management Concept

Takaful

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Definition
CAPITALMARKET

Islamic Capital Market

Amarketinwhichsurplusparties(rabbulmaalortheownerofcapital) directlymeetdeficitparties(mudharibortheentrepreneur). Surpluspartiesareinvestorswhowanttoinvesttheircapital(medium S l ti i t h tt i t th i it l ( di tolongterm)inproductiveactivities.Deficitpartiesaregovernments, financialinstitutions,companiesetc.thatneedcapitaltorunthe , p p business,expansionetc. OperateincompliancewithShariah,especially,theprohibitionofriba, maysirandgharar,aswellasthefulfillmentofjusticeandequity. i d h ll th f lfill t f j ti d it

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Islamic Capital Market

Basic Principles
1. Therearenoelementsofriba,ghararandmaysir. 2. Freefromunethicalandamoraltransactionssuchasmarketmanipulation,insider f h l d l h k l d tradingetc. 3. Freefromspeculativetransactions. RuleandregulationofICMshouldbemadespeculationunattractive. l d l f h ld b d l 4. Pricedetermination. Sharepriceshouldbeequivalenttoitsintrinsicvalue topreventpricedistortion. 5. Theschemeoftransactionisalhawalah (transferservice ortransferofreceivables). 6. Investigationofaccountbooks.Thereshouldbeunscheduledauditandinvestigation ofcompanysbalancesheet. 7. Prohibitiontoprovideloanforspeculationpurposes.

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Islamic Capital Market

The Players
ThecriteriaofEmitten
CoreBusiness ishalal. Return isfreefromribaandoppression. Products/services are not haram arenotharam. Providetimelytransparentinformation toavoidgharar. Businessrisks arenormal(soundfinancialratios). Management inaccordancewithShariah,notspeculative,respecthuman rightandprotecttheenvironment.

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Islamic Capital Market

Instruments
ICMinstrumentsincludefinancialinstrumentswith underlyingShariahcompliantinvestmentsordebtsofmore thanoneyearmaturity. Examples:
Islamicstock; IslamicbondorSukuk; IslamicMediumTermNotes(IMTN) IslamicAssetBackedSecurities(IABS) l k d ( )

TheseinstrumentscanbetradedintheBourseorOTC.

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AGENDA
Islamic Economic Concept Islamic Finance Concept Islamic Financial Institutions Instit tions Islamic Finance and Banking in Malaysia Islamic Finance and Banking in Indonesia

44

GLOBAL ISLAMIC FINANCE

Source: Aseambankers, June, 2007

Islamic funds in global financial institutions is said to be at US$1.3 trillion operated by over 300 Islamic financial institutions in more than 75 countries worldwide worldwide. Islamic financial market is estimated to be US$524 billion in size (IDB, 2007), with an annual growth rate of 12%-15%. There are more than 100 I l i f d worldwide managing assets i excess of Th th Islamic funds ld id i t in f US$5.0 billion, with estimated annual growth for ICM of 15%-20%. Countries with the most advance Islamic finance are Malaysia, Kuwait, Saudi Arabia, United Arab Emirates (UAE), Kingdom of Bahrain, and Qatar, followed by Brunei, Indonesia, South Africa, Morocco, Turkey, and Pakistan. 45

ISLAMIC FINANCE IN MALAYSIA

Characteristics Malaysia is a country that adopted dual financial and banking system since 1983 when the government passed several legislations on Islamic finance, such as the Islamic Banking Act and the Government Investment Act in 1983, Takaful Act in 1984. The majority of Muslims in Malaysia adhere to Syafii madzhab (school of thought). Cashflow = Debt = Property (can be traded at discount or premium). Full fledged Islamic banks are regulated under Islamic Banking Act of 1983, while 1983 Islamic windows of conventional banks are regulated under conventional banking act. These two different regulations, make full fledged Islamic banks can operate more flexibly than Islamic windows in adopting Shariah principles principles. The highest Shariah authority on Islamic finance in Malaysia is National Shariah Advisory Council (NSAC), established on May 1997 within the BNM, to streamline and harmonize the Shariah interpretations among Islamic financial institutions institutions, including Islamic banking business, Takaful business, Islamic financial business, Islamic development financial business, or any other business which is based on Shariah principles. principles 46

ISLAMIC FINANCE IN MALAYSIA

Strategy to Develop Islamic Finance Malaysia adopted pragmatic and gradual approaches to develop a comprehensive Islamic financial system, with the long-term objective to create an Islamic financial system operating on a parallel basis with the conventional financial system. system Stages: 1. to create enabling environment by setting up various infrastructures, especially legal f l l framework; k 2. to increase the size and create the market for Islamic financial institutions for fair competition; 3. to create harmonization and convergence with international Islamic financial markets, so that Malaysian Islamic financial institutions can compete in international arena. With this strategy, Malaysia is strengthening its position as an international Islamic financial hub - a centre of origination, issuance and trading of ICM and treasury instruments, Islamic fund and wealth management, international currency Islamic , g , y financial services, and Takaful and re-Takaful businesses. 47

ISLAMIC FINANCE IN MALAYSIA

1969 1984 1993 1996 2001 2004
Pilgrimage Fund Board Islamic banking g Takaful Islamic Banking Act 1st Islamic Bank Bank Islam My Bhd Takaful Act 1st Takaful Co. Syarikat Tkf My Bhd Govt Investment Act 1st Islamic Instruments Govt Investment Issues Islamic Windows 2nd Islamic Bank (1999) Takaful My Nat Sdn Bhd Maybank Takaful Bhd Takaful Ikhlas Sdn Bhd Islamic Subsidiary Foreign Islamic Bank (2005) Four new licenses issued

Financial Markets

Islamic Money Market Islamic Capital Market Securities Comm (1996) KLSE Shariah Index Islamic Capital Market Guidelines (2000) Islamic Securities Guidelines MIFC (2006)

1st Corporate Sukuk Shell MDS Sukuk

1st Corporate Global Sukuk (Guthrie) 1st Sovereign Sukuk (2002) RM Sukuk > RM Bond (2002) 1st Islamic MBS RM Sukuk by Foreign Entities (2006)

1983

1990

1994

1999

2003

2006

48

AGENDA
Islamic Economic Concept Islamic Finance Concept Islamic Financial Institutions Instit tions Islamic Finance and Banking in Malaysia Islamic Finance and Banking in Indonesia

49

ISLAMIC FINANCE IN INDONESIA

Characteristics Since Banking Act No 7 of 1992 was introduced Indonesia started to introduce No. introduced, dual banking system. The first Islamic bank was established at the same year, while the first Takaful was established in 1994. But, only after new Banking Act No. 10 of 1998 that Islamic banking/finance was flourishing flourishing. The majority of Muslims in Indonesia adhere to Syafii madzhab (school of thought). Cashflow = Debt = Money (cannot be traded at discount or premium). Islamic banks in Indonesia, whether f ll fl d d full branch or rural bank, are I l i b k i I d i h th full fledged, f ll b h lb k regulated under Banking Act No. 10 of 1998, where they can operate fully in compliance to the Shariah principles. The guidelines to issue corporate Islamic bonds have been simplified by regulation No IX A 13 and No IX A 14 of 2006 while No.IX.A.13 No.IX.A.14 2006, regulations on other financial institutions, like Takaful Act, Government Islamic Bond Act, Islamic Bank Act, have been drafted and waiting to be approved by the Congress. Congress The highest Shariah authority on Islamic finance in Indonesia is National Shariah Board or Dewan Syariah Nasional (DSN-MUI), which is an independent body in issuing Shariah opinions or fatwas on any Shariah matters of ibadah and muamalah, including Islamic economics, finance, and banking. 50

ISLAMIC FINANCE IN INDONESIA

Strategy to Develop Islamic Finance Indonesia starts with the development of Islamic banking, based on four strategies, namely: market driven, fair treatment, gradual and sustainable development, and compliance to Shariah principles. With these strategies, Islamic banking in Indonesia has developed to be one of strategies the most Shariah compliance systems in a country with dual financial system. Master Plan:
Source: Aseambankers, June, 2007

Set up Foundation for Development

Strengthen Industry Structure Phase 2 (2005 2009)

Meet Intl. Standard of Service and Quality

Toward the Integration of IFIs Phase 4 (2013 2015)

Phase 1 (2002 2004)

Phase 3 (2010 2012)

