Understanding 'Syariah' banking
Understanding 'Syariah' banking
Perbankan Syariah, Perspektif Praktisi; (Syariah Banking, Perspective of the Practitioner); Written by the Muamalat Institute; Published by the Muamalat Institute, November 1999; xiii and 162 pages
Why is Syariah banking, (based on Islamic law), so unpopular in Indonesia, home to the world's largest Muslim population? As well as related to differences in interpreting Islamic law, and the fact that Syariah banking is not expressly condoned in the Koran, it is also because this form of banking, only appearing at the end of the 1970s, is still relatively new, and -- more importantly -- more complex than conventional banking practices.
Differences in interpretation are one clear reason for the limited response. But this excuse will not hold water forever. Another factor is socialization. It must be admitted that the socialization of this form of banking has, up to now, been limited, whether through campaigns or through the dissemination of comprehensive information about Syariah banking.
In fact, the latter reason was well understood by Bank Muamalat Indonesia (BMI), the pioneer of the Syariah banking system in Indonesia. BMI realized that many of its prospective customers clearly had no idea that Syariah banking was in many ways no different from conventional banks and other financial institutions with respect to its products.
In fact, for sheer variety of products and services, Syariah banking compares very favorably with average conventional banks. But because it is based on a bagi hasil (profit sharing) system, the nature of these products and services differs. What is more, they are more complex. This is why prospective customers need practical information about these products.
In its book Perbankan Syariah: Perspektif Praktis, BMI attempts to describe in practical but comprehensive terms the different products and service it offers. There are sections on definition, an explanation of Islamic law, regulations and practices, banking technicalities and accounting. In this way, the "strange" terms used are no longer an obstacle to understanding Syariah banking.
However, it must be said that these books have given rise to a widespread belief that the practicalities of Syariah banking are more complicated than conventional banking. (What is meant here is a general bank, rather than investment bank or a mutual fund.) And, because Syariah banking not only deals with banking operations but also the implementation of universal Islamic teachings and practice, books dealing with practical aspects alone are clearly insufficient.
It is interesting to note that because the book was published soon after Regulation No. 10, 1998, which enabled other banks in Indonesia to practice this form of banking, and the onset of the economic crisis, which forced tens of national banks -- which work on the interest principle -- into receivership or bankruptcy, this book found a ready audience.
The main idea behind Syariah banking -- that of sharing risks and profits -- enabled the bank to weather the storm in a way that conventional banks could not. This is all too apparent from the huge debt burdens that many traditional banks now face, and the huge difficulties faced by companies in obtaining creditable sources of funding from within the banking sector. Taufik