Syariah Banking

The fact that the State with the world’s largest Muslim population still does not have a Syariah banking Law should be, or perhaps is, a source of some embarrassment for Indonesia. The Syariah Banking Bill has been on the table since late 2005 when the DPR took it up as an initiative on 27 September 2005. However, despite being allocated to Commission XI and a number of hearings and comparative study tours, the only real development on the enactment front has been an ever-expanding list of problems and contentious issues.

This is in stark contrast to the positive outlook of some of my earlier writings which did not envisage the sorts of problems that have arisen.

Some of the issues that have arisen and developed over time include:

• Overlapping responsibilities between the Syariah Banking Committee (Komite Perbankan Syariah) and the National Syariah Board which is under the authority of the National Ulema Council (Majelis Ulema Indonesia / MUI). Both of these organizations are to play a role in issuing fatwas and/or opinions about Syariah banking products and services (see Articles 32-34);
• Syariah banks obligations to open their books and report to Bank Indonesia (BI) which in effect provides not only a supervisory role but also an investigative role that will ultimately overlap with the role to be played by investigators tasked with investigating alleged breaches of prevailing banking provisions (see Articles 56-58); and
• A lack of standardized and acceptable Syariah banking accounting methods and principles.
  

The positioning of the Syariah Banking Committee is critical as fatwas and opinions issued by the MUI or the National Syariah Board have no legal binding authority as such. Therefore, it is BI’s position that the more appropriate placement of the Syariah Banking Committee is under the auspices of BI so as there will be subsequent binding authority to any fatwas issued by the Committee.

This is an issue that will continue to generate heated and intense debate, particularly with respect to who has the legal and religious qualifications to make determinations regarding the validity of Syariah banking products and services.

Potentially, divergent opinions on what constitutes a valid Syariah banking product or service will negatively impact on the ability of Syariah banks to carry on their business as there will be no, or only limited, legal certainty.