The d Th development of Islamic banking h a great i l t f I l i b ki has t impact i th d t in the development of l t f other sectors, such as, Takaful, Islamic capital market, Islamic bond, Islamic unit trust, Islamic education, Islamic voluntary sectors, legal frameworks, etc. The development of Islamic bond or Sukuk started with the first issuance of corporate Sukuk by Indosat in 2002 using Mudharabah structure. 51

ISLAMIC FINANCE IN INDONESIA

1980 1994 2000 2002 2004 2007 2009
3200 BMT Office Channeling Islamic Banking Act g 1st Islamic Re-insurance ReINDO Baitut Tamwil Salman Bdg, Koperasi Ridho Gusti Jkt. Islamic banking Takaful Money Market Capital Market 1st Islamic Bank Bank Muamalat Ind 1st Islamic Branch Bank IFI Syh 2nd Islamic Bank Bank Syh Mandiri 1st Takaful Branch Assi Great Eastern Islamic Money Market IMA Certificate ( (Mudharabah) )

1st Takaful Company Asuransi Takaful Keluarga g

Islamic Capital Market Jakarta Islamic Index ICM Master Plan (2005) 1st Corporate Sukuk Indosat (Mudharabah) 1st Govt Sukuk (Ijarah) 1st Govt Retail Sukuk ( j (Ijarah) ) Sukuk Guidelines Govt. Islamic Bond Act SBIS (Jualah)

Sukuk

Monetary Management

Central Bank Act

SWBI (Wadiah)

1992

1999

2001

2003

2006

2008

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ISLAMIC FINANCE IN INDONESIA

Perbankan 2500 2000 13.1% 1500 1000 500 0 Perbankan Asuransi Pasar Modal PP Obligasi Lain2 SBI/S Pasar Modal Obligasi 5.3% 4.8% 3.0% 4.1%

46.6%

23.1%

Bytheendof2008,thegrowthofbankingsectorhasbeenstableat1517% yearly,andhasnotbeenaffectedbyglobalfinancialcrisis.Stockmarkethasreached thepeakonDecember2007(IHSG=2745),butitcrashedduetotheglobalfinancial crisisandhasreachthebottominNovember2008(IHSG 1241). Bond market has crisis and has reach the bottom in November 2008 (IHSG =1241).Bondmarkethas beenstagnant.ThetotalassetsoffinancialsystemwasRp.4689trillion.
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ISLAMIC FINANCE IN INDONESIA

Islamic Surplus Sector FinancialSystem FinancialMarket Konvensional Deficit Sector
5%

Direct Financial Market CapitalMarket Capital Market

13%

MoneyMarket
47%

Indirect Financial Market

Insurance

Commercial 98% 02% Bank

99.9% 0.1%

BondMarket

23% 97% EquityMarket 03%

3%

Unit Trusts T t Merchant Bank

Finance Company

ThemaincomponentsofIndonesianfinancialsystemareBANKING(47% Islamic1%or Rp.49.5tr),STOCKMARKET(23% Islamic0.02%or Rp.0.6tr)andBONDMARKET(13% Islamic0.35%or Rp.5.4tr).SBISRp.2.8tr.TakafulRp.1.7tr,IslamicMutualFundRp.1.8 Islamic 0 35% or Rp 5 4 tr) SBIS Rp 2 8 tr Takaful Rp 1 7 tr Islamic Mutual Fund Rp 1 8 tr,Gov.SUKUKRp.4.7tr,RetailGov.SukukRp.5.6tr.ShareofIslamicFinance 1.6%or Rp.74 tr.

MACRO IMPLICATIONS

55

Perputaran Barang & Jasa (Produktif)

Aktifitas ekonomi non-produktif membuat perputaran barang dan jasa semakin hari semakin k dil ki kerdil
Aktifitas Keuangan (Non-Produktif)

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Real Sector DSU/mustahik

Monetary Sector

korupsi j judi spekulasi bunga SSU/muzakki

Barang & jasa

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Real Sector DSU/mustahik

Monetary Sector y

j judi spekulasi bunga SSU/muzakki

Barang & jasa

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Real Sector DSU/mustahik

Monetary Sector

spekulasi bunga SSU/muzakki

Barang & jasa

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Real Sector DSU/mustahik

Monetary S t M t Sector

bunga SSU/muzakki
Barang & jasa

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Allahu A lam Alam

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