Archive for the ‘Islamic Economy’ Category


August 22, 2010 Leave a comment


Shakeel Ahmad (
Facilitator: Dr. H. K. Pradhan (

Executive Post Graduate Program (Ex-PGP) in Management
XLRI (, Dubai (
Approved for submission: February 2004

I am grateful to Dr. H.K. Pradhan, my guide, for his continuous encouragement that enabled this study of a subject that had remained within my heart, since early ages. His teachings of International Financial Management provided insights beyond theoretical concepts, and his friendly style inspired the quest for excellence. I am thankful to XLRI, an institution that provided me with the opportunity to pursue this post graduate study in management, for which this dissertation project was undertaken.
I take this opportunity to express my sincerest gratitude to all the members of Islamic Banking and Finance Community (IBFnet) in the Yahoogroups mailing list. Islamic finance community has worked hard in providing a wealth of resources on the internet. They deserve appreciation and rewards from no less an entity than Allah SWT Himself.
Special thanks go to Dr. Obaidullah, the IBFnet’s founder. This dissertation work would not have been possible without the special help and encouragement from Dr. Shahid Ebrahim – it is difficult to express my special thanks for him, in a few words.
Finally, the time that I devoted on the Ex-PGP, and this project, was taken away from my family whose support acted not only as facilitator but also was a source of continuous inspiration.
Exploratory Channel:
Sequence Title Page
1 Introduction 3
2 Why Islamic Banking? 4
3 Islamic Banking and Finance (IFB) Sector, now 6
4 Why is Islamic Banking and Finance (IBF) creating ripples? 6
6 Literature Review 7
7 Islamic Banks 10
8 Brief History 11
9 Concepts behind Islamic Banking and Finance 13
10 Distinguishing Features 13
11 Role of Islamic Banks 14
12 Prohibition of Interest 14
13 Table-2: Comparison between Riba and Profit 15
14 Table-3: Differences between Islamic & Conventional Banking 16
15 Key Islamic Financial techniques/ Products 17
16 Box-1: Islamic Financial Instruments 19
17 Islamic Derivative Products 21
18 Advantages of Islamic Finance 21
19 Box-2: Landmark Islamic finance deal inked 23
20 Perceived Disadvantages of IBFs 24
21 Impediments to the growth of IBFs 24
22 Recommendations to counter Impediments to growth of IBFs 36
23 Latest Developments 38
24 Box-3: How Islamic is Bank Negara’s IIMM? 40
25 Islamic Bonds (Sukuk) Funds 41
26 Box-4: Conventional Investors find Islamic Bonds attractive 41
27 Box-5: US$250 Government Islamic Leasing Securities 42
28 Box- 6: Islamic Development Bank launches bond issue worth $400m 43
29 Box-7: Latest Trends & Challenges 45
30 Box-8: Bahrain: LMC to issue $1.2b bonds 46
31 Rating Agencies 48
32 Basel II Implications 49
33 Important Institutions 49
34 Conclusion 51
35 References 54
36 Appendix-A0: Estimation of TAI for UAE 59
37 APPENDIX-A: Competitiveness of Banking Sector In Case of Opening Local Markets to GCC Banks 59
38 APPENDIX-B: Islamic Financial Institutions in the World 61
39 APPENDIX-C: Islamic Equity Funds in the World
40 APPENDIX-D: The Dow Jones Islamic Market Indexes 72
41 APENDIX-E1: Assets, Deposits and Loans of 53 Conventional local Banks in GCC 73
42 APENDIX-E2: Assets, Deposits and Loans of 8 Islamic local Banks in GCC 74
Introduction: To start with graphics may not be a novel idea, but if you are associated in any way with promoting deposits or instruments of a conventional bank anywhere in the world, these graphics must already have left some alarm bells ringing in your mind. 32.83% CAGR in Deposits and 24.69% CAGR in total assets over a four-year period in a country which was written off the books of financial wizards and stock-market punters after the Asian Currency Crisis. In figure–1, the rapid rise can be seen not in one aspect but in all major aspects of banking and finance reinforcing the belief that the growth rate witnessed was an all encompassing one. The question that arises at this moment is whether this growth rate is sustainable. An answer to that would be premature without looking at the reasons behind this phenomenon, and whether the same success story is repeated anywhere else in the world.
We will try to answer some of the above questions, and also try to see if the growth in Islamic banking and finance sector could have been better. If yes, we will try to peep into the reasons behind less than expected growth.
Much has been written by historians about the feudal lords who by virtue of charging high interest rates controlled those in desperate need to finance their survival. Financial clout led to political clout and ended up in enslaving the masses. Before the historians touched upon this exploitation of the masses, religious scriptures had already warned of usurious acts existing in the society.
In the Old Testament (King James Version), Exodus, Chapter 22, verse 25:
If you lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
Leciticus, Chapter 25, verses 34-36:
And if thy brother be waxen poor, and fallen in decay by thee; then thou shalt relieve him: yea though he be a stranger, or a sojourner, that he may live with thee.
Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.
Why Islamic Banking? The New Testament also contains edicts on the same line. Thus the very mention of usury and the suggestion to avoid indulging in this act in Judaism and Christianity implies its existence in ancient times and the ills that it carried along for the society.
Despite the warning against this practice, the system prospered. Modern financial system learnt a lesson from these religious warnings and tried to adopt a system that limited the extent of usurious exploitation to a great extent. By creating a market for debt, based upon ‘perfect competition’, it propounded an end to exploitative nature of usury and thus evolved the system of interest rates which was supposed to be determined by the market forces freely competing with each other. What we see today is an expansion of the ancient feudal system into a global arena with nations facing the same plight as did individuals earlier.
From the traditional Jewish lending system of the Shylocks to the Indian feudal system, there is no need to strain our memories much. What is definitely cause for stress is the false claim of the contemporary world order to have relieved the masses of this burden of debt. Figures 2a and 2b show how countries, instead of individuals, are getting trapped into slavery. There is no doubt that Debt to GDP ratio is a robust indicator of the Debt burden of countries. If we compare the ratios that triggered the 1980s Debt crisis with the levels being experienced, now, we can see that the situation is no better, and could be enough cause for the unipolar world of the day. Despite the claim that modern interest-based system is not exploitative or usurious, because the interest rates or debt-service payments are within limits, Figures 2c and 2d provide a different picture altogether.

The transition of the world from a multipolar world order to a unipolar one has not been without pain and suffering. It is not easy to emphatically pronounce that the cause for this has been the interest-based system, but nobody should doubt that the cause has been the financial system as a whole. Interest-based system is one component of the economic system where the concept of money itself, as a worthless piece of paper carrying immense power, may be ill-conceived.

Fig-3a and 3b: Interest rates and export prices in Latin America (1972-1986)
Source: Andres Bianchi et al., “Adjustment in Latin America, 1981-86,” in V. Corbo, M. Goldstein, and M. Khan, ed., Growth Oriented Adjustment Programs, Washington, D.C.: International Monetary Fund and The World Bank, 1987.
Similarly, the argument that low interest rates cannot cause countries to lose their sovereignty also does not hold much ground. The diagnosis of the Debt Crisis of early 80s suggests that even low interest rates (Figure-3a), acting as a trap (particularly when they are floating rate, as majority of debt was) could cause countries to come down to their knees. Flushed with funds, due to the sharp oil price increase in 1973-74 leading to booming deposits by Oil-rich countries, international commercial banks were eager to lend at lower interest rates enticing the third world to borrow more and more. The debt burden measured by Debt-to-GDP ratio (Fig-2b) is an indication of the inevitable crisis that was waiting to happen.
The urge to have a system that claims to provide a solution to such financial crises grows after every financial (monetary, exchange rate, stock market or Debt) crisis. It is not hard to understand that if the value of money carried its real worth, currency crises could be avoided. If the paper being traded in stock exchanges were actually trading at their genuine value, with no speculation, bubbles that occasionally burst would not exist. If the interest-free banking system could see the light of the day, no debt-crises would occur, as all the financing would be PLS (Profit-and-Loss Sharing arrangement of Islamic financial system). Islamic banking and finance based on the Islamic economic system must be taken seriously, therefore.
This paper looks into the realities associated with this system which is growing at a much faster pace than its counterpart, and is making its conventional competitors stand up and have a look. The success of the Islamic system can be gauged by the rush among the conventional banks to open their own ‘Islamic windows’ not just in countries dominated by Muslims but also in rest of the world. Some of the Western banks already having dedicated Islamic subsidiaries are: Citibank, HSBC, American Express, ABN Amro, BNP Paribas, Bank of America, Stantad Chartered, Commerzbank, Barclays, Deutche Bank, ANZ Grindlays, Golman Schs, Royal Bank of Canada, Pictet & Cie, UBS, Flemings, Merrill Lynch and Kleinwort Benson. And the list is growing. With countries like Pakistan, Sudan and Iran adopting 100% Islamic Banking, the prospects of more countries to follow suit rising, the conventional counterparts cannot sit back and see their market share being eaten away.
Islamic Banking and Finance (IFB) Sector, now: It is difficult to obtain exact figures on the size of the Islamic financial sector. Without doubt, it is small in comparison to the conventional financial sector but it is experiencing strong growth. Iqbal and Mirakhor (1999) report that Islamic banks grew from an asset base of $5 billion in 1985 to a level of over $100 billion in the late nineties. The chairman of Dubai Islamic Bank and Emirati Minister for Financial Affairs, Mohammad Khalfan bin Kharbash, recently noted that the number of Islamic banks has grown from 34 institutions in 1983 to 250 today, operating and managing assets of $200 billion (Phillips, 2001). The annual growth rate for Islamic financial institutions varies from 15 to 40 percent annually (Hamwi and Aylward, 1999). Yet, a comparison of the assets of all Islamic banks to HSBC, just one of the world’s largest banks with assets of $569 billion in 1999 (Azzam, 2000), demonstrates how small the Islamic sector remains on the world banking stage.
Nevertheless, Islamic banking is spreading and gaining acceptance in both Muslim and non-Muslim countries. In 1999, the Middle East alone had 12 top-tiered Islamic banks with total capital of about $1.8 billion and assets of approximately $18 billion. Bosnia Bank International became operational in March 2001, positioned as a regional Islamic bank for the Balkan area, with wholesale and retail services in Bosnia (Carvalho, 2001). Many of the Islamic banks are gaining strength and achieving profits. For example, Al Rajhi Banking and Investment Corporation posted a net profit in 1997 of $347 million and return on capital of 25% (Hamwi and Aylward, 1999). Bank Al-Jazira, by far the smallest bank in the Saudi Islamic banking sector, grew profits by forty-one percent in 2000 (MEED, 2001).
Why is Islamic Banking and Finance (IBF) creating ripples?
Looking at the growth rates of IBF in comparison to the conventional banking, the reason may be obvious (Figure-4).

Malaysia being a pioneer in expansion of IFB products, our calculations for the CAGR for its leading bank BIMB (Bank Islamic Malaysia Berhard) between 1998 and 2002 yield the following results: Deposits grew at 32.4%, Investments at 39.3% and Total assets at 28.3%. It will be an impossible task for any conventional bank to match these figures during the period. For the sake of diversity in outlook, we compared the figures for two banks in UAE under the same ownership – National Bank of Abu Dhabi, a Conventional Bank and Abu Dhabi Islamic Bank, an Islamic bank. The results are even more astounding, as depicted in Figure-5.
None of the Islamic banks yielded any negative growth rates during the period under study while thirteen conventional banks in terms of Loans, seven in terms of Assets and eight in terms of Deposits reported negative CAGR. The data for all these banks are provided in Appendices-E1 and E2.
Table-1: Comparison of CAGR for 53 conventional and 8 Islamic banks in GCC
Average CAGR (1999-2001) Financing (Loans) Deposits Assets
Local Conventional Banks 7.3% 7.6% 9.5%
Local Islamic Banks 19.2% 21.4% 18.6%
Western banks and financial institutions, like Chase Manhattan, J.P. Morgan, Goldman Sachs, Commerzbank AG, Deutsche Bank AG, HSBC, Citicorp and Bankers Trust, have joined the race for providing Islamic products, but they currently exist in trade and other forms of short-term finance, mostly. Independent financial institutions based on Shari’ah are also becoming common for the Western banks and financial institutions. Citicorp’s Islamic banking unit in Bahrain established in 1996 is an example. Standard Chartered Bank Malaysia Bhd. is planning to extend its Islamic banking services to become a total money management and financial provider within two to three years (The Star, May 17, 2001). From less than 10 Islamic mutual funds a decade ago to over 90, now, according to a report by Wall (2001), is no mean achievement. High-tech fever has not caused Islamic financial Web sites to crop up and grow along with Islamic Finance.

Literature Review: The information on Islamic Banking & Finance is available in many forms, e.g., PhD dissertations (El-Bdour, 1984; Khan, 1983), books written by leading academics and practitioners (e.g. Homoud, 1985; Shirazi, 1990), published research in the form of reports (Ahmad, 1987; Iqbal and Mirakor, 1987) and journal articles (e.g. Erol and El-Bdour, 1989; Erol et al., 1990; Shook and Hassan, 1988; and Sudin et al., 1994). Because of Riba, Islamic banks have had to develop financial products which are not in conflict with the Sharia’h. The task has been achieved by creating a number of special financial products (Ali and Ali, 1994).
The main thrust of Islamic financial contracts is on profit and loss sharing, which can be deemed as equity (Musharakah) and hybrid (modified Mudharabah and Ijara) facilities (Ahmad, 1994). However, the risks of these vehicles are inherently higher than conventional ones as espoused by Ebrahim (1999). One definition of an Islamic Bank is a bank that, by its own choice, opts to comply with two sets of law: the law of the Land (Jurisdiction); and the Islamic Law (Shari’ah). This is why Islamic bankers have two types of legal counsel: traditional “lawyers” and “Shari’ah Councils” (Al-Bahar, 1996).
“Islam is deeply concerned with the problem of economic development, but treats this as an important part of a wider problem, that of total human development. The primary function of Islam is to guide human development on correct lines and in the right direction. It deals with all aspects of economic development but always in the framework of total human development and never in a form divorced from this perspective” (Al-Harran, 1993). The Shari’ah specifies, inter alia, rules that relate to the allocation of resources, property rights, production and consumption, and the distribution of income and wealth (Iqbal and Mirakhor, 1987).
Islamic banking advances the following set of beliefs: interest as a reward for saving does not have any basis as a moral foundation; abstinence from spending of present income does not deserve a financial reward; and to benefit from money is to transform the money into investments, conditioned to accept risks and bringing the knowledge of other factors of production together (Presley, 1988).
Rayner (1991) lays down four elements of a contract on a property (mal): they are lawfulness, existence, deliverability and precise determination. Ebrahim (1999) explains that profits on Murabahah facilities are generally higher than conventional loans because Islamic instruments are structured to share the risk of the asset or venture. Hence, the “profits” and “interest-charge” implied are similar in outcome, although not by design (Iqbal and Mirakhor, 1999; Rosly, 1999). Thomas (1995) is of the view that Riba, Gharar and Maysir manifested in the conventional system can wreak havoc in an economy as advanced as the USA, as depicted by the massive failures of US savings and loans institutions of the 1980s. Islamic banking aims to promote economic growth through risk-sharing instruments whose payoffs fluctuate with economic output and do not structurally impair the economy in the manner of excessive fixed-interest debt does in a poor economic environment such as a recession (Asquith et al., 1994; Andrade and Kaplan, 1998).
The potential of Islamic fixed income securities backed by an Ijara facility is discussed by Kahf (1997).
Islamic Derivatives: These comprise both Islamic Futures and Embedded Options in a contract. However, the development of it is largely unrealized (Khan, 1995). Ebrahim (2001) recommends to design, develop and implement Islamic hedging and risk minimizing facilities such as Islamic futures (Bai Al-Salam/Istisna), Islamic swaps, etc. (Iqbal, 1999). (Ebrahim, 2000) further recommends to design, develop and implement Islamic facilities that enhance the competitive ability of Islamic banks and reduce their risk exposure.
The excessive use of credit facilities by Islamic banks globally has drawn the ire of scholars such as Ahmad (1989) and El-Naggar (1994). Conventional futures are very controversial with the Ulema – religious scholars (Kamali, 1999). It should be noted that certain Ulema such as Justice Taqi Usamani have given their verdict allowing contracts with embedded options (Kahn, 1999).
Part of the study of Erol and El-Bdour (1989), conducted in Jordan, aimed at establishing the attitude of local people towards Islamic banking. The results suggest that religious motivation did not appear to play a primary role in bank selection; the opening of new branches was not an important factor in increasing the utilization of financial services provided by Islamic banks; while 39.4 per cent of respondents would withdraw their deposits if an Islamic bank did not generate sufficient profit to make a distribution in any one year, 30.4 per cent would retain their deposits because the Islamic bank could distribute a higher dividend the following year.
Gerrard & Cunningham’s (1997) study establishes that, in Singapore, which has a minority of Muslims in its population, both Muslims and non-Muslims are generally unaware of the culture of Islamic banking. Also the two separate groups have different attitudes towards the Islamic banking movement, with the degree of difference depending on the nature of the respective matter put to them. For example, when asked what they would do if an Islamic bank did not make sufficient profits to make a distribution in any one year, 62.1 per cent of Muslims said they would keep their deposits within the Islamic banking movement, while 66.5 per cent of non-Muslims said they would withdraw their deposits.
Much has been written since the early 1960s on the theme of the bank selection process (see, for example, the published articles of Anderson et al. (1976); Holstius and Kaynak (1995); Kaynak (1986); Kaynak et al. (1991); Laroche et al. (1986), and the working paper of Chan (1989)). Erol & El-Bdour (1989) and Erol et al. (1990) compared the bank selection process in relation to “conventional” and Islamic banks. Sudin et al. (1994) compared responses about the bank selection criteria of both Muslims and non-Muslims.
In addition to establishing attitudes towards Islamic banking, Erol and his co-researchers (1989 and 1990) sought to establish, then compare, the bank selection criteria of customers of conventional and Islamic banks in Jordan. Sudin et al. (1994), among other things, sought to establish the relative importance of certain bank selection criteria using a sample of Muslims and non-Muslims, none of whom had to be patronizing an Islamic bank at the time of the study. The three most important criteria in the bank selection process for Muslims were: first, “the provision of a fast and efficient service”; second, “the speed of transaction”; and third, “friendliness of bank personnel”. As regards the non-Muslims, the three most important bank selection criteria were: first, “friendliness of bank personnel”; second, “the provision of a fast and efficient service”; and third, “the reputation and image of the bank”.

