Central bank plans special instrument for Islamic banks
Central bank plans special instrument for Islamic banks
JAKARTA (JP): Bank Indonesia (the central bank) is preparing a money market instrument to back up the operation of Islamic banks in the country.
Mansurdin Nurdin, a central bank director, said yesterday that the establishment of the new market instrument is one of the central bank's important programs in supporting Islamic banks in Indonesia.
He said that Islamic banks, which base their operations on a profit-sharing system, should have their own money market instruments because the present system is not compatible with their banking principles.
"The establishment of money market instruments based on Islamic principles is essential to back up the future operation of Islamic banks," he said at a press briefing on next week's 9th conference of Islamic banking experts.
The meeting, to be hosted by Bank Indonesia, will be held in Jakarta. The conference, which will be attended by 122 Islamic banking experts representing 15 central banks, 11 conventional commercial banks from Asia and the Middle East, International Monetary Fund and Islamic Development Bank.
Mansurdin said the conference will discuss two main subjects concerning capital adequacy, liquidity requirements and lenders of the last resort for Islamic banks.
"This conference will be motivation for Bank Indonesia to get inputs for the establishment of non-interest money market instruments," he said during the press briefing, which was also attended by Zainulbahar Noor, the president of Bank Muamalat Indonesia, the country's first Islamic bank.
Profit sharing
Bank Muamalat, the country's only Islamic bank, established in 1992, bases its operation on profit-sharing contracts and does not offer interest rates which are commonly offered by conventional banks.
Mansurdin said the central bank still limits the operation of commercial banks using Islamic banking principles due to the lack of money market instruments to back up their liquidity.
He said, however, that unlike commercial banks the opportunity for the establishment of district-based secondary banks under Islamic banking principles is still widely open.
"At least 46 secondary banks are operating under Islamic banking principles at present. Around the same number are still waiting for licenses," he said.
Zainulbahar acknowledged that the lack of special money market instruments would hamper the operation of Islamic banks in the future.
"At present, we face no liquidity problems due to our sufficient reserves," he said. "But in the future, a special scheme should be introduced so that Islamic banks will face no problem in managing their liquidity."
Bank Muamalat was reported to have suffered a problem during the early years of its operation, especially in dealing with its over-liquidity due to the absence of money market instruments, which are based on a profit-sharing plan. (hen)