In recent times, the business judgment rule (BJR) has frequently been\ndiscussed in relation to the criminalisation of bankers. The Financial\nServices Authority (OJK) has stressed the importance of legal certainty\nfor banking industry players, urging that non-performing loans should\nnot automatically be treated as criminal acts provided business\ndecisions were made in good faith, following procedures, without\nconflicts of interest, and with adequate risk mitigation efforts.<\/p>\n
This message deserves serious attention, as without such boundaries,\nloan disbursements could easily be hindered and risk-taking could turn\ninto excessive caution.<\/p>\n
However, for Islamic banking, BJR holds little meaning if merely used\nas a legal protection jargon. It truly comes alive only when built on\nserious risk management, effective internal controls, and governance\nthat leaves clear accountability trails when needed.<\/p>\n
My previous two articles on CNBC Indonesia focused on external\nsafeguards: preventing non-performing loans from being criminalised and\nhow the OJK uses BJR to distinguish between business risks and\nfraudulent acts.<\/p>\n
This piece shifts the camera to the engine room. The focus is no\nlonger on how willing regulators are to protect bankers, but whether the\nIslamic banking industry has prepared sufficient risk management to\njustify such protections.<\/p>\n
This question is crucial because Islamic banking never operates on\nguaranteed returns. It functions on business risk management that is\nrecognised, measured, and controlled from the outset. In many contracts,\nparticularly those involving profit-sharing and risk-sharing dimensions,\nthe possibility of loss is not an external disruption but a legitimate\npart of the legal structure.<\/p>\n
At this point, a legal approach that swiftly criminalises every\nproblematic loan risks misreading the inherent risks of the business.\nConversely, calls to not automatically treat non-performing loans as\ncrimes must not be used as a shield for weak internal governance.<\/p>\n
This is where risk management becomes the mainstay of BJR. Through\nPOJK No.\u00a065\/POJK.03\/2016 and SEOJK No.\u00a025\/SEOJK.03\/2023, the OJK\nmandates that Islamic commercial banks and their units must implement\nrisk management for ten types of risks: credit, market, liquidity,\noperational, legal, reputational, strategic, compliance, return, and\ninvestment.<\/p>\n
The regulations also require active supervision by the Board of\nDirectors, Board of Commissioners, and Sharia Supervisory Board;\nadequate risk policies and limits; sufficient processes for\nidentification, measurement, monitoring, and control; and comprehensive\ninternal control systems.<\/p>\n
In other words, regulators are sending a fundamental message: Islamic\nbanks must not be managed merely with good intentions but with a robust\nand testable risk management architecture.<\/p>\n
The issue is that in daily practice, risk management often stops at\nbeing a checklist rather than a disciplined mindset. It appears in\ntraining modules, neatly documented in policies, and fluently discussed\nin evaluation forums.<\/p>\n
But when strategic decisions truly need to be made, this function\nisn\u2019t always a living consideration. Often, it becomes an administrative\nappendix opened only after a decision is nearly finalised, as if its\nrole is merely to stamp formal approval on choices predetermined from\nthe start.<\/p>\n
Recent data shows this problem cannot be overlooked. By end-2025, the\nOJK recorded total assets of Islamic banking at around Rp1.067 trillion,\nwith financing at Rp705 trillion and third-party funds exceeding Rp829\ntrillion.<\/p>\n
At the same time, total Islamic financial assets in Indonesia,\nexcluding Sharia-compliant stocks, reached approximately Rp3.131\ntrillion. While gross NPF ratios remain around 2.1-2.2% with net NPF\nunder 1%, figures that appear healthy at first glance.<\/p>\n
It is precisely during such growth phases that risk discipline is\nmost rigorously tested. As portfolios expand, small-ratio non-performing\nloans can still represent significant nominal amounts, and if not\nmanaged properly, quickly escalate into disputes, reputational pressure,\nor legal issues.<\/p>\n
In daily industry experiences, weaknesses often go unnoticed as they\nseem mundane: well-formatted loan analysis memos with thin reasoning,\nsite visits that are more ceremonial than business verification, risk\nfunction records that don\u2019t genuinely influence final decisions, or\nrestructuring that merely buys time without addressing root causes.<\/p>\n
On paper, all procedures seem to function. In practice, many\nprocesses merely move to meet format requirements. Hence, for risk\nmanagement to truly support BJR, Islamic banks must no longer settle for\nneatly structured policies and quarterly risk profile reports.<\/p>\n
What must come first is the courage of the Board of Directors, Board\nof Commissioners, and Sharia Supervisory Board to make risk the primary\nlanguage in every decision, not just marginal notes read after problems\narise. After that, risk management policies and procedures must be\npractically translated into limits, authorisations, lending discipline,\nand information systems capable of providing early warnings.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/without-serious-risk-management-bjr-in-islamic-banks-is-an-illusion-1780353788", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }