Islamic Banking in Indonesia in Brief

In view of providing a wider banking services alternative to Indonesian economy, the development of Islamic banking in Indonesia is implemented under dual banking system in compliance with the Indonesian Banking Architecture (API). Islamic banking and conventional banking systems jointly and synergically support a wider public fund mobilization in the framework of fostering financing capability of national economic sectors.

The characteristic of Islamic banking operation is based on partnership and mutual benefits principle provides an alternative banking system with mutual benefits both for the public and the bank. This system will give priorities to aspects related to fairness in transaction and ethical investment by underlining the values of togetherness and partnership in production, and by avoiding any speculative activity in financial transaction. By providing various products and banking services supported by variative financial scheme,.Islamic banking will be a credible alternative that can be benefited by all of Indonesian people without exception.

In the context of macro economic management, an extensive use of various Islamic financial products and instrument will help attaching financial sector and real sector and create harmonization between the two sectors. In addition to support financial and business the widely use of islamic product and instrument will also reduce speculative transactions in thus the economy supports the stability of overall financial system. At the end, the Islamic banking will significantly contribute to the achievement of mid-long term price stability.

The enactment of Act no. 21 of 2008 issued on July 16, 2008 has provided a more adequate legal base to the development of Islamic banking in Indonesia ,and consequently will accelerate the growth of the industry. With an impressive development progress reaching an annual average asset growth of more than 65% in the last five years, it is expected that Islamic banking industry will have a more significant role in supporting national economy.

Policy of Islamic Banking Development in Indonesia.

”The Blueprint of Islamic Banking Development in Indonesia ” prepared by Bank Indonesia in 2002 provides guidance to stakeholders of Islamic banking and to set the position and vision of Bank Indonesia in developing Islamic bank in Indonesia. In the process of preparing this Blueprint, various aspects have been taken comprehensively into consideration such as the actual condition of national Islamic banking industry including related tools, development trend of Islamic banking industry within international scale as well as system development of national Islamic finance that has started to be materialized and inseparable from wider architectural landscape such as Indonesian Banking Architecture (API) and Indonesian Financial System Architecture (ASKI) including international best practices formulated by international Islamic financial institutions such as IFSB (Islamic Financial Services Board), AAOIFI and IIFM.

The development of Islamic banking was directed to provide the highest benefits to the public and to give optimal contribution to national economy. Consequently its development path is always referred to other strategic plans, such as Indonesian Banking Architecture (API), Indonesian Financial System Architecture (ASKI) as well as Medium Term National Development Plan (RPJMN) and Long-Term National Development Plan (RPJPN). Therefore, the policy in developing Islamic banking is a part and an activity supporting the achievement of a larger scale strategic planning in developmnet at national level.

”The Blueprint of of Islamic Banking in Indonesia ” defines the vision, mission and target of Islamic banking development as well as strategic initiatives with clear priorities in response to the main challenge and in reaching the target for the next ten years by achieving significant market share of Islamic banking through the advancement of the role of Islamic banking in the national, regional and international financial activities with other Islamic financial sectors.

In the condition of its integration, in the short term, the phase of Islamic banking development is more directed toward servicing the huge potential of domestic market. In other words, Indonesian Islamic banking must be able to become domestic player with an internatioal quality in services and performance.

Subsequently, the Islamic banking system envisioned by Bank Indonesia is a modern Islamic banking with open and universal characteristics and inclusive to all Indonesian people with no exception. It refers to banking system presenting applicative forms of Islamic economic concept that is wisely formulated in the current context of problems faced by Indonesia within the consciousness of the historical socio-cultural condition of this country. Only by doing that, the aspiration development of Islamic banking will always be recognized and accepted by all Indonesian people as a part of the solutions to the various problems encountered by this country.

Grand Strategy of Islamic Banking Market Development

In line with the concrete efforts in developing Islamic banking in Indonesia, Bank Indonesia has formulated a Grand Strategy of Islamic Banking Market Development, as a comprehensive strategy of market development covering strategic aspects, such as: determining the vision of 2010 as the leading Islamic banking industry in ASEAN, creating the new image of inclusive and universal Islamic banking, mapping a more accurate market segment, developing more various products, improving services as well as adopting new communication strategy of Islamic banking by positioning it as a beyond banking position. ( Islamic banking is more than just a bank).

Hence, different concrete programs have and will be performed as the implementation stage of the Grand Strategy of Islamic Banking Market Development including but not limited to the following measures:

First, assigning a new vision of Islamic banking development on phase I in 2008 to build understanding in Islamic banking as Beyond Banking by reaching an asset target of Rp 50 trillion and industrial growth of 40%, phase II in 2009 with the objective of positioning Indonesian Islamic banking as the most attractive one in ASEAN. Phase III in 2010 will have the objective of attaining Indonesian Islamic banking as a leading Islamic Bank in ASEAN.

Second, new image program of Islamic banking that includes positioning, differentiation and branding aspects. The new positioning of Islamic bank as banking that provides mutual benefits to both parties, differentiation aspect with competitive advantages with various products and schemes, transparency, competent and ethical finance, updated and user friendly information technology as well as qualified investment expert of Islamic finance. Branding aspect will be represented by ”Islamic bank, more than just a bank “( beyond banking).

Third, new mapping program which is more accurate on Islamic banking market potential that generally directs Islamic bank services as universal service or bank accessible for all kinds of people and all segments in accordance with the strategy of each Islamic bank.

Fourth, product development program directed to various products variations supported by the unique value offered (mutual benefits) and strenghthened by a wide office network and the use of easily comprehended standards of product name (example : deposit – iB, financing – iB).

Fifth, program of service quality enhancement supported by competent human resources and the supply of information technology to meet customer ’s requirement and satisfaction. This competency is also expected to be able to communicate products and services of Islamic banking to customer correctly and clearly get always complying to sharia principles; and

Sixth, a wider and more efficient socialization and educational program for public interest through various direct or indirect (printing and electronic media, online/website) communication channels with the objective of contributing comprehension on the advantages of Islamic banking products and services that can be benefited by the public. 

source : http://www.bi.go.id/web/en/Perbankan/Perbankan+Syariah

History of Islamic banking

Classical Islamic banking

Main article: Islamic economics in the world
Further information: Early reforms under Islam

During the Islamic Golden Age, early forms of proto-capitalism and free markets were present in the Caliphate, where an early market economy and an early form of mercantilism were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". A vigorous monetary economy was created on the basis of the expanding levels of circulation of a stable high-value currency (the dinar ) and the integration of monetary areas that were previously independent.

A number of innovative concepts and techniques were introduced in early Islamic banking, including bills of exchange, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of capital (al-mal), capital accumulation ( nama al-mal), cheques, promissory notes, trusts (see Waqf), startup companies, transactional accounts, loaning, ledgers and assignments. Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.

Riba

The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart." or "to ensure equivalency in real value" and that "numerical value was immaterial." During this period, gold and silver currencies were the benchmark metals that defined the value of all other materials being traded. Applying interest to the benchmark itself (ex natura sua) made no logical sense as its value remained constant relative to all other materials: these metals could be added to but not created (from nothing).
Applying interest was acceptable under some circumstances. Currencies that were based on guarantees by a government to honor the stated value (i.e. fiat currency) or based on other materials such as paper or base metals were allowed to have interest applied to them.[When base metal currencies were first introduced in the Islamic world, no jurist ever thought that "paying a debt in a higher number of units of this fiat money was riba" as they were concerned with the real value of money (determined by weight only) rather than the numerical value. For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had to be same because all makes of coins did not carry exactly similar weight).

Modern Islamic banking

The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image—for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime. The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 1981), by which time there were nine such banks in the country.

In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which, till date, is still in business in Egypt. In 1975, the Islamic Development Bank was set-up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries, plus an additional 250 mutual funds that comply with the Islamic principles. The relative stability of Islamic banking institutions in current recession has gained it attention. Even The Vatican said banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis.

Original Article on wikipedia

Islamic Economic Not only Sharia Bank

Phenomenon sharia banking in Indonesia and other financial institutions have sharia deliver understanding of the Muslims of Indonesia in the Islamic economic institutions. Known before the sharia banking institutions, the knowledge of the problem is still shaped theoretical study on the implementation of the economic possibilities exist in the Islamic financial institutions. Questions that arise is how the model of Islamic economic institutions? In what form of Islam that institutional economics? Row and many questions relating to the financial institution that sharia essentially ask whether the possible economic institution Islam in a modern financial institution, such as banking or other financial institutions?

The answer is possible and can, even though the reality we charged through the process of Islamization of the way many modern financial institutions that its findings is the result of the capitalist West-and the vehicle for them to successfully realize the ideals of a global economic empire. Islamization is a choice selection of the "bitter pill" because we have seen can not find the institution of sharia finance exactly the genuine from the Al-Quran and As-Sunnah. As a result, we will follow a little more with the model of financial institutions that offered by the Western-capitalist, and even seemed to find the slit does not sink to the condition which is considered not in accordance with Islamic sharia.

In some cases the emergence of financial institutions in Indonesia such sharia’s banking has an important meaning for the economic development of Islam in the future. The emergence of sharia financial institutions in Indonesia at this time is a phase of economic boom in Islamic institutions. Many sharia banking, insurance and sharia financial institutions bringing name appear like mushrooms sharia in the rainy season. In fact, there is an assumption that does not follow up a sharia financial institutions or at least open the way to the business unit is considered not to follow sharia trend of the present and will be left by Muslims and not acknowledged islamic in economy.