ISLAMIC BANKS: An Islamic bank is an intermediary and trustee of other people’s money like any conventional bank with the possible difference that the payoff to all its depositors is a share in profit and loss in one form or the other. This difference introduces an element of mutuality in Islamic banking, making its depositors as customers with some ownership rights inherent within it. However, in practice, Islamic banks hardly look different from its conventional counterpart in terms of organisational set-up (Dar and Presley, 2000).
Islamic banking has been defined in a number of ways. General Secretariat of the OIC’s definition goes like this: “An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations” (Ali & Sarkar-1995)
Unlike conventional banks, however, Islamic banks offer PLS accounts, among others, which do not guarantee a fixed certain return on investment deposits. This leads to a reluctance of deposit holders, who have no representation in the organisation, to use PLS accounts. The bank faces a similar problem on the assets side when it comes to investing on PLS.
The essential feature of Islamic banking is that it is interest-free. Although it is often claimed that there is more to Islamic banking, such as contributions towards a more equitable distribution of income and wealth, and increased equity participation in the economy (Chapra l982), it nevertheless derives its specific rationale from the fact that there is no place for the institution of interest in the Islamic order.
It is simply an accepted fact that there are sufficient Muslim investors and borrowers in both Islamic and non-Islamic countries to warrant the attention of traditional banks who seek to serve such clients and capture a potentially profitable slice of a still relatively untapped market. Just as interesting and useful for non-Islamic bankers are the lessons learned from the innovation and creativity applied in meeting Islamic criteria.
Some products are more Islamic and than others. The basic principle is that interest – usury or Riba used interchangeably – is prohibited on the principle of no pain no gain. What a “pure” Islamic banking seems to be structurally very similar to venture capital finance, non-recourse project finance or ordinary equity investment. The investor takes a share in the profits, if any, of the venture and is liable to lose his capital. It involves investing but not lending and therefore on a systemic basis is similar to the German, Japanese and Spanish banking systems rather than the British or American systems.
Just as in the process of converting interest into capital gains for tax purposes, early Islamic investors were content to enter into zero-coupon bonds or discounted Treasury bills and receive the interest foregone in the form of capital gains.
Beyond the question of interest or Riba lies an ethical issue. Islamic investments exclude tobacco, alcohol, gaming and other “undesirable” sectors. Islamic investors, by and large, are motivated in their choice of investments by much the same criteria as their Western ethical counterparts. The search for acceptable investments is balanced by natural risk-aversion. Islamic borrowers, on the other hand, also demonstrate a reluctance to give away a share in the profits of their enterprise. It is not therefore surprising that most of Islamic banking takes the form of one type of mark-up or other rather than profit-sharing.
An analysis of the products suggests that Islamic banking has six key features:
• free of interest,
• trade-related and there is a perceived “genuine” need for the funds,
• In its purest form, it is equity related,
• meant to avoid exploitation – no usury,
• invests ethically,
• there are retail and wholesale applications.
Under the current interpretation of the rules governing Islamic banking, Usury and Riba are regarded as synonymous. The prohibition is on interest and not just on usurious interest. In practice, there appears to be more emphasis on the prohibition and restructuring of interest than on the potentially exploitative aspect of financing.
Brief History: It is worth noting that there is nothing new or particularly Islamic or Christian about Usury or interest controls. In 24th century B. C. Manu established a rate ceiling of 24% in India. Later, Hammurabi, King of Babylon, authored laws around 19th B. C. established a cap on lending rates. On loans of grain, which were repayable in kind, the maximum rate of interest was limited to 33 1/3% per annum. On loans of silver, the maximum legal rate was 20% although it appears that in some cases rates of 25 per cent per annum were charged. The law remained for most of the next 12 centuries but as with any law “regulatory arbitrage” took place and was subsequently eliminated. Unfair practices also existed. For example, creditors were forbidden from calling a loan made to a farmer prior to harvest. If the crop failed due to weather conditions, all interest on the loan would be cancelled for that year. In the case of houses, due to the scarcity of wood, a door could be used as collateral and was considered to be separate from a house. The 6th century Greeks, through the laws of Solon, lifted all maximum limitations on the legal rate of interest a moneylender might charge. The temple at Delphi was the “City” or “Wall Street” of the Greek Empire lending money for interest regularly. Credit regulation was once again part of the legal code at the start of the Roman Empire. The legal limitation on interest was established at 8 1/3% per in the 5th century B.C. Julius Caesar’s attempts to control interest rates could well have been the real reason for his assassination since many the Roman senators were the main moneylenders. (This section is drawn from Edwardes-2000. The reader is also referred to Armstrong-1987, for more details).
Back to the present day, quite a few Western countries have Usury laws that prohibit excessive interest rates. The UK’s usury laws which prevented “excessive” interest were abolished in 1854. South Africa and the US still have usury laws. Usury results when a lender charges more than the legal amount of interest permitted in that geographical area. Usury percentage limits vary by state, in USA, and at least one state, Virginia, has no usury limit. Today most of the states have had their ability to limit interest rates curtailed by over-riding US Federal law. Higher than permissible rates have been regarded by US Federal banking authorities as penalty fees and insurance premiums. And the federal rate limits are high. (Refer to Edwardes-2000).
In some states there is no restriction on the rates used for lending to incorporated entities. The controls are often on lending to persons. The usury rate usually is variable depending on market rates. In September 1998 in North Dakota it was 10.556%. California has recently imposed strict consumer lending limits. But these only apply to state banks and not to national banks. The California Constitution allows parties to contract for interest on a loan primarily for personal, family or household purposes at a rate not exceeding 10% per annum (compound annual percentage rate). The allowable rate in California is 5% over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month before the loan. The usury laws do not apply to any real estate broker if the loan is secured by real estate. This applies whether or not he or she is acting as a real estate broker. The limitations also do not apply to most lending institutions such as banks, credit unions, finance companies, pawn brokers, etc. State laws place limitations on some of these loans, but at a higher percentage rate than the usury laws listed above. (Refer to Edwardes-2000).
In the Old Testament (King James Version), Exodus, Chapter 22, verse 25:
If you lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
Leciticus, Chapter 25, verses 34-36:
And if thy brother be waxen poor, and fallen in decay by thee; then thou shalt relieve him: yea though he be a stranger, or a sojourner, that he may live with thee.
Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.
THE New Testament also contains edicts on the same line. Thus we can see that Judaism and Christianity are no different in terms of prohibition of usury.

Chronology of recent historical events in the industry:
1963: Egypt interest free savings banks, not overtly Islamic – invested in trade and industry on the basis of share in profits.
1971: Egypt Nasr Social bank, still no overt reference to Islam.
1973: Conference of Islamic finance ministers.
1975: Islamic Development Bank, Jeddah, fee based and PLS, revolving capital.
1975: Dubai Islamic Bank, UAE, first Islamic Commercial Bank in the world.
1970’s: Faisal Islamic Bank of Sudan / Egypt; Bahrain Islamic Bank; Malaysia, Philippines, Nigeria, Indonesia; Islamic Finance House, Luxembourg; DMI Geneva; Al Rajhi London, Denmark, Australia, South Africa; HSBC Amanah Fund; ANZ First ANZ International Murabah Ltd., IBU of United Bank of Kuwait.
Time payment contracts such as retail installment contracts are not generally treated as loans and the usury laws normally do not apply to them. There are no limits on finance charges for the purchase of personal, family and household goods or services at this time. The maximum interest rate for car loans is almost 22%. Banks also treat interest charges for third party credit cards such as Visa, MasterCard and American Express as not being subject to Usury law limitations. (Refer to Edwardes-2000).
In transactions for the purchase of goods or services which are not for personal, family or household purposes, there are normally no limits to finance charges except those set by the parties. Limited liability companies and limited liability partnerships can no longer assert usury as a defence in civil recovery actions. The usury interest limit that applies to limited liability companies and limited partnerships has been raised from 30% per annum to 50% per annum to equate to the level that applies to corporations. (Refer to Edwardes-2000).
But there is a problem with usury laws as can be seen in South Africa. If there is a particularly risky investment and an interest rate limit, then banks will simply not lend. The poorest will find themselves deprived of financing, and under a free market there will be a shift to quality or to those that do not really need financing. Unless there is government imposed mandatory or tax driven lending to certain sectors or public opinion pressure, certain sectors or individuals deemed risky by the banks will simply not get the funding required. (Refer to Edwardes-2000).
The Concepts behind Islamic Banking and Finance:
Distinguishing Features: The economic doctrine of Islam is based on encouraging free markets, discouraging price controls and forbidding financial contracts based on riba, gharar and maysir.
Riba (Charging of Interest): Taking or paying of interest (riba) is prohibited by Shariah (Islamic law). The concept of riba extends beyond interest and usury, and volumes have been written by scholars to explain the concept. In simple terms, riba can be considered as exploitation of one party who owns a product (that includes money and capital) and which another party wishes to acquire. Although interest comes very close to this concept, it is still better to consider riba as “unfair exploitation”.
Ebrahim (1998) explains that “Riba is expounded by Ibn Qayyim & Al-Jawziyya (n.d.), another prominent Islamic scholar, to imply (i) any form of unfair trade, market manipulation or engaging a market participant to trade under duress (riba-al-fadl) and (ii) risk-free debt contracts (riba-al-nasi’ah). From a financial economist’s perspective, riba-al-nasi’ah can be defined as a risk-free return from an investment vehicle or strategy.” (see also Chapra-1986, Rahman-1969, Saeed-1995, Thomas-1995).
Gharar (Uncertainty): The existence of uncertainty in a contract is prohibited because it requires the occurrence of an event which may not ultimately occur. “Full disclosure” by both parties is the norm in contractual relationships. Any type of transaction where the (i) subject matter, (ii) the price, or both are not determined and fixed in advance amounts to “uncertainty”. Thus hedging and dealing in derivatives is not allowed.
Maisir or Speculation: Speculation is equivalent to gambling, and therefore is prohibited. Derivative transactions like Options, Futures, Swaps and forward contracts (that insure profit) are considered un-Islamic. They are also considered un-Islamic because for most of them, rates are determined by interest differentials.
Zaka’h: A taxation system inherent in the Islamic system based on the principles of social justice and equity.
Implying social justice and general welfare: The basic principle is that everybody should be able to fulfill at least the basic needs.
Conforming to Shariah: The Quran and Hadith clearly specify the guidelines for individual, social, organizational, governmental behaviour, and thus become the basic pillar for any Islamic system, with the banking and financial system being no exception.
Qard-e-hasna (benevolent loan), or Qard Hassan: Qard-e-Hasna means an interest free loan and is the only type of loan permitted by the Shariah. The loans are made from the pooled donations of the members and are generally granted to those who are facing emergency personal crisis. This form of finance is very important part of Islamic financial system and all members are encouraged to become regular donors so that the fund may be strengthened for the benefit of all Muslim The guiding principle again is the social justice and general welfare. Some Islamic banks provide the privilege of interest free loans only to the holders of investment account with them. Some extend to all bank clients. Some restrict it to needy students and other economically weaker sections of the society. Yet some other Islamic banks provide interest free loans to small producers, farmers and entrepreneurs who are not qualified to get finance from other sources. The purpose of these loans is to help start them their independent economic life and thus to raise their incomes and standard of living. Banks usually charge a small fee (say, 1.5%) annually to cover their administrative costs, etc.
Profit and loss sharing (PLS): It is an alternative to interest-based transactions.
Risk sharing: No risk, no gain is the basis.
Prohibited Investments and Permissibility of Activities: Investments should only support Halal (permitted) activities. So, investments involving products like pork, alcohol, pornography, arms & ammunitions, Cinema, Tobacco, Conventional Financial Services and activities like gambling are prohibited.
Hoarding: Hoarding money is considered improper in Islam; money is merely a means of exchange and should not be treated as a commodity. Islam encourages Trade and Enterprise, which can generate wealth for the benefits of the community as a whole with PLS as its core.
Role of Islamic Banks: The role of Islamic banks becomes difficult compared to their conventional counterparts because of the basic principle that money is not supposed to earn interest. This eliminates a major role of the financial institution. So, what do they do? They invest in viable projects, with reliable borrowers. If the project succeeds, the banker shares in the profit, if it fails, he suffers the losses.
Prohibition of Interest: Prohibiting the receipt and payment of interest is the nucleus of the system, supported by other principles of Islamic doctrine advocating risk sharing, individuals’ rights and duties, property rights, and the sanctity of contracts. Similarly, the Islamic financial system is not limited to banking, but covers capital formation, capital markets, and all types of financial intermediation. Since prohibition on transactions based on interest payments is the most important factor and is at the heart of the Islamic financial system, it will be unjust not to provide some light on it.
The basic philosophy underlying transaction of money is that the one who is offering his money to another person has to decide whether:
(a) He is lending money to him as a sympathetic act or,
(b) He is lending money to the borrower, so that his principal may be saved or,
(c) He is advancing his money to share the profits of the borrower.
Table-2: Comparison between Riba and Profit
Riba Profit
1. When money is “charged”, its imposed positive and definite result is Riba 1. When money is used in productive activity (e.g., in trading), its uncertain result is profit.
2. By definition, Riba is the premium paid by the borrower to the lender along with principal amount as a condition for the loan. 2. By definition, profit is the difference between the revenue from production and the cost of production.
3. Riba is prefixed, and hence there is no uncertainty on the part of either the givers or the takers of loans. 3. Even if a sharing ratio is agreed in advance, profit is still uncertain, as its amount is not known until the activity is completed.
4. Riba con not be negative, it can at best be very low or zero. 4. Profit can be positive, zero or even negative.
5. From Islamic Shariah point of view, it is Haram (prohibited). 5. From Islamic Shariah point of view, it is Halal (allowed).
Making Money from Money is not permissible – the basic points of difference between money and commodity are highlighted to justify this. Money (of the same denomination) is not held to be the subject matter of trade, like other commodities. Its use is restricted to its basic purpose i.e. to act as a medium of exchange and a measure of value.
If money is to be exchanged for money or it is borrowed, the payment on both sides must be equal, so that it is not used for trade in money itself. In short, money is treated as “potential” capital. It becomes actual capital only when it joins hands with other resources to undertake a productive activity. Islam recognizes the time value of money, but only when it acts as capital, not when it is “potential” capital.
Muslim scholars term interest as Riba. Under Shariah, Riba technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity (Chapra 1985, p.64). In other words, Riba is the predetermined return on the use of money. In the past there has been dispute about whether Riba refers to interest or usury, but there is now consensus among Muslim scholars that the term covers all forms of interest and not only “excessive” interest (Khan 1985, p.52).
The most important characteristic of Riba is that it is the positive and definite result of money when changed. In other words, when money begets money, without being exchanged for goods or services, or without indulging in any productive activity, it is called Riba. The basic characteristics of Riba are:
• It must be related to loan;
• A prefixed amount of money to be paid when due;
• A time is fixed for the repayment; and
• All these elements for repayment are taken as conditions for loan.
Since Interest or Riba has emerged as the basic alternative for Profit, a comparison is justified between the two (Table-2).
Table-3: Differences between Islamic & Conventional Banking:
Islamic Banking System
Conventional Banking System

