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)