Mar'ie calls for int'l Islamic banking system
Mar'ie calls for int'l Islamic banking system
JAKARTA (JP): Minister of Finance Mar'ie Muhammad called on interest-free Islamic banks yesterday to forge the way for the creation of an international Islamic banking system.
Speaking at the opening of the ninth Expert-level Conference on Islamic Banking, the minister said that the creation of such an Islamic banking system is essential to enable them to help each other.
He acknowledged that the lack of international standards has impeded the global operation of Islamic banks.
Mar'ie also called on Islamic banks, which avoid interest incomes, to follow the trend in the globalization of financial markets.
"It means that Islamic banks must operate side by side with banks from all over the world, which mostly do not operate under Islamic principles," he said in his opening speech.
The integration of Islamic banks into the world system represents a significant challenge for the Islamic banking world, he said.
The two-day conference, which ends today, is discussing rules governing Islamic banking operations and exchanging experiences among central bankers in regulating and supervising Islamic banks. The conference is attended by 133 participants representing universities, central banks, Islamic banks and state banks.
Bank Indonesia (the central bank) Governor Soedradjad J. Djiwandono told the conference that the existence of Islamic banks, which base their activities on the Islamic principles of profit sharing, is guaranteed by the Indonesian banking law.
However, Islamic banks often face specific problems related to their inability to act freely, like conventional banks, due to limited financial instruments and facilities, which can be used by the banks without violating the shariah (legal) principles, he said.
"Those limitations represent a formal impediment constraining the activities of the shariah banks, especially those related to inter-bank transactions, fund mobilization and fund allocation," Soedradjad added.
Challenges
For Bank Indonesia, 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 supporting securities transaction activities are at present available only to non-shariah banks.
Consequently, he added, it is necessary for Bank Indonesia to create liquidity facilities that are compatible with non-interest Islamic banks.
He said those facilities should have specific characteristics, so that they can be sold or bought as securities on the basis of nominal prices or face value with a risk-sharing agreement.
In another aspect, the central bank also faces new challenges in the area of supervision for Islamic banks because the Indonesian banking law guarantees equal treatment to both Islamic and conventional banks.
However, restrictions in the operations of Islamic banks require the establishment of a special supervisory procedure for them, such as standard measurements to classify the quality of earning assets, the quality of loan portfolios and other ratios in determining the rating of the banks' soundness.
At least 43 Islamic banks, comprising of one commercial and 42 secondary (rural) banks, have been allowed to function since the introduction of the law allowing their operation three years ago.
The operation of Bank Muamalat Indonesia, the only Islamic commercial bank in the country, has rapidly expanded. Its total assets reached US$112 million as of last November, with its total fund mobilization of over $57 million.
The total assets of Islamic rural banks based on the shariah principle were $10 million as of last September, with a fund mobilization of over $6 million. (hen)