Islamic banks call for better cooperation

Islamic banks call for better cooperation

JAKARTA (JP): The ninth two-day international conference on Islamic banking ended here Saturday, paving the way for better cooperation among Islamic banks throughout the world.

Bank Indonesia's Governor, J. Soedradjad Djiwandono, told reporters that the conference also came up with a suggestion for stronger support from governments and central banks to encourage the operation of Islamic banks.

"The regulatory frameworks of the central banks, especially in supervision activities, need adjustment," Soedradjad told reporters about the result of the conference, which was participated in by 130 Islamic banking experts representing central banks, Islamic banks and financial institutions.

Soedradjad said that the conference, jointly organized by Bank Indonesia and the International Association of Islamic Banks, also agreed to form a committee to monitor the implementation of the policies set out by conference.

He said that the conference paved the way for better cooperation among Islamic banks worldwide in dealing with the technical aspects of the banks, which base their service on profit or loss sharing arrangements rather than on interest as is the practice of conventional banks.

"For Indonesia, where the operation of Islamic banks is still relatively new, the conference's outcome is very beneficial," he said. "The theme of the conference was very much suitable for the stage of development of our Islamic banks. So we can received a lot of input," he added.

Constraints

The conference also discussed the constraints faced by Islamic banks in non-Islamic countries, such as the creation of liquidity instruments to support their operations.

For Bank Indonesia, as the central bank, he noted, the development of Islamic banks also poses new challenges in providing facilities for their liquidity needs.

Soedradjad said that the central bank's facilities in securities transaction activities are at present available only for non-shariah banks.

Consequently, he added, it is necessary for Bank Indonesia to create liquidity facilities that are compatible with the non- interest Islamic banks.

He said that such facilities should have specific characteristics so that they can be sold or bought as securities on the basis of nominal prices or at face value with a risk- sharing agreement.

The central bank also faces new challenges in the area of supervision of the Islamic banks because the Indonesian banking law guarantees equal treatment to both Islamic and conventional banks. (hen)