MUI commission bans bank interest

Dadan Wijaksana and A. Junaidi, The Jakarta Post, Jakarta

The Indonesian Ulemas Council (MUI) Edict Commission said on Tuesday that it had agreed to declare interest on money as riba, which is forbidden under Islamic law, but MUI deputy chairman Din Syamsuddin said that the edict was not final.

Ma'ruf Amin, chairman of the MUI Edict Commission, said that the commission had decided to prohibit the application of interest in financial institutions such as banks, insurance companies, pawn houses, and cooperatives.

"We agreed that the interest is the same as the practice of riba which was haram (prohibited) during the era of Prophet Muhammad," Ma'ruf told reporters on the sidelines of a MUI meeting here.

Ma'ruf said MUI would prohibit Muslims from using conventional banks once sharia banks were already operating in their area.

"We consider the current situation an emergency, so Muslim people are still allowed to use conventional banks. Someday, if the number of sharia banks is already adequate, we may prohibit Muslims from using conventional banks," he said.

Ma'ruf, who is also a deputy chairman of the country's largest Muslim organization Nahdlatul Ulama (NU)'s lawmaking body, denied suggestions that the edict was aimed at helping sharia banks attract customers from conventional banks, amid the current tough competition among banks.

MUI deputy chairman Din Syamsuddin, however, said that the commission's decision on interest was not final.

"It's not yet final. We, the chairmen and deputy chairmen, will hold a meeting soon to discuss the issue," Din, who is also deputy chairman of the country's second largest Muslim organization Muhammadiyah, told reporters before attending the closing ceremony of the national gathering.

He stressed that the MUI leadership would consider opinions from other Muslim organizations, including NU and Muhammadiyah, before deciding whether to ban bank interest or not.

NU and Muhammadiyah as organizations had earlier said that bank interest was not forbidden as it was different from the practice of riba during Prophet Muhammad's era.

NU owns Nusumma Bank, while Muhammadiyah manages Bank Persyarikatan; both apply interest.

Meanwhile, Vice President Hamzah Haz said on Tuesday that the edict was not binding.

"We leave it all to the people. Muslims who consider the interest of conventional banks unacceptable can go to sharia banks. It is no problem because it (the edict) is not binding," Hamzah was quoted by detik.com as saying.

Hamzah, who is also chairman of Muslim-based United Development Party (PPP), argued that bank interest could not be banned as it had been applied universally.

Meanwhile, bankers regretted on Tuesday the decision of the MUI Edict Commission to ban bank interest as it could hurt the banking sector.

Sigit Pramono, the newly appointed president of Bank Negara Indonesia (BNI) 1946, said that such a move could deal a huge blow to the banking sector, which has not fully recovered from the crisis in the late 1990s.

Sigit suggested that the country's highest Islamic body coordinate with Bank Indonesia as the sole agency overseeing the country's banking sector.

"MUI indeed has the authority to declare something haram. But, coordination with BI will be the key in this regard," Sigit said, while urging also that if the plan is to go ahead, alternatives must be provided.

Another banker, Jahja Setiaatmadja, a director of Bank Central Asia (BCA), told The Jakarta Post that the move was poorly timed.

Not only could it slow down the pace of recovery in the banking sector, it could also backfire considering the limited network and number of sharia banks the country has at the moment, Jahja added.

Three years ago, MUI issued a similar declaration, but it had little impact on the banking practices. However, the edict is expected to encourage conventional banks to open Islamic bank units.