However, note that our awareness is the understanding that a akan economic Islam is not only monopolized by the sharia banking, cooperative financial institution, or sharia finance’s other. This is because the paradigm is while people still assume that when talking about the economy directly orientasinya Islam is to the existence of financial institutions that sharia manifestation exist in banking or insurances sharia. Essentially, economics is the Islamic banking and sharia insurances. Paradigm that is not all wrong, but there needs to be straightened in it. That the economy is not only Islamic banking and sharia insurances. Instead, banking and insurances sharia flakes is a small economy of the Islamic financial institutions in sharia.

More broadly, the economic understanding of Islam is from the teachings of Islam itself from the Al-Quran and As-Sunnah. Many paragraph Al-Quran and As-Sunnah that has been providing guidance to us to make economic activities. At the micro level, economic activity Islam can also be applied to the life of the household. Basic principles in Islamic economics to build a foundation in life and settle down in order to meet the needs of family life. Teachings about living a simple and not over-apply and not wasteful is a small part of Islamic teachings that contain the economy. On the other hand, the principle of life that provides guidelines on the teachings of "Fast is better than the debt" is a reflection of the economic value of Islam.

In the picture above the two can complement each other. First, the implementation of Islamic economics in the macro-level institutional model with sharia banking and other financial institutions sharia as a reference implementation. Second, the implementation of Islamic economics in the micro-level family in a way on economic values of the Al-Quran and As-Sunnah to be implemented in the life of him, and form. If both are running simultaneously means that the coverage on the micro and macro scale can be realized in a real implementation. The problem now is how to measure the level of involvement of Muslims in implementing the economic values of Islam in the Al-Quran and As-Sunnah in the micro-family level or the macro-institutional arrangements. A great job and a challenging project if the research was serious about it. Currently, there is no clear picture about the "map" the involvement of Muslims in Indonesia the Islamic sharia is empty on economic behavior.

Reality in our society, Indonesian Muslims have to give serious attention to the consistency in implementing the teachings of Islam even though still not perfect. Special problems in the economy, the practice of simple life and not excessive scenes that have become typical in the life of Indonesian society, especially in rural areas. They recruit their lives with the natural wealth of the surrounding environment. Not excessive if they show as a family living in homely and feel a quiet life with the way with other people. Atmosphere such as this life was built on the basis of the awareness to find Ridha Allah SWT. oriented and always to pursue the gift that has been previously prepared by Allah SWT. for the nature of human life in this world. Portrait of life as mentioned above is one of the serpihan economy of the implementation of Islamic teachings that have been institution to him in life and form.

On the other hand, the value of moral teachings for containing the "fast of the debt" is a flakes of behavior in implementing the teachings of Islam that have economic importance to the fulfillment of him, and form a state. Moral teachings are very simple and simple but have great implications for human life both at the micro scale and on the macro scale. Implementation of the teachings to "fast from the debt" contains implicit value that we always put the spirit and the spirit of self is based on strength alone does not hang out with other people in power with the help and expect help if when a lack of economic experience. Moral values is to provide lessons for us all to be in the condition where we lack economic experience, to get "fast" is something better than we have to "owe" to the other party. In the cases such as this, short of the needs of our economy is put in a certain limit with how to run fast and try to explore with the lack of trying entrepreneurship, either through their own efforts or with the work of others.

Perception that is not true at all of this tradition is "debt" has become something of glory, has even become a trend for the new model of development that are encouraged in this Republic. Not only private sector employers who have less well this tradition, but the government itself provides an example regarding the vulgar practice of debt to some donor countries. Data each year in income and expenditure account the state ensure that from the help (read: debt) overseas. This illustrates that the economy can not at this time of winding throw away foreign debt. A description of the population live financed from debt. Very tragic and grievous. This issue will unravel if there is a courage of shareholder and stockholder of this country to take the decision to take "fast" with both government and residents. It is time for us now is "fast" and not with the "debt" in the future based on the ability and strength in the country. Therefore the delivery of necessary information to a broad community to get "fast" rather than "debt". When you need to have a national movement as a whole fasting together the elements of the nation. If this is done, the economic value flakes Islamic moral can be implemented in real life.

***
Reality on the need to realize that with the Islamic economy have a broad scope, not just the macro-scale model of the banking institution with sharia, or cooperative insurances sharia, but the further implementation of the Islamic economy can be done through awareness of the behavior of individuals in the family to implement the teachings of Islam kaffah, especially related to economic values. Islamic economics can growing of family environment with the way the teachings of Islam itself. This is a point that diferent between the Islamic economic concept with the conventional economic concept, both capitalist and socialist. In the teachings of Islam, Islamic economics in the conduct of daily life have a meaning also run Islam itself, because the source was made in implementing the economic basis of Islam is the religion of Islam with the Al-Quran and As-Sunnah as the primary reference. Economy is in the conventional (read: capitalist and socialist) are release moral values and does not have any references that such economic authentic Islam. Wallahu 'natural shawab bus.

Article AM. Hasan Ali, MA. (Staff Pengkaji PKES) in www.pkesinteraktif.com