Guiding principle
Guided by Quranic edicts, Hadeeth, Islamic ethics and Islamic laws.
Guided by profit motive alone, with no religious or ethical considerations.
Ethics of financing
Financing being asset-backed, and meant for productive use helps reduce the overall debt burden.
Debt burden arising out of excessive use of credit leads to bankruptcies, and waste of financial resources.

Liquidation Assets An Investment Account Holder will have similar rights as shareholders. Depositors are paid before the shareholders.
Involvement of risk & Equity financing
Equity financing is available to a project or venture that involves profit-and-loss sharing. Risk-sharing and profit sharing go together.
Commercial banks do not usually indulge in equity financing, only venture capital companies and investment banks do. Conventional banks carry much less risk, major part of the risks being transferred to the borrowers.

Return on Capital Depends on productivity, idle money cannot earn any return. Money is not capital per se, only potential capital . Even idle money in bank deposits earns returns.
Prohibition of Gharar (uncertainty)
The existence of uncertainty in a contract is prohibited because it requires the occurrence of an event which may not ultimately occur. “Full disclosure” by both parties is the norm in contracts. Derivatives trading e.g. options are considered as having elements of Gharar. Trading and dealing in derivatives are widely considered as the main source of liquidity in the conventional financial, commodity and capital markets.

Profit and Loss Sharing
Most transactions are based on this variable returns, dependent on lenders’ performance. Greater share of risks forces them to manage risks more professionally, to ensure better returns than conventional accounts. Depositors & investors have opportunity to earn higher returns than in conventional systems.
There is no relationship between bank performance and returns to the depositors or investors, who mostly enjoy a risk-free return. Conventional institutions mostly act as intermediaries between lenders & borrowers enjoying almost a risk-free spread.

Zakat It has become one of the functions of the Islamic banks to collect and distribute Zakat. Government Taxes perhaps serve the same purpose – mode and rate of charging are different, though.
Compounding or Interest on interest The Islamic banks have no provision to charge any extra money from the defaulters. It can charge additional money (compound rate of interest) in case of defaulters.
Money-Market Borrowing For the Islamic banks, it is comparatively difficult to borrow money from the money market. For commercial banks, borrowing from the money market is the main source of liquidity.
Developing expertise Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluation systems. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.
Viability v/s credit-worthiness The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. The conventional banks give greater emphasis on credit-worthiness of the clients.
Relationship with Clients The status of Islamic bank in relation to its clients is that of partners, investors and trader. The status of a conventional bank, in relation to its clients, is that of creditor and debtors.
Capital Guarantee No guarantee. Built into the system.
Deposit insurance None An integral component
Key Islamic Financial techniques: Islamic banking and financial institutions have developed a wide rage of techniques which allow them to uphold the religious and legal principles while enabling them, at the same time, to offer viable financial products. The search is actually still going on to find newer techniques, and for variations based upon the existing ones to offer more attractive and useful instruments for the investors. The following list covers many of them, but must not be considered as exhaustive:
Mudaraba (Participation or trust financing): It involves two parties, the managing trustee (Mudarib) and the beneficial owner (Rub-ul-Maal). Usually the investment account holders are the provider of funds, and the Islamic Banks are the managing partner (mudarib). The Islamic Financial Institution may either put up all the funds itself and undertake responsibility for investing in them, or alternately it can provide funds to a customer who then acts as Mudarib. The borrower retains a fixed percentage of profits, the Islamic Financial Institution’s reward is a fixed percentage in the balance of the revenue generated by the investments and the remainder goes to the investors. Underlying principle is ‘no-pain-no-gain’, i.e., no one is entitled to any addition to the principal sum if he does not share in the risks involved. Although profits are shared on a pre-agreed basis, losses are wholly suffered by the Rub-ul-Maal.
Musharaka (Equity Financing): It is quite similar to the Mudarabah contract. It involves financing through equity. Here the partners or shareholders for a Project use their capital through a Joint Venture, Limited Partnership to generate a profit. Profits or losses will be split between the shareholders according to some agreed pre-formula depending on the investment ratio.
Difference between Mudaraba and Musharaka Contracts: In a Mudaraba contract, the managing agent (beneficiary or the borrower, called the Mudarib) does not have any financial participation. In a Musharaka contract, the agent is a financial partner along with the provider of fund (Rubb-ul-Maal of Mudaraba contract) sharing the gain or loss at the pre-designated ratio which is likely to be higher than what he is likely to get in a Mudaraba contract. Thus, in Mudaraba, the agent acts as a working partner who does not bear any losses and simply manages the fund (the project in which the fund is invested), whereas in Musharaka, all the parties are shareholders in the venture.
Murabaha (Cost-plus financing): This technique is extensively used to facilitate trade financing activities of Islamic Financial Institutions. The Mudaraba and Musharaka transactions are often seen on the retail liability side of Islamic banks. The asset side whether retail or wholesale is quite risky. The most common such financial instrument is the ‘mark-up’ structure called Murabaha. It sounds quite similar to a “repo” agreement commonly used in the West.
In a Murabaha transaction, the bank finances the purchase of an asset by buying it on behalf of its client. The bank then adds a “mark-up” in its sale price to its client who pays for it on a deferred basis. The ‘cost-plus’ nature of Murabaha sounds very much like the interest into capital gains manipulations of tax-avoiders. Islamic banks are supposed to take a genuine commercial risk between the purchase of the asset from the seller and the sale of the asset to the person requiring the goods. The bank stands in between the buyer and the supplier and is liable if anything goes wrong. There is thus some form of guarantee with respect to the quality of the goods provided by the bank to the end user in the strict form of Murabaha. Title to the goods financed may pass to the bank’s client at the outset or on deferred payment. From the perspective of modern finance, a Murabaha facility is equivalent to an asset-backed risky loan. If the capital markets are perfect and all agents in the economy have equal access to information, then competition between Islamic banks and conventional banks would result in Murabahah having the same expected return as that of conventional loans.
Baimuajjal (Deferred Payment Sales): The payments for this sale could be either in installments or a one-off deferred payment as per agreement between the parties at the time of the sale, and cannot include any charges for deferment. This is like as a Murabaha mode of investment with an exception that the sale under this cost-plus sale mode of investment is made on a credit basis rather than cash. It is deemed acceptable to charge higher prices for deferred payments. Such transactions are regarded as trades and not loans.
Ijara (Operating Lease): It involves leasing of machinery, equipment, buildings and other capital assets. The financier purchases the asset and leases it to the end-user for an agreed rental which may be fixed in advance or subject to occasional review by a mutually acceptable third party, e.g. an international firm of accountants. Insuring of the asset remains a contentious issue.
Ijara wa iqtina (Financial Lease): This is a leasing structure coupled with a right available to the lessee to purchase the asset at the end of the lease period (Bay’ al Wafa). The lessee agrees to make payments into an Islamic investment account (with right to all profits) to be used in or towards financing the ultimate purchase of the asset. The instrument has been used increasingly in a range of asset classes including ships, aircrafts, telecom equipment and power station turbines, etc.
Baisalam or Bai’ Salaf (Purchase with deferred delivery): It is a short-term commodity finance contract in which the buyer (usually of agricultural or manufactured products) pays the seller full negotiated price of a product that is promised for delivery at a later date. It has similarities with the forward contracts of conventional financial systems except that in Islamic instruments the rate of return is tied to each transaction rather than to a time dimension. Another difference lies in the fact that in Salam, the buyer pays the entire amount in cash, at the time of contract. Both the quality and quantity of the sold products are definitely specified in the contract. The counter-party risk in Al Salam is one-sided as it lies with the buyer alone (the IBF) unlike the forward contracts in which it affects both parties. Hence, it is expected that this risk will be priced one way unless a security is provided by the seller. This involves the bank paying for the producer’s goods at a discount before they have been delivered or even made. Difference of opinion exists on whether the subject of Bai Salam transaction should be available in the market at the time of the contract or whether it is enough that the asset will be available at the date set in the contract for delivery. Difference of opinion also can be seen on the minimum time period between the date of contract and delivery of assets.
The party on the purchase side of the contract may sell the asset back to the party on the sale side of the contract or to a third party for a profit. The purchaser/ financier may also sell the assets by way of a parallel Bai Salam contract (a salam contract with a third party) to hedge the asset-risk or for profit.
The stipulation of full cash prepayment in Al Salam contracts is meant to facilitate working capital finance wherein the party on the buyer side is the IBF institution. Since full prepayment is involved, the price paid is lower than the future spot price of the goods in question unlike the futures or forward price which is always higher than the spot price. An important feature of Al salam contract is the underlying asset which must be standardizable, of determinate quality and easy to be quantified.
Istisna and Parallel Istisna: It involves a deferred delivery sale contract similar to salam. It is also similar to conventional work-in-progress financing of capital projects like construction. It is also used for trade finance such as pre-shipment export finance. In this contract, the seller ( Al Sani’), based upon an order from purchaser (Al Mustasni’), undertakes to manufacture or have manufactured/ acquired the subject item (Al Masnoo’) as per purchaser’s specifications. The price, payment structure and the date of delivery are fixed in advance. In parallel Istisna, the Al-Sani’ may enter into a second Istisna’ contract (subcontract) with a third party to manufacture the subject item unless Al Mustasni’ (ultimate purchaser) has stipulated in the contarct specifically for Al Sani’ to manufacture himself.
Similarity with Bai Salam contract: Sale of a product not available at the time of the deal.
Difference with Bai Salam contract: In Bai Salam, full price for the asset must be paid at the outset, whereas in Istisna, payment in full or in installments may be made at any agreed upon time (even beyond delivery date).
Similarity with Ijarah: In Istisna, al-sani’ may either provide the raw material or labour. The labour part is the similarity with Ijarah.
Arbun or Urboun (Pre-purchase of right to acquire asset): The purchaser makes a deposit (a down-payment, which may be a fraction of the price) for the purchase of an asset at a later date on the understanding that, should the sale of the assets not proceed (say, if the purchaser chooses not to proceed), the seller will be permitted to retain the deposit. Because of its similarity to an option, it has met with varying levels of approval from the schools of Islamic jurisprudence. A lot of work will be required to mould the instrument so as to remove any possibility of speculation ensuring total acceptability.
Khiyar al-shart: This is a sale contract concluded at the time of signing the agreement, but where one of the two parties to the contract has a right to cancel the sale within a stipulated time. Cancellation is not contingent upon any uncertain future event. For example, party A enters into a contract with party B to sell a given quantity of equity stock on an agreed price, today. Party A has the right to either confirm or rescind the contract by a certain time in the future (let’s term it as “maturity”). If Pmaturity > Pcontract, A may choose to rescind the contract and instead sell the stock in the market. The similarity of the exercise features of this contract with the conventional Put Option invites some controversy.
Al Bay Bithaman Ajil: BBA, popular in Malaysia, is a mark-up sale in which payments are delayed and made in equal installments. Theoretically, in the contract of BBA the bank sells the product (a house, equipment or machinery, etc.) to the customer at a mark-up price, whose content consists of the cost price plus a profit margin. The client may be allowed to settle payment by installments within a pre-agreed period, or as a lump sum. It is similar to a Murabaha contract, but with payment on a deferred basis. The BBA facility can also be utilised for refinancing of assets owned by the Customer, and the proceeds to be utilised for the Customer’s working capital.
Syndication: Islamic Financial Institutions are increasingly prepared to participate in large project financing, and are getting ready to compete with their conventional counterparts. The syndication works on the techniques discussed above, most popular being the Mudarabah contract modified to suit the technicalities.
Jo’alah: A party undertakes to pay another party a specified amount of money as a fee for rendering a specified service in accordance with the terms of the contract stipulated between the two parties. This mode usually applies to transactions such as consultations and professional services, fund placements, and trust services.
Certificates of sale: It has been suggested that consumers buying consumables on credit would issue ‘certificates of sale’ similar to letters of credit. These could be encashed by the seller at the bank at a discount. This seems very similar in structure to Baisalam.
Prizes and bonuses: Iran and Pakistan have both attempted to fully Islamise the entire banking. Iran converted to Islamic banking in August l983 with a three-year transition period. In Iran banks accept current and savings deposits without paying any return. The banks are permitted to offer bonuses and prizes on these deposits very similar to the UK’s premium bonds. This is apparently not regarded as gambling by the Iranian Islamic banking units.
No fee accounts: There is a substantial Muslim population in South Africa and they are serviced by two small Islamic banks. The main product being offered is the “no fee” current account which is also provided by the conventional banks by arrangement. Transaction charges are waived and interest is not paid on current accounts.
Gifts: Gifts to depositors are given entirely at the discretion of the Islamic banks on the basis of the minimum balance. These gifts may be monetary or non-monetary are based on the banks’ returns.
Non PLS Modes: Non-Profit-and-Loss Sharing Modes. They are used in cases where PLS modes cannot be implemented, e.g., in cases of small-scale borrowers or for consumption loans.
Qard Al Hasnah (Beneficence Loans): Zero return loans that Islam edicts for Muslims to make to the needy. Banks can only charge the borrowers a one-off service fee to cover the administrative expenses, but this fee cannot be related, by any means, to the loan amount or its maturity.
Islamic Derivative Products: Salam (Bai Al Salam), Urboun (Arbun) and Khiyar al-shart are the existing derivative products approved by some schools of Islamic jurisprudence. Dr. Kenneth Baldwin has suggested some Profit Rate Swaps that replicate the risk management capability of conventional interest rate swaps, using Sharia-compatible building blocks (existing and extensively used instruments).
It is generally assumed that the term “Islamic Derivatives” is a contradiction. The requirements of derivatives and rules of Shariah at first sight are diametrically opposed and all derivatives are therefore Haram. But it is important to recall the generalised definition we use of a financial derivative. It is simply a financial instrument that is derived from another financial instrument or a combination of such instruments. It is argued that as derivatives “unquestionably” involve interest or interest-based products they are contaminated and should be prohibited. Well, derivatives only involve interest if one or both parties using the derivative seek to hedge the derivative. It could be argued that Murabaha could involve interest if the parties seek to match the interest free but guaranteed return product with an interest-bearing equivalent. Islamic banking derivatives should be perfectly acceptable so long as they do not involve interest.
The literature contains hardly any serious criticism of the interest-free character of the operation, since this is taken for granted, although concerns have been expressed about the lack of adequate interest-free instruments. There is a near-consensus that Islamic banks can function well without interest. An International Monetary Fund (IMF) study by Iqbal and Mirakhor (l987) found Islamic banking to be a viable proposition that can result in efficient resource allocation.
Advantages of Islamic Finance:
 Efficient allocation of funds: Since allocation of funds by banks will be dependent upon the soundness of projects under the PLS arrangements, the allocation is more efficient.
 Productive use of capital: Banks are likely to know their fund users better in order to ensure that the funds are used for productive purposes. In this way, both the fund providers and the financial intermediary contribute to promoting productive economic activities and greater financial responsibility. Thus, IBFs would promote economic growth [Chapra (1998), Siddiqui (1983)]
 Similarly, since banks have no pressure of fixed regular payments on deposits, the efficiency of allocating resources to profitable and more productive use is further boosted.
 Equitable distribution of wealth: The efficiency in allocation leads to this, and creates additional wealth as well. Interest distribution is considered unjust and inequitable because it is not based on any productive use of capital, and it exploits the misfortune of the borrower (who has run out of money).
 Generation of employment: Productive use of capital implies investments and creation of jobs. The investment is not dependent upon the cost of capital (and positive NPVs) or time value of money, hence number of investible projects is likely to be much higher resulting in larger capital formation.
 Saving in information costs: Being a partner of the entrepreneur (or a firm), the financial institution has easier and cheaper access to information on matters relating to the firm. This may make credit rating agencies redundant, and lending more efficient.
 Saving in deposit insurance costs: Risk-sharing concept built into the IBF system, there will be no need for deposits to be insured.
 Reduction of debt burden: The IBF system of equity financing encourages debt to be swapped with equity which can help many developing countries get rid of the immense debt-burden. Instead of rescheduling of existing loans or selling Brady bonds at heavy discounts, which does not help relieve the pressure much, converting debt to equity promises a much more fruitful alternative.
 Promoting Ethical behaviour: Because of its strong emphasis on the ethical and moral dimensions of doing the business and selecting the activities/ commodities to be financed, the Islamic financing institutions could play an important role in promoting socially desirable investment and corporate behavior. In this context, it is worth mentioning that Islamic financing institutions are subject to Shariah (Islamic Law) regulations in addition to conforming to the conventional regulatory standards. This is further expected to ensure greater prudence and responsibility.
 Higher profits: Account holders under Islamic finance could expect higher profit from their investment as Islamic banks are required to share the entire net profit according to the agreed formula rather than just a portion of the profit, as is the conventional practice.
 Reduction in run-on-deposits: Banks using profit and loss sharing (PLS) to mobilize resources are less likely to face a sudden run on their deposits.
 More stable economic environment: The perspective of investments is long-term in comparison to short-term expectations of returns in conventional financial system – this may result in a more stable economic environment less dependent on business cycles.
 Less likelihood of flight of capital: Under Islamic finance, debt instruments that may be created through selling goods and services on credit are not readily tradable. This greatly eliminates the possibility of sudden mass movement of funds from one country to another.
 Reduction in speculative transactions: Examination of daily records of trading in financial markets vividly shows that institutional participants carry out huge speculative transactions. More often than not, such transactions are sources of instabilities. In contrast, Islamic banks and financial institutions are inherently prevented from carrying out such activities. As a result destabilizing speculations would be significantly curtailed in financial markets, although liquidity will remain with secondary market trading allowed in stocks or investment certificates.
 Reduction of inflationary pressures: Under Islamic economics the inflationary pressures would be reduced to a great extent, as over or under-supply of money with respect of supply of goods is not allowed (money directly linked to supply of goods in the economy).
 Reduction in unproductive use of borrowings: By eliminating unnecessary and excessive borrowing (borrowing beyond productive use), risk to lenders is reduced under PLS, as lending is directly related to project appraisals and feasibility.
 Automatic Shock-absorption: For banks involved in the equity-based system, Khan (1986) argues that the shocks to asset positions are immediately absorbed by changes in the values of shares held by depositors in the bank. This makes the real values of assets and liabilities of banks equal at all times, preventing banking crises. Nienhaus (1986) agrees with the argument.
 Guaranteed market of practicing Muslims. Islam being the fastest growing religion in the world further enhances the potential marketability of IBF instruments.
Perceived Disadvantages of IBFs:
 With PLS, the role of the bank undergoes a change from being an intermediary trader of money, earning profits from the margin between lending and borrowing, to being an investing partner. The role of an investment bank brings in added costs:
o Search cost resulting from the need to decide on the most profitable ventures. With an Islamic bank required to finance so many different kinds of businesses, acquiring skills in all of them may be immensely costly.
o Monitoring costs resulting from the need to prevent mishandling of the venture and fraudulent means (including creative accounting) adopted by borrowers/ partners are in addition to those involved in conventional financial system.
o Managing costs incurred because of its obligation as a partner in the PLS deals.
 Determination of mechanism for profit sharing in the short-term is difficult in a PLS system based on returns only from productive deployment of funds. In the absence of a standard mechanism for profit/ loss sharing (both for short-term as well as long-term), the possibility of exploitative contracts cannot be eliminated.
 Eliminating interest may reduce the propensity to save (with banks) or invest (considering the risk associated with returns), thus curtailing economic growth affecting employment (Pryor-1985), generation of wealth and its distribution. Of course, IBF proponents do not agree, as an opportunity for equitable sharing of wealth earned from productive activities could be enough stimulant for investors.
 Dispute settlement mechanism adds to the cost further, as the account put forward by the borrower (entrepreneur) may not be convincing enough for the banks or other investor partners. Fixed return of the conventional system has no such costs.
 A risk sharing proposition of IFBs and resulting absence of deposit insurance system leaves small investors in the risky avenues, particularly when the Islamic financial institution carries fraudulent intentions.
 Curtailing speculative activities in the secondary market would be extremely difficult resulting in the same risks and costs that the conventional financial systems carry.
 The mark-up system of most of the non-PLS schemes resembles the interest-based system to the extent of becoming indistinguishable, sometimes, and provides unscrupulous financiers opportunity to replicate the conventional system.
 Additional cost of supervision by the Sharia Board: Product development, its offering, agreements between counterparties, functioning of the IBF system, accounting, etc need to be Sharia compliant which needs certification by the Sharia Boards resulting in additional cost burden over the IBF Operators.
 Account holders under Islamic finance could expect higher profit from their investment as Islamic banks are required to share the entire net profit according to the agreed formula rather than just a portion of the profit, as is the conventional practice.
Impediments to the growth of IBF: The impediments are being discussed in this paper after grouping them in seven broad categories: (1) Social Impediments, (2) Economic Impediments, (3) Financial Impediments, (4) Structural Impediments, (5) Institutional Impediments, (6) Political Impediments, Technological Impediments, and (7) Religious Impediments.
1. Social Impediments: Humans are undoubtedly the most important resource endowment for any country. Their development is the key to the competitiveness of any nation in any sphere. Even in the field of IBF, it is the level of human development in the promoter nations that will ultimately steer the IBF into a competitive arena. The Human Developed Index (HDI) available with the Human Development Report brought out by United Nations Development Programme (UNDP) is a composite index that measures achievements of a country in three basic parameters of human development (HDR 2003). These are: (i) longevity measured by life expectancy at birth, (ii) knowledge, measured by a combination of the adult literacy rate and the combined primary, secondary, and tertiary gross enrolment ratio, and (iii) standard of living, measured by GDP per capita.
It is worthwhile, then, having a look (Figure-7) at the HDI of member nations of Organization of Islamic Countries (OIC), having some kind of IBF (as they are the promoters of IBF), in comparison with some of the world leaders (promoters of Conventional banking & financial system).
Accumulation of human capital is an indicator of endogenous growth and is often used in empirical growth models. In most regressions, this variable turns out with a positive coefficient (Barro, 1991). The highest ranked country among the Islamic countries, in terms of HDI, is Brunei with a rank of 31, the second highest being Bahrain at 37, both of them with so small a population that their impact on the development of as important a system as IBF is not expected to be large. However, in terms of developing a financial market (and related systems, also in terms of IBF) the maximum effort has been made by Bahrain after Malaysia (Countries with 100% Islamic Financial system in place, i.e., Iran was placed at 106, Sudan at 138 and Pakistan had a rank of 144 in HDR of 2003). The development in the area is not likely to bear much fruit unless the promoter countries of IBF take giant steps towards developing their most important infrastructure element, i.e. the Human Resources. The initial successes may remain at superficial levels, and sustainability of growth and the challenges posed to the conventional financial system may remain feeble otherwise. At the moment, it poses a significant impediment to the growth of IBF.
(a) Societal Impediments: The basic societal fabric builds the psyche of the masses. Coming out of this box, then, is not easy. After initial leadership over a long period, when the Islamic society ultimately lost its primacy to the Western world because of their consistent multi-dimensional development activities, it seems the members of the Islamic society also lost the motivation to win back. This has had a lasting impact on the society in all spheres that are cited next. Islamic Financial Institutions as part of this society have a strong barrier to scale, and along with its parent society has a backlog of many generations to clear.
Social alienation, particularly in the wake of 11th September, may detract non-Muslims even further away from anything Islamic, and act as a major source of impediment.
(b) Educational Impediments: Education is the backbone of any development, and is one of the most important reasons behind the lost glory of the Islamic society. The absence of Islamic Banking and Finance from the horizon, for centuries, is pointer enough towards lack of education and research. However, figure-8 provides the status of education in the Islamic World represented here by countries of the Organization of Islamic Countries (OIC) Countries that have IBFs in comparison with some of the world leaders.
In terms of Adult literacy and Education Index (a measure that provides a composite indicator of the level of education), all the countries in the OIC sample lag behind the world leaders. In terms of Public Expenditure on education reported as percentage of respective GDPs, Saudi Arabia’s figure is encouraging as it leads the sample in this respect (except Yemen, whose ratio could be misleading as the GDP figure is too small) but also increased from 6.5% in 1990 to 9.5% during 1998-2000 (data refers to the year during this period for which it was available) which shows its recent commitment towards educating its citizen. But the scenario in all other countries even in this respect is no different from what is projected by the Adult literacy or the Education Index.
The enrolment into educational institutions provides indication towards the future of education in a country. From the data available in the Human Development Report 2003 (HDR 2003) for 175 countries, we find that, among the OIC countries, only Guyana with 91% enrolment (although its overall HDI rank is a poor 92) was part of the top quartile of Combined primary, secondary and tertiary gross enrolment ratio, during the year 2000-01 compared with thirty (30) non-OIC members. The second quartile of ranks had twenty (20) OIC members while the third quartile had seventeen (17) and the last one had sixteen (16) of them. More than sixty-one percent (61%) OIC members fell in the lower half, compared with thirty-three percent (33%) of non-OIC members. The full list of 174 countries had 31% OIC members (54 numbers), whereas the lower half of the ranks, based on combined enrollment, had 45% of them. This presents a gloomy picture not only for the present but has repercussions for the foreseeable future. Only exponential growth in enrollments, now, can provide some hope of catching up with rest of the world.
(c) Psychological Impediments: Psychological mindset needs to change for those who have been using the conventional banks and FIs as well as those for those who have been abstaining from them due to their anti-usurious beliefs. This tantamounts to a paradigm shift that is not easy to happen in a short period and it requires a lot of concerted effort on all fronts. On the other hand, psychological pressure on the Islamic institutions, in general, from fundamentalist organizations is keeping a check on declaring innovations that they could launch otherwise.
2. Economic Impediments: Size of the economy is an important indicator of the kind of flow passing through the banking and financial channels that the IBF have to chase. Considering that home banking and financial institutions have a clear advantage over foreign institutions, GDP should be a good indicator for development of these institutions. Looking at the GDP of the IBF promoter countries (our sample of OIC having some type of IBF) vis-à-vis rest of the world provides some clue as to why it may be difficult to promote the IBF in the era of opening economy where they have to compete with the world players too. The GDP of all the sample Islamic countries put together was less than 17% of the GDP of USA. When we add Japanese GDP to the GDP of USA, the sample Islamic countries do not reach even 12%. What influence an economy like USA or Japan can have on the prosperity of a financial system can be seen from this fact. The chart (Figure-9) therefore excludes USA, Japan, Germany, UK, France, China and Italy the top seven nations (constituting of 68.75% of World GDP, the world being represented, here, by 170 nations included in the HDR 2003) so that the remaining figures could be comparable.
3. Financial Impediments:
a. Lack of active capital market: Equity is an excellent source of capital and organizations are likely to exhaust this source before exploring other means when planning to acquire, upgrade or produce technology to sell as a product. An absence of active capital market hinders technology intensive, high capital endeavors as well as any expansion of such projects. Since acquisition of technology is capital-intensive, the payback period for which is usually long, whereas bank borrowings seldom indulge in 100% financing or long-term financing, it is almost an impossible source for the start-ups, capital markets have proven to be the most successful and feasible means of financing.
b. Lack of active debt market: The absence of secondary debt market in UAE is also a serious handicap for the investing community. As a result, debt issues become illiquid and costly. There is no scope of long term debt financing and with bank financing catering to short term or medium term finance, it acts as a deterrence to technology intensive ventures. At the same time, bank finance is mostly suitable for Working Capital financing rather than Capital Expenditure funding that is required for Technology-intensive ventures.
c. Lack of Money Market: It is another major impediment leaving the market not just illiquid and costlier, but also leaves the government devoid of financing its expenses through a cheaper and liquid medium.
d. Supportive Institutions for Venture Capital Financing: The strongest form of Islamic financing being the PLS forms of Mudarabah and Musharakah, Venture Capital financing (VCF) should have been the strongest in the countries that promote the IBFs, but the reality is surprisingly different. VCF needs institutional support in terms of an active network of financiers, entrepreneurs, technology promoting institutions like Private and Government R&D laboratories, Universities, Stock Exchanges and regulatory framework, etc. A Silicon Valley type network of alliances is required which is largely absent in the OIC. Some efforts in the direction of establishing technology parks and business incubators have started in some countries, but they have a long way to go. For individual small economies it may take a lot of time to achieve the critical mass, a strong need therefore is for the association of countries like the GCC or ASEAN to pool their resources.
e. Lack of an active secondary market: Secondary markets are in the process of evolving and it will take time before they could really provide this market with the required liquidity. Secondary markets do not just become meeting points between the investors and the corporates, they become a benchmark for the health of the whole financial system.
f. Lack of Business incubators: Incubators connect talent, technology, capital and know-how to leverage entrepreneurial talent, accelerate the development of new knowledge-based businesses and thus speed up the commercialization of new knowledge and technology. Although the system has started in some countries like UAE, it will take time in shaping up to a stage where it could be of real use. There is a strong relationship between the financial institutions and the business incubators. Business incubators cannot grow without financial support and growth in the sector means a growth in demand for the financial sector. Hence a lack of this system, in the Islamic countries, is an impediment to the growth of IBF system.
4. Structural Impediments:
• Financial Engineering: The structuring of any new system that can pose real competition to an existing well-established system requires not just a robust structure to start with but a structure that supports innovation and continual improvement. Financial Engineering is an integral part of the financial service provider so that innovative products can be offered regularly to keep the depositors/ investors interest in the system alive. For a relative newcomer, with variants far less in number and the scope limited by restrictions by Sharia, Financial Engineering acquires all the more importance, more so because of the need to differentiate itself from the conventional products.
• Lack of Islamic credentials of the product: The products based on Sharia Committee of banks do not necessarily satisfy the psyche of the masses unless backed by religious edicts and logical reasoning. Currently, all products except those based on Mudaraba and Musharaka principles leave doubts in the minds of people who want Sharia-compliant products. The penetration would have been much faster had these doubts been cleared.
• The mark-up system of most of the non-PLS schemes resembles the interest-based system. As discussed above, if the stronger Islamic instruments based on PLS principles were dominant, the IBF system could attract more investors to its fold. The current scenario can be judged from the proportion of funds based on the two types of systems, namely PLS (stronger Islamic system) and the mark-up type systems (weaker Islamic system).
It is obvious from Fig-10a that the depositors’ preference is for PLS type deposits (ready to take larger risk, and choose stronger Islamic products) whereas the banks are more risk averse and prefer to indulge in Mark-up type financing, as can be seen from Fig-10b. The Bahrain market’s position is even more tilted towards the non-PLS schemes for deposits.
• Maturity mismatch: It can be seen from the maturity structure for the Bank Islam Malaysia Berhard (BIMB) that the maturities on the deposit side (Figure-11a) are totally different from the maturities of the financing side (Figure-11b). The situation of other IBFs in the world is not much different in terms of maturity-mismatch. This creates problems in the cash-flow matching, too. Deposits with maturity of more than one year being less than 1% is a clear sign of lack of investors’ confidence in the system. This may be as a result of other impediments under discussion.
• Unclear product proposition or processes: Competing with the conventional counterpart in marketing abilities is not easy for a relatively new entrant like IBF. Lack of skills that help in the matter is currently an impediment that can be removed only through learning which is path-dependent and will take time to set in.
• Additional risks: The PLS mode has its inherent risks similar to those of Venture Capital Financing or those faced by Equity financiers rather than the Debt financiers. In fact, PLS modes have in-built risk component wherein the financier has to share the risk of failure (loss) along with the entrepreneur (the borrower). Even the operational mode is more complex than the Conventional Debt financing, e.g., calculation of the share in profit and loss, feasibility and profitability studies of ventures being financed and their continuous monitoring and audit. Further, PLS modes of financing are not ted to collaterals, as do the conventional loans.
Even no-PLS modes have unique risks, e.g., the Salam or Bai Salaf contracts expose them to commodity risk in addition to the credit risk. Similarly, the Ijara contracts differ from conventional lease contracts in that the leased assets have to be carried on the Balance Sheet of the Bank which limits the transferability of substantial risks and rewards to the lessee. The Finance by IBFs are mostly backed by tangible assets whose market value may not be constant over time. This volatility is in addition to the normal depreciation of assets. Basel Committee’s recommendation for Capital Adequacy does not incorporate this volatility. Another example is that of the Displaced Commercial Risk which endangers the competitiveness of IBFs in the long run. It is the pressure on the IBFs to pay higher returns than that it is obliged to (as per agreed terms) in order to make its returns more lucrative than the market returns, this involves paying the investors from its own share of profits which actually belonged to the IBFs’ sharehlders.
Conventional financiers as well as the investors can use derivative instruments to hedge various types of risks to a great extent which is largely absent in IBF System, and this poses a major impediment to the growth of this system unless alternative comparable or better mechanisms are evolved. Lack of liquidity itself poses a major risk, both for the borrower as well as for the lender. For detailed insight into unique risks involved in Islamic Banking, the reader may refer Chapra & Khan (2000) and Hassan (2000).
• Financially weak institution offering the product: In a market with very high prospects for growth there is always a rush for every Tom, Dick and Harry to adopt a me-too strategy and entering without having a look at their own credentials. Islamic Financial Institutions are weaker, in general, compared to the Conventional ones, and the rush to launch a new institution to grab the fast buck exposes the weakness further. For weaker institutions, it becomes much more difficult to convince customers on the viability of their products and services. The need for Sharia Compliance makes the task even more difficult.
• Size of the IBFs: Most of the IBFs are extremely small in size compared with the multinational banks operating in their markets. All the IBF fund put together does not match the funds with Multinational banks like HSBC or Citibank. Size carries the power in the market, and smaller size of IBFs, at present, does prove to be a source of impediment in that respect.
5. Institutional Impediments:
(a) Absence of a uniform regulatory framework: It is still evolving in some areas whereas in some other areas it is entirely absent. For example, the oldest of such institutions, AAOIFI had come out with only 16 financial accounting standards in the ten years since its inception in 1991 [October issue of the quarterly “Islamic Banking Hub” of Bahrain reports ‘43 standards and statements’ having been issued]. Formation of such organizations is taking time mainly because of difficulty in developing consensus among Islamic nations, and also because of difficulty in making the regulations compatible with the conventional regulations.
(b) Lack of acceptance of existing Regulatory bodies: For example, even after twelve years of existence, the AAOIFI’s standards are mandatory only in Sudan, Bahrain and Jordan. Saudi Monetary Agency just ‘requests’ Saudi banks to seek guidance from the AAOIFI standards. Zaher and Hassan (2001) provide a comparative study on the salient features of Islamic Banking Supervisory Systems in 15 countries.
(c) Absence of an Islamic Financial Network free from ribawee dealings: Networks play a major role in encouraging a system to grow and sustain the growth over longer terms, in the absence of which the growth may be lumpy in nature. Mutual cooperation in the networks helps pooling of resources and optimizing their exploitation to gain competitive advantage. What is seen today in the IBF world is some pockets of excellence in countries like Malaysia and Bahrain with a few institutions like Islamic Development Bank (IDB) playing some inspiring roles, but to bridge the huge gap with respect to the competitors in the conventional sector, a lot more is required a lot more quickly.
(d) Absence of Islamic Central banks except in three countries (Pakistan, Sudan and Iran) that have converted their banking system to 100% Islamic. In other countries, even after twenty eight years of the modern Islamic Banking and Finance experience, dependence on the conventional systems of the Central banks is a good explanation why the growth in this sector with immense potential is not happening at the desired pace.
(e) Clash with the mainstream regulations, particularly in the non-Islamic nations. Some examples: (i) the treatment of Ijara as Lease instead of mortgage, (ii) imposition of taxes despite the zakat, as an integral part of Islamic system, having the same functionality – amounting to double taxation effectively, (iii) regulatory fees – double payment due to the requirement to meet dual regulations.
(f) Limited availability of risk management and analysis tools to hedge against volatility poses an additional burden for IBFs and results in maintaining higher levels of liquidity.
(g) Lack of trained personnel: With the number of educational institutions and training centres catering to the need of this rapidly growing segment being limited, non-availability of qualified personnel who can analyse and manage portfolios is a major impediment.
6. Political Impediments:
• Political pressure, in general, on Islamic institutions from the Western World, particularly in the wake of 11th September not only affects the system physically but it has an impact on the psyche. For, example, almost every financial transaction (particularly relating to an Islamic Institution) is being monitored. From UAE, no amount in excess of AED 2,500 can be repatriated without leaving a copy of identity which then goes into the system under scrutiny.
• Lack of economic, military and political prowess of countries sponsoring the Islamic Financial system, only adds to the other weaknesses of the system. Freezing of accounts by the super-powers at short notices, and arbitrarily, is only a symbolic threat to this institution.
A country’s environment conducive to investments boosts the growth of financial systems. An environment fraught with risks, on the contrary, impedes it. Many organizations try to capture countries’ environment to reflect this aspect. Freedom indices like “Index of Economic Freedom” developed by Heritage Foundation of USA, “Freedom in the World” by Freedom House (emphasis on Political and civil rights) of USA and “Economic Freedom of the World” by Frazer Institute of Canada capture the economic environment of countries. All of them point towards an overall lack of freedom in most of the OIC countries. Erb et. al. (1996) report country risk analysis being carried out by organizations like (a) Bank of America World Information Services, (b) Business Environment Risk Intelligence (BERI) S.A., (c) Control Risks Information Services (CRIS), (d) Economist Intelligence Unit (EIU), (e) Euromoney, (f) Institutional Investor, (g) Standard and Poor’s Rating Group, (h) Political Risk Services: International Country Risk Guide (ICRG), (i) Political Risk Services: Coplin-O’Leary Rating System, (j) Moody’s Investor Services. They provide ratings that try to capture ratings based on qualitative and quantitative information into a single index.
In the ICRG composite risk ratings for March 2003, the least risky OIC country (Brunei) was ranked six (6). The top twenty (20) least risky countries included only three OIC countries (Brunei, UAE and Kuwait) out of the forty-four (44) OIC countries for which ICRG provides country risk ratings. Top half had just fourteen (14) countries (32%) whereas the bottom half had thirty (30) countries (68%) of them.
Table-5: ICRG composite risk ratings for 44 OIC member countries (March 2003)
Top quartile 2nd quartile 3rd quartile Bottom quartile Total OIC countries
Numbers 6 8 15 15 44
Percentage 14% 18% 34% 34% 100%
The trend indicates that OIC member countries are considered as riskier than non-OIC countries for financial investments. This is also reflected in the incoming Foreign Direct Investment (FDI) in these countries, and suggests that the Governments and Institutions in these countries need to do a lot.
7. Technological Impediments: The Islamic world has not kept pace with the developments in rest of the world. Technology being the backbone of banking and financial system and the main driver of market power today, lagging behind in technology means backwardness in every sector of the economy. Various measures of Technological strength like Technological Achievement Index developed by UNDP is a composite index providing enough indication of the level of Technology in a country. The promoters of IBFs, Islamic countries, fall far behind the promoters of conventional financial system. Other indicators have developed by many other agencies and independent researchers point towards the same backwardness of the group.
Indicator of new technology diffusion has been considered as ICT (Information and Communications Technology) by many agencies including UNDP, as this is what has revolutionized the integration of the world into a global village speeding up innovations by pooling talents together. Figure-13 represents a comparison between the Islamic world with a few of the world leaders. The picture is not much different from what is seen with other indicators. Except for United Arab Emirates (UAE), we hardly see any potential competitors to the countries promoting conventional systems of banking and finance. The best performer in Telephone Mainlines per thousand people from the Islamic world is placed at 31st position with a value of 259. Similarly, in terms of Internet Users per thousand people, the highest place for an Islamic Country goes to UAE at the 19th position (315 users), next best is Malaysia at the 26th place (273 users); in terms of Cellular penetration per thousand people, the highest ranked Islamic country is UAE at the 24th place with 616 users, but the next best falls at 32nd position with 460 users. From the chart in Figure-13, we can see that almost half of the Islamic countries have no significant place. This, then, poses a significant impediment to the developments in the area of IBF in the modern world driven by ICT.
Technology Achievement Index (TAI), developed by United Nations Development Programme (UNDP), focuses on achievements of a country as a whole in the technological arena. The Index has been found to be relevant for the least developed countries to the same extent as for the most highly developed countries. The index is based upon the four elements: Technology creation: number of patents per capita and royalty/ license receipts per capita, Diffusion of recent innovation: internet users as percentage of population, Diffusion of old innovation: electricity and telephone consumption per capita (logged), Human skills: Mean years of schooling and gross enrolment in tertiary science and mathematics education (Desai-2001). Figure-14 compares OIC member countries for which the Index value is available (and UAE as per authors’ own calculations presented in the Appendix A0) with others.
Archibugi and Coco (2004) have developed a New Indicator of Technological Capabilities for Developed and Developing Countries (ArCo). This index is an improvement upon the TAI and UNIDO’s Industrial Performance Scoreboard. This index takes into account more variables associated with technological change. Similar to TAI, three main components considered are: (a) the creation of technology, (b) the technological infrastructures and (c) the development of human skills. Eight sub-categories have also been included. ArCo also allows for comparisons between countries over time. Figure-14 provides a comparison in this respect.
8. Religious Impediments: For a detailed treatise on the effect of religion on economic or development activities, the reader is referred to Noland (2003)
• Lack of consensus on issues: Developing a consensus on any religious matter has always been a difficult task. It becomes even more difficult when a matter as complex as the financial system comes up for discussion. Despite Quran being the most lucid religious book, creative minds tend to interpret the verses to their own benefit. Thus, just on the matter of interest there are many schools of thought, e.g., although the vast majority accepts that all forms of interest are un-Islamic and therefore prohibited, one group believes that only exploitative interest rates fall under the category of Riba, and prohibited (and what is the dividing line between the exploitative and the non-exploitative?), yet another group believes that despite the interest declared as un-Islamic, there is no need for a regulatory system to control dealings in interest and people should be free to follow whichever system suited them best, postponing God’s judgment for the Last Day (Khan-2000).
• Absence of a central religious body with universal appeal or control only exacerbates the matter. Some even argue that religion must not be mixed with the daily lives of people. But Islam does not distinguish between the two. Although religious faith cannot be forced upon people, clear guidelines and regulatory mechanisms would help those who wish to become a part of Islamic way of life.
• Divided House: Despite being the most promising religion capable of maintaining its structure through guaranteeing a non-modifiable holy book in the form of the Quran, the world of Islam is divided among sects some of which would like to oppose a proposal just for the sake of it. The flexibility in religious practices and the heterogeneity in the thought-patterns of groups could actually act as facilitator of innovation as can be witnessed in developments in Malaysia, Bahrain and UAE, but the same to diffuse to the rest of the Islamic world needs a change in paradigm that will need institutional support in limiting other impediments.
• Rise of fundamentalism: Despite the tenets of Islam being strongly based upon “tolerance”, and “peace”, the shift from a tolerant society to an intolerant one (whatever be the reasons) is diverting the attention of Muslim youth away from acquiring knowledge and making best use of it to prosper in all aspects of human life.
Recommendations to counter the impediments to the growth of IBFs: The recommendations obviously emerge from the above discussion on impediments. For the Islamic Financial System to exploit its competitive advantages for maximum benefits, it has to remove the impediments in its way. It must control the impact of those factors that are not directly under its control.
Educational: The foremost and urgent requirement is the advancement in the educational arena supported ably by research work in all areas that can enrich the level of education. It is important to understand that the people of the OIC region have different socio-cultural and religious orientations from those in the Western world. Therefore, simply adopting the Western system may not be so useful. In fact, there is a real threat of an increase in the level of confusion in the minds of the students if the available systems are not adjusted to suit their special needs.
The Western educational system has advanced so well that it cannot be dumped without jeopardizing the educational development of the young generation. Further, it is no use re-inventing the wheel all over again. Therefore, a framework that can properly adapt the Western system of education to the local needs of the region in every respect (language, socio-cultural and religious requirements, educational level of parents, pace of learning, etc.) is preferable. Development of a workable and sustainable infrastructure requires a lot of time, effort, investment and will power. Coordination between countries with similar cultural background, in this respect, and pooling of their resources will help speed up the process of building the required infrastructure related to research & development of educational media as well as related to actual imparting of education to the needy. These efforts have to consider education at all levels. The system has to be attractive enough for the students to reduce their dropout ratio at all levels. Since dropout ratio is also tied up with the state of economy, efforts towards making the region’s economy stronger are required. Thus, we can visualize the strong inter-relationship between various aspects that need attention, all at the same time, in order to provide a recipe for success. Figure-15 tries to capture this inter-relationship.
Societal and Psychological: The social fabric needs to undergo deep introspection to trace the reasons behind the declining value systems followed by concerted efforts to build them back to their original levels where they were so attractive to the outside world that societies as a whole adopted them voluntarily. This requires a deep-rooted support from institutions and government agencies. At the psychological level, the confusion in the minds of the modern youth craving for modern ways of life and at the same time seeking solace in the roots have to be cleared. Islam is the only religion that clears the air of confusion through an authentic institution in the form of Quran by clearly recommending Muslims to pursue the worldly pleasures without compromising with the religious value system. Guidelines cannot be any clear, which means that there is something wrong with the educational, political, and socio-cultural systems prevalent today. Thus, there is a need for thorough overhaul.
Economy: Economy is the backbone without which no system can stand on its own, and if it does seem to do so for a while, it cannot sustain for long. Therefore, there is a need for accelerating the growth in all spheres of economic activity, at a much faster pace than others, in order to overtake them soon. This needs efforts to come out of isolation, develop common markets among member countries, and make a combined effort towards capturing the global markets backed by competitive products manufactured indigenously. The countries will have to graduate from their trading paradigm to an all-encompassing capability-building paradigm. This needs cooperation at all levels for pooling of resources, but demands a lot of sacrifice from individual nations. Alternative options hardly exist.
Financial: There is an urgent need for an active capital market, an active debt market, an Islamic money market, Supportive Institutions for Venture Capital Financing and business incubators, an active secondary market for Islamic debt instruments and Sharia-compliant equities, etc. to bring dynamism into the Islamic Financial Sector. Dynamic Financial Engineering is the need of the hour for a nascent financial sector with great potentials. It needs a lot of effort towards the development of a research base supported by an innovative educational and training system. Islamic credentials of financial products must be established in order to gain acceptability and remove any confusion from the minds of those craving for ethical or Islamic products. Clarity in product propositioning and processes is vital in this respect. Survival of a banking or financial system is contingent upon controlling the maturity mismatch in Islamic debt portfolio. Mechanisms need to be devised to contain additional risks inherent in the Islamic Financial systems. This needs additional efforts from Financial Engineers to develop Sharia-compliant hedging instruments. It also requires much better coordination between Sharia Boards and Financial Engineers across borders.
Institutional: A uniform regulatory framework is an ideal proposition, but if complete uniformity is difficult to achieve in the short run, the existing regulatory frameworks must attempt to limit the mismatch to the minimum, and continue with their goal of having one such framework in the long run. This requires the coming together of not only the regulatory authorities but also the religious scholars on a common platform to sort out any differences that are natural to exist. These differences can be positively utilized to boost creativity and innovativeness. Lot of examples exist to take inspirations from. To start with, acceptance of existing Regulatory bodies is vital, and must be encouraged at all costs. A head-on clash with the mainstream regulations must be avoided, at least in the beginning, so that the Islamic financial instruments can be marketed in countries where there is little possibility of establishing an Islamic regulatory system in the near future.
The wings of institutions must spread to reach every nook and corner of the world which requires an Islamic Financial Network to be established. Pooling of resources together, and establishment of an Islamic Central bank with its branches in every country will enhance the pace of development in the Islamic financial arena, provide strength to match (and later, supersede) the conventional counterparts, and encourage others to join the bandwagon. Religious: The whole basis of this sector of financial system is based on religious edicts. Therefore, it is essential that consensus on issues related to Sharia is established. Since it is not an easy task for intellectuals to reach an absolute consensus on all issues, a working mechanism needs to be established to limit misunderstandings to the minimum and exploit the differences to generate creativity and innovativeness. A central religious body may sound like a distant dream today, but a Central Sharia Board to deliberate on matters related only to Islamic Finance should not be so difficult after all, particularly when the ultimate goal is the same, and the means to reach those goals (Quran and Hadeeth) are the same.
Finally, fundamentalism is the biggest enemy of anything Islamic. Although there is nothing wrong with the Islamic fundamentals, which are stronger than any other fundamentals, a lot of misunderstanding exists in the minds of not just the non-Muslims but also in the minds of Muslims. Lack of education is to blame. Islamic educational system is way behind other educational systems, and thus is unable to control the damage done to it by unscrupulous agents from within the community and beyond. It is not difficult for a religion whose fundamentals are built upon ‘peace’ and ‘patience’ to remove the tag of fundamentalism.
Political: All the recommendations are dependent upon governmental and institutional support, which makes it extremely important to have a political system that is conducive to development of Islamic Financial system.
Technological: There is no doubt in any mind that technology is an essential tool to gain competitive advantage in the modern world. It is an excellent medium to build capabilities and core competencies. Hence efforts are required not just towards use of latest technologies but also towards developing, on its own, compatible technologies and continuously upgrading them to keep ahead of the conventional counterparts. This needs emphasis on research & development activities and establishment of an infrastructure (soft as well as hard) base. Technology parks and establishment of a NASDAQ type stock exchange may not seem to be direct enablers for this purpose, but they would act as catalysts, and provide ingredients for long-term competitiveness.
Latest Developments: Bahrain Monetary Authority (BMA)’s efforts in establishing Bahrain as a hub of Islamic Banking, the future support from the planned Bahrain Financial Harbour and the launch of Dubai International Financial Centre – launched to coincide with Dubai 2003 (IMF/ World Bank Board of Governors Meet – September 2003), the improved regulatory controls promised by IIFM, IIRA and IFSB are certainly important developments in the recent past. Challenges of developing and sustaining the market for Islamic finance is no easy task, and concerted efforts from many sides are required.
The success of Dubai 2003 and the concurrent International Islamic Finance Forum, have been an exceptionally large morale booster for the Islamic Financial Community. The Forum marked coming together of the Institute for International Research (IIR), Dow Jones Indexes, the Saudi Economic & Development Company (SEDCO), iHilal Financial Services, Dubai Islamic Bank, Shariah Funds Inc. – a division of US-based Meyer Capital Partners, Oasis Global Management Company of Guernsey and South Africa and International Brunei Exchange, etc. Networks and alliances will decide the future of IBFs in a world where the conventional financial system is quite well entrenched.
Some of the latest developments are briefly discussed hereunder:
(i) Commodity Murabaha (Short-term Inter-bank deposit or placement): “Islamic Banking & Finance in the Kingdom of Bahrain”, a publication of the Bahrain Monetary Agency (BMA) provides the structure of Commodity Murababha contract in the Figure-16:
The process of Commodity Murabaha involves a Conventioanal Bank as a commission agent whose payment to Broker A on the Value Date includes interest for the period between the buying of Commodity and the deferred paymnet date (Value Date). The commodity provides the asset backing for the short-term inter-bank deal between the Islamic Bank and the Conventional Bank. The deal between the two banks involves the Murabaha mark-up only, and therefore accepted as Islamic. But, the deal does promote payment of interest between the commodity broker and the conventional bank which raises questions about the validity of Islamic spirit in the contract. But, Bahraini banks have utilised this innovation extensively ‘to bridge the liquidity gap’.
(ii) Islamic Credit Cards: Dubai Islamic Bank Visa card provides credit facilities and all the benefits of a normal credit card without any interest charges. So do other Islamic banks. This is one sector where it was difficult to imagine how the concept of interest-free credit could succeed. But, it gives us a picture of the level of convergence that is taking place. For a detailed discussion on these credit cards, the reader is referred to Darwish (2003).
(iii) Islamic Interbank Money Market (IIMM): Islamic Interbank Money Market (IIMM) has been operative in Malaysia since October 1998. Liquid money market is an important issue in the Islamic Financial system. The main concern of financial experts is how to improve liquidity in the Islamic financial markets with the Islamic concept of money as not being able to generate any income on its own. Money has to be associated with goods or service to generate income. Making Money from Money is not permissible – that is the basic difference between money and commodity. Money (of the same denomination) is not held to be the subject matter of trade, like other commodities. It can only be used as a medium of exchange and a measure of value.
If money is to be exchanged for money or it is borrowed, the payment on both sides must be equal, so that it is not used for trade in money itself. Money is just “potential capital”; to become real capital it must associate with other resources and undertake a productive activity. Islam recognizes the time value of money, but only when it acts as capital, not when it is “potential capital”.
For the conventional banking system, the inter-bank money market serves as an efficient means to transform excess money into income by short-term placements or overnight lending. With modern technology assisting such activities almost eliminating geographical barriers, transaction time and costs, this trade has been on the rise helping achieve great deal of liquidity in the money market. Interest-based system through inter-bank deals not only helps tackle the asset-liability mismatch but also allows generation of income out of it.
The Islamic banking system needs to tag some productive activity to every transaction which becomes an impossible task particularly for overnight trades. This means that Islamic banks have no motivation to deal in such trades making the money market highly illiquid. Although regulations can force a bank to part with its excess money to help another bank in need of cash without charging any interest on it. The Central banks can play an important role in this respect.
Bank Negara Malaysia allows Malaysian Islamic banks to participate in the interbank money market in order to prevent illiquidity. It also participates in open market operations to stabilize the market. A recent mechanism introduced for accepting “Islamic interbank deposits under the liquidity management operations based on the Islamic concept” is termed as “Wadiah Yad Dhamanah (Guaranteed custody). Under this concept, the Islamic banking institutions will offer to deposit their excess funds with the Central Bank over a period of time, as agreed between both parties. As a custodian to the deposits, the Bank is not under obligation to promise any return to the depositors. However, based on the Central Bank’s discretion, a sum amount of money may be paid as hibah (gift) to the depositors on the maturity date.” The total volume of Islamic money market instruments traded in the IIMM reached RM32.7 billion in the year 2002.
(iv) Islamic Bonds (Sukuk) Funds: The Islamic Bond market is becoming vibrant with successful large issues at international levels by Malaysia, UAE, Bahrain and IDB. Fig-4, showing growth of Malaysian Islamic Bond Market, provides us with a glimpse of growing Islamic bonds market. Recently, there has been a flurry of Bond issues by Islamic Financial Institutions, led by Bahrain and Malaysia. The news clip in Box-8 gives us an idea about the sincerity of the Bahraini Institutions in developing the primary as well as secondary Bond market. The biggest challenge for the bond market, of course, is acceptability of the fixed nature of return on these bonds by the Islamic scholars. The rental return on the Islamic leasing bonds (Ijara sukuk) is 60 basis points over the LIBOR for six months. Finding it difficult to understand how this bond was any different from a conventional bond, and whether this could be called an Islamic Bond at all, I posed the question to Islamic Financial Scholars on [the most successful virtual discussion forum related to Islamic principles and the IBFs, launched by Dr. Obaidullah of XIM, Bhubneshawar]. Numerous responses came to the author including one from Dr. M Shahid Ebrahim (four of his papers are cited in this dissertation). They tried to convince us that the bond does not lose its Islamic character just because it is pegged to the LIBOR. But why LIBOR? Simply because, they do not have an alternative. It will take time, but the growth rate of innovations is encouraging. The only fear is whether we are proceeding on the right path, or are we straying towards the path followed by our cousins, and falling into a trap?
A general belief among the Islamic financiers is that any benchmark can be used, in calculating profit or rent, so that compliance with Shari’a principles is indicated. They think that as long as the document does not explicitly indicate that the profit or rent is LIBOR but only the benchmark for calculations is LIBOR, nobody would object. But, it will be too naïve a belief, as for many of us it is difficult to see a real financial difference between the conventional and Islamic financing when the actual amount paid by a customer under an Islamic financing has a link to LIBOR.
Structure of Sukooks in Bahrain:
(a) Al Salam Sukook (Figure-17): These Government securities are equivalent to Treasury bills, and the margin to the buyers (syndicate of Islamic Banks) is competitive with respect to returns from other conventional short-term money market instruments. The counterparty and the market risks involved are the sovereign risks, with Government acting as the seller and buyer of goods (Aluminium, in the case of Bahrain).
(b) BMA Ijara Certificates: BMA issued these 5 year 5.25% rental return Islamic Leasing Certificates worth $100 million, on the 3rd September 2001, another first by an Islamic Central bank. The second sukook (Issue size of $ 70 million) with a maturity of 3 years, annual lease rental return of 4.52% (paid semiannually) was issued on 27th February 2002.
Steps in an Islamic Leasing (Ijara) Sukook deal:

(i) Central bank, as Mudarib, issues Participation Certificates (backed by Special Purpose Mudarabah) to the market and collect subscription money.
(ii) The Mudarabah purchases specified tangible assets and Central Bank as Mudarib executes the deed. Property rights of the assets is transferred to the certificate holders with the possibility of further transferability of ownership and inherent benefits built-in.
(iii) Purchased tangible assets are then leased out on the basis of Ijara-wa-iqtina to earn rental income. Mudarib executes the Ijara contract against collaterals & security from the lessee, and collects rentals. The certificate holders having the property rights on the assets are the lessors and thus entitled to the rental proceeds.
(iv) Mudarib executes a contract for sale of the leased assets on maturity. Mudarabah is then liquidated and Sukook redeemed. The leased assets in this Sale deed may be purchased by the lessee or his agent, or any third party at a fixed price on maturity of Ijara. The property right to the asset is represented by the Ijara certificate.
(v) The Participation Certificates can be traded in the secondary market during the validity of Mudarabah.
So, how Islamic are these bonds? The debate on how far the fixed rentals/ guaranteed margins, or a fixed spread over LIBOR in the Islamic sukooks differ from the interest rates of the conventional bonds will continue. One simple test that can be applied to ascertain whether or not these returns are same as the interest rates is whether or not the asset or commodity backing is genuine. Asset or commodity backing can be considered as genuine if it satisfies the basic tenet of the Sharia, i.e., the transactions actually result in producing the asset or commodity at some level. The whole cycle of activity does result in some productive economic activity unless it is purely speculative, in any system whether conventional or Islamic. But, the test for Islamic sukook deal is whether the economic activity is related to the asset or commodity that is used as backing for the deals. A cursory look at the whole cycle leaves an impression that in the whole process, the asset or commodity acts like the hypothetical Eurodollar deposit used for the Eurodollar interest-rate futures traded on the Chicago Mercantile Exchange (CME) and the Singapore International Monetary Exchange (SIMEX). As in the case of the futures, the underlying asset may never actually change hands in the sukook deals. But jumping to conclusions so easily would be negating all the efforts put into these excellent innovations accepted by the Sharia Supervisory Boards.
The question whether or not the asset or commodity backing is genuine may not be answered easily, but what about the fixedness of returns guaranteed by these bonds? The price of an asset or commodity widely fluctuates in the market due to supply and demand factors in case perfect competition exists. In such a scenario, the prices can be predicted in the short run based upon the factors that govern the demand and supply. In case speculative players dominate the market or in case where cartels exist, which is the case in many product/ commodity markets (particularly in Aluminium) of the contemporary world, how can the prices be guaranteed? If the future prices cannot be guaranteed, how can a return from a deal in such products/ projects/ commodities be guaranteed? Is it not speculation? This is one of the arguments that form the basis for prohibiting a guaranteed return to investors.
The discussion on the BMA’s Al Salam Sukooks (described above) may yield interesting insights. It provides us with some explanation why the Ijara based bonds are replacing the Salam based bonds. Under Ijara concept, fixing a rent in advance may not be considered un-Islamic whereas in Al Salam concept, a fixed rate of return may be termed speculative and thus may not be allowed. Considering the fact that BMA’s Al Salam Sukooks are based on Aluminium as the underlying commodity, let us examine the fluctuation in the price of Aluminium during last five years. With Aluminium prices being so volatile, and guided by large international players, can the sovereign guarantee be sustainable? It is not difficult to conclude from the guaranteed rate offerings tagged to the recent bond issues that the necessity to provide the fixed returns as competitive as the returns from conventional securities of similar maturity may actually be guiding them instead of any forecasting methodologies.

This may be the main reason why some scholars have termed only two modes of transactions, Mudarabah and Musharakah as strongly Islamic (Siddiqui-1982, Mohsin-1982, Qureshi-1984, Qureshi-1985, Chapra-1982). Khan and Mirakhor (1987) argue on the same line and suggest “all other modes of operations … are recommended only in cases where risk-return sharing (i.e., Mudarabah and Musharakah) cannot be implemented.”
The size of the disposable funds owned by high networth Arabs is estimated to exceed $11 trillion. After 11th September 2001, in particular, there has been a rush to tap this fund which used to be mostly invested in the US markets. In this mad rush, is it a possibility that Islamic Shariah principles are being kept aside or backdoors are being invented in the name of innovation? A more transparent system will provide better explanation apart from being helpful in clearing doubts from investor’s minds.
(v) Global Bond Market Growth: As reported by, USD180bn worth of funds were available for investment in Islamic-approved holdings worldwide as of mid-2002, an amount anticipated to grow by 15% YoY. Some indications of things to come are provided by the news item in Box-8. Some more developments are described below.
(vi) When Issue (WI): Players in the Islamic money market of Malaysia are allowed to perform WI transactions prior to the issuance date of the Islamic securities. WI is a pre-issuance transaction of debt securities that will be issued in the Islamic debt market to facilitate players in estimating the appropriate price to bid on the issuance date. The Council viewed that the WI transaction is allowed based on the permissibility to promise for sale and purchase transactions …… Bank Negara.
(vii) Sell and Buy Back Agreement (SBBA): The SBBA transaction is permissible, in Malaysia, as long as it is an outright sale and purchase and enforced by two different contracts for each transaction. In addition, compensation can only be effected on the party who defaulted on his promise …… Bank Negara.
(viii) Collateralised Borrowing: The National Shariah Advisory Council of Malaysia approved the proposal to introduce the collateral borrowing transaction in the Islamic money market based on the principle of Rahnu. The transaction is an alternative to the SBBA and the loan extended is based on the concept of Qardh. Although there is no profit element being introduced in the transaction, the banks are expected to prefer this transaction due to its simplicity and its mutual-help feature …… Bank Negara.
(ix) Islamic Securitization: Islamic Securitization in a wider sense is defined as the process of pooling assets, packaging them into securities, and making them marketable to investors. In Islamic finance, the concept of securitization is in consonance with what is known as Taskeek in Arabic, which is a process of dividing ownership of tangible assets, usufructs, or both, into units of equal value and issuing securities as per their value. The underlying assets, contracts, and payment mechanism, while being commercially viable must be aligned with the requirements of Sharia. By and large, the Sharia treatment of sukuk is similar to an equity security where shares are evidence of ownership in a going concern.
Islamic Development Bank’s recent debut issue of US$400 million Islamic sukuks received overwhelming response from both conventional and Islamic investors around the world. The issue size originally targeted at US$300 million was increased based on strong demand for the high quality instrument. The issue is unique in almost all its aspects ranging from the issuer, the guarantor, the arranger and more importantly the innovative structure of the deal, which is a combination of securitization of Ijarah, Mudaraba and Istisna contracts with a minimum of 51% on the Ijarah assets.
It should be noted that although some of these securitized financial instruments have been generally accepted as being in compliance with Islamic principles so that they can be traded in the secondary market, the negotiability of certain others still remain controversial due to their legal acceptability or compliance with Sharia. For instance, Murabaha is a transaction, which cannot be securitized independently to create a negotiable instrument to be traded in the secondary market. The certificate representing a monetary obligation from a third party or dayn arising out of a Murabaha transaction can be traded at face value and any difference in value will be tantamount to riba. However, if the security represents a mixed portfolio consisting of a number of transactions like Musharaka, leasing and Murabaha, then this portfolio may issue negotiable certificates, subject to certain conditions.
(a) Securitization of Mudaraba Bonds: AAOIFI’s Sharia standard No-18 defines the arrangement of Mudaraba bonds as below:
“The issuer of the certificates is the Mudarib, the subscribers are the capital owners and the realized funds are the Mudaraba capital. The certificate holders own the assets of Mudaraba operation and profit share as per agreement. The certificate holders, being the capital providers, bear the loss, if any.”
Mudaraba means an agreement between two parties where one partner gives money to another for investing in a commercial enterprise. The investment comes from the first partner who is called “Rab-ul-Maal” while the management and work is the exclusive responsibility of the other, who is called “Mudarib” and the profits generated are shared in a predetermined ratio.
The objects of a Mudaraba are restricted to only such businesses as are permitted under the Sharia. The concept of mudaraba is akin to revenue bond financing in the conventional system. Revenue bonds are generally backed by revenue generated mainly for public sector projects funded by the bond issue. The bondholders are solely dependent on the revenue generated by the project being financed and in the event of non-performance of the project, there is no recourse to the local government’s general treasury fund.
Likewise, the Mudaraba bonds give its owner the right to receive capital at the time the bonds are liquidated, and an annual proportion of the realized profits in accordance with the predetermined profit sharing ratio. The Mudaraba bonds can be instrumental in the process of development financing because it is related to the profitability of the projects.
(b) Securitization of Musharaka: AAOIFI’s Sharia standard No 18 defines the arrangement of Musharaka bonds as follows:
“The issuer of the certificates is the inviter to a partnership in a specific project or activity. The subscribers are the partners in the Musharka contract. The realized funds are the share contribution of the subscribers in the Musharaka capital. The certificate holders own the assets of partnership and are entitled to profit, if any”.
Musharaka bonds are relatively similar to Mudaraba bonds. The only major difference is that the intermediary-party will be a partner of the group of subscribers represented by a body of Musharaka bondholders in a way similar to a joint stock company while the Mudaraba capital is only from one party. In securitizing a Musharaka arrangement, every subscriber can be given a participation certificate, which represents his proportionate ownership in the assets of the venture or project for which financing is being raised.
Subsequent to the acquisition of substantial non-liquid assets, these Musharaka certificates can be treated as negotiable instruments and can be bought and sold in the secondary market.
There is a strong Sharia opinion against the trading of these certificates if the underlying assets of the Musharaka are in liquid form (i.e. in the shape of cash or receivables or advances due from others).
(c) Securitization of Ijarah: Ijarah sukuks have aspects in common with conventional asset-backed securities and are of particular interest to a broad range of investors representing both the conventional and Islamic financial communities. Benchmark for lease rentals can be based on a conventional index such as US$ LIBOR which can be either fixed or floating. Since Ijarah sukuks evidence the undivided pro-rata ownership of the underlying leased asset, it could be freely tradable at par, premium or discount. Such flexibilities can allow Ijarah sukuks to be priced at par with their conventional counterparts. A case in point is the issue of US$ 600 million 5-year floating rate trust Ijarah certificates by the Malaysian government in 2002. The issue was priced flat to the country’s conventional credit curve and attracted no premium despite being a new deal structure.
Ijarah is a contract, according to which a party purchases and leases out equipment required by the client for a rental fee. The duration of the rental and the fee are agreed in advance and ownership of the asset remains with the lessor. The lessor in Ijarah owns the leased assets, he can sell the asset, in whole or in part, to a third party who may purchase it and may replace the seller in the rights and obligations of the lessor, with regard to the purchased part of the asset. Typically, the issuer of the Ijarah certificates acquire assets, transfer its ownership to a special purpose vehicle (SPV, then sell investors shares in the SPV. The returns on the shares, which come from leasing out the assets owned by the SPV, could be either fixed or a floater. Thus, the expected returns are fixed and can be treated as predictable as the coupon on a conventional bond. A third party can also guarantee rental payments and since the yield is predetermined, the underlying assets are tangible and secured, the Ijarah certificates can then be traded in the secondary market.
The securitisation of leasing transactions and the creation of tradable, liquid investment funds have facilitated Islamic secondary market, which is instrumental in alleviating the liquidity constraints of Islamic financial institutions.
(x) Islamic hedge fund: At the outset of September 2003, the Saudi Economic and Development Company (SEDCO) launched the world’s first-ever hedge fund compliant with Islamic Sharia’h law, in conjunction with Saudi Arabian financial services group Permal. Fund managers Fostman-Leff of New York were responsible for managing the fund which were expected to start doing business by early October 2003 (as per their press release).
SEDCO has been examining possible alternatives to prohibited derivates. One such alternative is based on an innovative concept like “stipulated options” – a buyer makes an advanced partial payment for deferred delivery of a product, and if he decides not to buy this later, the seller keeps the advance – closest analogy to an option in IBF system. Another such alternative likely to be used by them is the old concept of Al Salam, where one sells a commodity to a buyer against full up-front payment for delivery at a future date. An investor can hedge his downside risk by selling stocks to be delivered later, receive payment in advance for productive use without bearing the price risk.
SEDCO claims that the fund is fully transparent to investors. An existing Sharia’h compliant offer from this group is a 5-year medium-term note with 100% principal protection provided by Societe Generale.
Rating Agencies: Do we need separate rating agencies for the IBFs? Perhaps, yes. We have seen that the system in its purest form is entirely different from its conventional counterpart, hence the rating methodology has to be uniquely suited to the IFBs. This will be important for inter-bank dealings. Credit ratings for customers may not be different simply because the target customers are mostly the same for both. However, project evaluation becomes an important and integral role for pure IBFs based mainly on the PLS principles. This may require specialized technical skills largely absent in the present lot of banks the world over. Apart from the evaluation of projects, its monitoring during execution and participation in managing the project may be important to avoid false reporting by the other party. In an age where creative accounting is considered as creativity rather than sin, costs to the IBFs may escalate beyond expectations. On the other hand, the benefits resulting from IBFs are likely to far exceed the costs.
IDB initiated a scheme to establish an Islamic Rating Agency recently called the “International Islamic Rating Agency”(IIRA) to be incorporated as a profit-making independent company. IBFs will hold a total of 35% of the capital, the IDB 15%, and 50% will be held by rating agencies. A working group comprising of representatives from IDB, AAOIFI, selected Islamic banks and Malaysian Rating Corporation (MARC) has been formed.
Basel II Implications: The Basel Committee guidelines do not specifically focus on the Islamic Banking and Financial System, but still the adequacy norms and risk management are areas that affect them as much as they affect the conventional banks. The BMA has developed a framework, known as Prudential Information and Regulations for Islamic Banks (PIRI) which takes into consideration standards developed by AOOFIFI and the Basel Committee’s various guidelines. When the International Islamic Financial Market, being developed in cooperation with the Islamic Development Bank and other central banks, will be operational the need to comply with the Basel II regulations would be felt even more.
The main problem for the IBF, today, even after more than twenty eight years in operation is in defining what they are all about, i.e., the confusion as to whether they are banks, mutual funds, asset managers, or investment funds. Although some of the regimes regulating Islamic financial institutions are already very stringent, and some like Bahrain which may claim to be over-regulated as they have started applying Basel II in terms of liquidity risk issues.
Some implications that can be more easily visualized are as follows:
– Cost implications (mainly for estimation of new risk components like operational risks). Majority of Islamic banks have no such liberty in investing a large amount for that purpose. Speculations are rife that banks will need to invest additional amounts (in millions) to comply with Basel II.
– CAR implications: There is much debate at present amongst western banks if Basel II will be implemented or not. This is because of the cost implication to implement operational risk monitoring which may cost billions.
There are views that in western countries it may likely improve the capital risk weighting for Islamic products. Products like mortgages already benefit from Murabaha structure in terms of capital risk weighting (50%) but Murabaha is not considered efficient in terms of early repayment, or determining a profit amount etc. Ijara is the preferred mode at present for developing mortgage products, but it attracts 100% capital risk weighting. One could argue that if Islamic mortgages based on Ijara are more efficient, they should attract less capital risk weighting. The Basel committee is unlikely to allow lesser risk weighting for lease across the board, as all banks will rush to reap benefits from Islamic leases. Modaraba and Musharika will continue to still attract 100% capital risk weighting.
Important Institutions supporting the development of IBF:
Institute of Islamic Banking and Insurance:
Dar Al-Maal Al-Islami (DMI): HQ in Geneva
Al-Baraka: HQ in Jeddah.
IIBI Established in 1991
Publications: (a) International Directory of Islamic Banks and Institutions 2000, (b) International Directory of Islamic Insurance 2000
AAOIFI: The Accounting and Auditing Organization for Islamic Financial Institutions is an Islamic international autonomous non-profit making corporate body that prepares accounting, auditing, governance, ethics and Shari’a standards for Islamic financial institutions.
Managed funds: over $200 billion
Agreement of Association signed by Islamic financial institutions on 26 February, 1990 in Algiers. AAOIFI was registered on 11 Ramadan 1411 corresponding to 27 March, 1991 in the State of Bahrain.
The International Islamic Rating Agency
The Islamic Financial Services Board
The International Islamic Financial Market, and
The Liquidity Management Center
The Dow Jones Islamic Market Indexes:
Dow Jones Islamic Market World Index
Dow Jones Islamic Market Titans 100 Index
Dow Jones Islamic Market Asia/Pacific Index
Dow Jones Islamic Market Europe Index
Dow Jones Islamic Market Canada Index
Dow Jones Islamic Market Japan Index
Dow Jones Islamic Market U.K. Index
Dow Jones Islamic Market U.S. Index
Dow Jones Islamic Market Technology Index
Some statistics related to the above indices are presented in Appendix-D
FTSE Global Islamic Index Series:
The FTSE Global Islamic Index Series (GIIS) are equity benchmark indices targeted at those who wish to invest according to Islamic investment guidelines. Islamic investing is growing by 12-15% per annum, as more and more international investment bodies stake an interest in this specialist service. The FTSE Global Islamic Index Series addresses this demand by creating a standard for applicable Islamic equity investing.
Initially pioneered in January 1999 by The International Investor (TII) and calculated by FTSE, the series was the first truly global Islamic Index series. It was designed to track the performance of leading publicly traded companies whose activities are consistent with Islamic Sharia principles.
Due to its success over the past months, the Global Islamic Index Series will now be incorporated into the FTSE family of indices. Using the FTSE World Index as the universe, TII applies Sharia principles, following guidelines provided by its Fatwa and Sharia Supervisory Committee to rule out those companies whose business activities are incompatible with the Islamic law.
After removing companies with unacceptable core business activities, the remaining list is tested by a financial-ratio “filter”, the purpose of which is to remove companies with an unacceptable debt ratio. Finally, any “tainted percentage” of any cash dividend received by a company which is not in accordance with Sharia law is computed, and should be donated to a proper charity.
Sub-component Indices:
FTSE Americas Islamic Index
FTSE Europe Islamic Index
FTSE Pacific Basin Islamic Index
FTSE South Africa Islamic Index
Sector Screens:
By way of guidance, stocks whose core activities are or are related to the following are excluded:
a) banking or any other interest related activity
b) alcohol
c) tobacco
d) gaming
e) insurance
f) pork production, packaging and processing or any other activity related to pork
g) activities deemed offensive to the principles of Islam
h) sectors / companies significantly affected by the above
The companies that have incompatible lines of business are removed from the “universe” of stocks included in the FTSE World Index. Companies classified in other industry groups may also be excluded if deemed to have a material ownership in, or revenues from, prohibited business activities.
Financial Screen:
Debt ratio: (exclude companies) if Interest-Bearing Debt divided by Assets is equal to or greater than 1/3 or 33.33%. Companies that pass these screens are generally eligible for inclusion in the FTSE Global Islamic indices’ investable universe.
Dividend Cleansing: “Tainted dividend” receipts relate to the portion, if any, of a dividend paid by a constituent company that has been determined to be attributable to activities that are not in accordance with Islamic Sharia principles and therefore should be donated to a proper charity or charities.
Sharia Scholars: The screening criteria of the FTSE Global Islamic range of indices is supported by the credibility of TII’s Fatwa and Sharia Supervisory Committee (Sharia Board).
Conclusion: Dr. Ebrahim (1999) argues that the modes of financing selected should not only avoid riba, gharar and maysir but also be economically efficient. In search of this economic efficiency, Islamic Banks now participate in a wide financing domain stretching from simple Sharia-compliant retail products to highly complex structured finance and large-scale project lending. Muslims (and non-Muslims) can now obtain Islamic credit cards, can insure themselves and their property Islamically, can invest on line in Islamic funds can track their investments Islamically and can even get a Sharia-compliant mortgage from a US firm. Islamic banks are now better positioned than ever to participate not only in large scale corporate financing but also more complex wholesale transactions such as syndications and securitization. Bahrain’s recent $255mn al-Hidd power financing is a case in point. Lead arranged by BNP Paribas, HSBC Amanah, Bank of Bahrain and Kuwait and Bank of Tokyo Mitsubishi, the $55mn Islamic tranche arranged by the Saudi-based Islamic Development Bank and Kuwait Finance House was hailed as a landmark in regional power finance. KFH had earlier helped set an inter-creditor agreement precedent when it secured in 1995 a $200mn Islamic tranche for Kuwait’s $1.2bn Equate petrochemical project.
This convergence is evidence of how the Islamic financial sector is part of the globalizing trend and not rejectionist. In essence, Islamic finance offers another set of well-understood tools within the understood frameworks of modern banking and finance. – Abdulkader Thomas

At first glance, it looks like many techniques that the interest-free banks are practising are neither in full conformity with the spirit of Shari’ah nor practicable in the case of large banks (or the entire banking system). Moreover, they seem to have failed to do away with undesirable aspects of interest, and thus, they seem to have retained what an Islamic bank should eliminate. This is because these institutions have attempted to start from where the conventional banking system has left. The innovations, however genuine and worthy, seem to be swamped within the muddle of well-developed and widely accepted financial system of conventional banking and finance. For a commoner, it becomes very difficult to distinguish the Islamic instruments from the conventional ones. The solution lies not in changing the look or personality (face value) of the conventional instruments – which is the primary reason for all the confusion – but in evolving afresh. We feel that the basic infrastructure necessary for building an entirely new structure for the Islamic Financial System is not just available but is quite strong already. What is needed at this moment is an out-of-the-box thinking even if sounds like reinventing the wheel. This will require a bold initiative towards a total unwinding of the current system and a lot of unlearning before we could even conceive of a reasonable amount of success in clearing the clouds of ambiguity. Even if one concludes that the resource available with Islamic Financial System is peanuts compared to its conventional counterpart, there is no need to despair. The ultimate winner is the one who dares to dream. What is required at the moment is the “strategy as stretch and leverage” that Hamel and Prahlad (1993) advises.
Haron et al (1994) who pioneered the research on bank patronage in Malaysia found that almost 100 percent of Muslims and 75% non-Muslims were aware of the existence of Islamic banks. While applying Haron et al’s study, Gerrard and Cunningham (1997) found that just like their Malaysian counterparts, Singaporean Muslims were more aware of the existence of Islamic banking than the non-Muslims. Similarly, this study found no evidence of Muslims and non-Muslims differing in their bank’s selection criteria. In another study wherein the respondents were individuals who had financial decision-making authority in the Malaysian corporate sectors, and 80% of which were non-muslims, Ahmad & Sudin Haron found that more than 55 per cent perceived that both religion and economics were the patronage factors in this system. About 50 percent of the respondents believed that Islamic banking products and services had a good potential to be accepted by customers. About 75 per cent indicated that Islamic banks in Malaysia however had not done enough marketing in promoting their products and services to corporate customers. Almost half of the individuals surveyed believed that the Islamic banking system had a good potential as an alternative to the conventional system.
The future is definitely bright for the Islamic banking and finance. They have already established a niche by roping in the Muslim community. And their appeal is expanding, particularly with the number of proponents of Ethical Banking and Finance on the rise in other communities. In order to give the conventional system any semblance of competition, it has to grow out of the niche, and convince everybody not just about the ethical aspects but also the economic benefits that it carries – in fact it will have to prove that it is more profitable than its conventional counterpart.

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The Dow Jones Islamic Market Indexes (

FTSE Global Islamic Index Series,

APENDIX A0: Estimation of TAI for UAE
Estimation of TAI for UAE to compare with TAI values of other countries in HDR (2001) is shown as below:
(A) Calculation of the Technology Creation Index:
Patent Index = (0.990 – 0)/ (994 – 0) ………………. (1999 figure taken from USPO for number of Patents) = 0.001
Royalty and Licence fee Index = 0 (assumed to be zero)
Technology Creation Index = (0.000 + 0.001)/ 2 = 0.0005
(B) Calculation of Diffusion of Recent Innovations Index:
Internet Host Index = (20.9 – 0.0)/ (232.4 – 0.0) = 0.090
High and Medium Technology Export Index (ERF-2002) = (16.0 – 0.0)/ (80.8 – 0.0) = 0.198
Diffusion of Recent Innovations Index =( 0.090 + 0.198)/ 2 = 0.288
(C) Calculation of Diffusion of old innovations Index:
Telephony Index = [log {407 (Tel mainlines per 1000 people) + 347 (Cellular mobiles per 1000 people)} – log(1)]/ [log(901)-log(1)] = 0.974
Electricity Index = 1, because its consumption of 9,892 KWH per capita is above the goalpost (6,969)
Diffusion of old innovations Index = (0.974 + 1.000)/ 2 = 0.987
(D) Calculation of the Human Skills Index:
Mean Years of Schooling Index = (10.5 – 0.8)/ (12.0 – 0.8) years: Expected Years of schooling from ERF (2002)
= 0.866
Gross Tertiary Science Enrolment Index = (3.2 – 0.1)/ (27.4 – 0.1) = 0.114
Human Skills Index = 0.980/ 2 = 0.490
Technology Achievement Index (TAI ) = (0.0005 + 0.288 + 0.987 + 0.490) / 4
= 0.441
APPENDIX-A: Competitiveness of Banking Sector In Case of Opening Local Markets to GCC Banks
(Kuwait Foundation For Advancement of Sciences)
Ghanem, AlMahmeed, AlMejren, ElSakka, Paul, Al MASARAF, (the official journal of the Union of Kuwaiti Banks, Issue no. 2, 2002).
1. Mudaraba and Murabaha services came at the forefront of Islamic banking services.
2. The Islamic financial institutions are seen as a strong competitor for the banks in Kuwait, now and in the future. Other banks in the GCC countries share the same view with the Kuwaiti banks.
Recommendations of the Study
By reviewing the weaknesses of the Kuwaiti banks compared to other GCC banks, we find that the Kuwaiti banks need to take the following actions:
– Explore methods to increase the return on their assets up to the levels prevailing at non- Kuwaiti banks.
– Increase the level of expenditure on training and human resources development.
– Increase the size of investment in information technology and communications up to the levels prevailing at non-Kuwaiti banks. – Increase the level of experience for national manpower.
– Increase the awareness as to the international financial developments and their local implications.
– Enhance their confidence in the ability to face foreign competition, and upgrade their readiness to meet the challenges of GCC banks or international banks.
– Exploit the opportunities offered by the GCC agreement on the liberalization of banking services.
– Increase the attention given to the evaluation and review of training activities, and ensure the good quality of the training provided to their staff , so as to more positively reflect on their performance.
– Create more stability for staff in order to avoid the adverse implications of the high turnover. – Improve staff productivity.
– Study the problem of staff absence and its reasons and treat it more seriously.
– Allocate more financial resources to enhance staff flexibility and reinforce their ability to work as a team.
– Periodic review of benefits and incentives, so as to ensure staff satisfaction and consistency of those systems with the standards prevailing in the industry.
– Improve annual planning and control systems.
– Improve FX and foreign operations risks management.
– Develop an IT strategy.
– Upgrade capital adequacy ratio to be in line with the levels prevailing at other GCC banks.
– Consider the opportunities of merging with other banks, whether local, Gulf or international.
– Study the opportunities of forming unions with other banks, whether local, Gulf or international.
– Adopt plans for diversifying products and markets in line with other GCC banks, and enhance the readiness for expansion in new markets.
– Adopt more intensive plans for automating banking operations in line with other GCC banks.
– Reinforce relationships with the segments of the general public and multi- national companies, likewise Qatari and Omani banks.
– Strengthen their presence in the areas of advisory and investment services, such as money markets, capital markets, futures, options, investment portfolios management, private funds management and investment advisory services.
– Reinforce their Islamic banking services in the areas of Murabaha, Mudaraba, Musharaka and Istisna.
– Start to use the Smart Cards, and expand in the areas of issuing certificates of deposits and rendering brokerage services, because their share of these services is the least among GCC banks.
– Activate the role of foreign exchange services and certificates of deposits in revenues generation, as these services rank the first at Omani banks and the second at Saudi and UAE banks.
– Expand services delivery through the internet, likewise the banks in UAE.
– Enhance the role of Musharaka and Istisna services as sources of income.
– Expand in advisory and investment services in the manner mentioned above, as such services represent an important source of income, particularly investment advisory services and investment portfolios management. There is also a need for expansion in futures and options.
– Expansion in insurance services to strengthen the role of these services as a source of income.
– Establish and enhance the presence in GCC and Arab markets in general, because the results of the study indicated that the strength of Kuwaiti banks association with their customers in GCC markets is the weakest, with the exception of Omani banks, and their association with their customers in Arab markets is also the weakest, with the exception of Omani and UAE banks.
APPENDIX-B: Islamic Financial Institutions in the World (Source: Islamic Institute of Banking and Insurance;
1. Albania
a. Arab Albanian Islamic Bank, Tirana
2. Algeria
a. Banque Albaraka D’Algerie, Algiers
3. Australia
a. MCCA (Muslim Community Co-operative, Australia)
b. MCCU (Muslim Community Credit Union)
4. Bahamas
a. Akida Islamic Bank International Ltd
b. Bank Al Taqwa Ltd
c. Dar al Mal al Islami Trust, Nassau
d. Islamic Investment Company of the Gulf Ltd, Nassau.
e. Istishara Consulting Trust, Bahamas
f. Massraf Faysal Islamic Bank & Trust, Bahamas Ltd.
5. Bahrain
a. ABC Investment & Services Co EC
b. Al Amin Co. for Securities and Investment Funds
c. Albaraka Islamic Investment Bank
d. Arab Islamic Bank E.C
e. Bahrain Islamic Bank Bsc.
f. Bahrain Islamic Investment Co. Bsc. Closed
g. Bahrain Institute of Banking & Finance
h. Bank Melli Iran
i. Chase Manhattan Bank N.A.
j. Citi Islamic Investment Bank (Citicorp)
k. Dallah Albaraka (Europe) Ltd
l. Dallah Albarakah (Ireland) Ltd
m. Faysal Investment Bank of Bahrain
n. Faysal Islamic Bank of Bahrain (Massraf Faisal Al Islami)
o. Gulf International Bank BSC
p. Islamic Investment Company of the Gulf
q. Islamic Trading Company
r. ABC Islamic Bank
s. ABN Amro Bank
t. Deutsche Bank Rep office
u. Investors Bank
v. TAIB Bank of Bahrain
w. Turk Gulf Merchant Bank
x. Bahrain Monetary Agency
y. Shamil Bank
z. Khaleej Investment Company
aa. First Islamic Investment Bank
6. Bangladesh
a. Albaraka Bangladesh Ltd (Dallah Al Baraka Group), Dhaka
b. Islami Bank Bangladesh Ltd, Dhaka
c. Faisal Islamic Bank
7. British Virgin Islands
a. Ibn Khaldoun International Equity Fund Ltd
8. Brunei
a. Islamic Bank of Brunei Berhad
b. Islamic Development Bank of Brunei Berhad
c. Tabung Amanah Islam Brunei
9. Canada
a. Islamic Co-operative Housing Corporation Ltd, Toronto
10. Cayman Islands
a. Ibn Majid Emerging Marketing Fund (International Investor Group)
b. Al Tawfeek Co. for Investment Funds Ltd. Subsidiary of Albarka Group “DBG”
11. Denmark
a. Faisal Finance (Denmark) A/S
12. Djibouti
a. Banque Albaraka Djibouti
13. Egypt
a. Alwatany Bank of Egypt, Cairo
b. Egyptian Company for Business and Trade S.A.E
c. Egyptian Saudi Finance Bank (Dallah Al Baraka), Cairo
d. Gulf Company for Financial Investment
e. Faisal Islamic Bank of Egypt, Cairo
f. Islamic Bank International for Investment and Development, Cairo
g. Islamic Investment and Development Co., Cairo
h. National Bank for Development, Cairo
14. France
a. Algerian Saudi Leasing Holding Co. (Dallah Al Baraka Group)
b. Societe General
c. Capital Guidance
d. BNP Paribas
15. Gambia
a. Arab Gambian Islamic Bank
16. Germany
a. Bank Sepah, Iran
b. Commerz Bank
c. Deutsche Bank
17. Guinea
a. Massraf Faisal al Islami of Guinea, Conakry
b. Banque Islamique de Guinee
18. India
a. Al Ameen Islamic Financial & Investment Corp. (India) Ltd., Karnatka
b. Bank Muscat International (SOAG)
c. Al-Falah Investment Ltd
19. Indonesia
a. Al Barakah Islamic Investment Bank
b. Bank Muamalat Indonesia, Jakarta
c. Dar Al-Maal Al-Islami Trust
d. PT Danareksa Fund Management, Jakarta
20. Iran
a. Bank Keshavarzi (Agricultural Bank), Tehran
b. Bank Maskan Iran (Housing Bank), Tehran
c. Bank Mellat, Tehran
d. Bank Melli Iran, Tehran
e. Bank Saderat Iran, Tehran
f. Bank Sanat Va Maadan (Bank of Industry and Mines), Tehran
g. Bank Sepah, Tehran
h. Bank Tejarat, Tehran
21. Iraq
a. Iraqi Islamic bank for Investment and Development
22. Italy
a. Bank Sepah, Iran
b. International Trading Co. of Africa
23. Jordan
a. Jordan Islamic Bank (Subsidiary of Dallah Al Barka Group)
b. Jordan Islamic Bank for Finance and Investment, Amman
24. Kuwait
a. Gulf Investment Corporation
b. The International Investment Group
c. The International Investor, Safat
d. Kuwait Finance House, Safat
e. Kuwait Investment Co – Dar Al-IsethmarSecurities House
25. Lebanon
a. Gulf International Bank, Bahrain
b. Al Barakah Bank
c. Bank of Beirut
26. Luxembourg
a. Faisal Finance (Luxembourg) S.A
b. Faisal Holding, Luxembourg
c. Takafol S.A
d. Islamic Finance House Universal Holding S.A
27. Malaysia
a. Adil Islamic Growth Fund (Innosabah Securities Sdn Bhd), Labuan
b. Arab Malaysian Merchant Bank Berhad, Kuala Lumpur
c. Bank Bumiputra Malaysia Berhad, Kuala Lumpur
d. Bank Islam Malaysia Berhad, Kuala Lumpur
e. Bank Kerjasama Rakyat Malaysia Berhad, Kuala Lumpur
f. Dallah Al Baraka (Malaysia) Holding Sdn Bhd
g. Lembaga Urusan Dan Tabung Haji (Fund), Kuala Lumpur
h. Malayan Banking Berhad (Maybank), Kuala Lumpur
i. Multi-Purpose Bank Berhad, Kuala Lumpur
j. United Malayan Banking Corp. Berhad, Kuala Lumpur
k. Bank Muamalat Berhad, Malaysia
l. Securities Commission
m. Labuan Offshore Financial Services Authority (LOFSA)
n. Islamic banking & Takaful Dept, Bank Negara Malaysia
28. Malaysian banks with Islamic windows
a. Commercial Banks:
i. Affin Bank Berhad
ii. Alliance Bank Berhad
iii. Arab-Malaysian Bank Berhad
iv. Bank Utama (Malaysia) Berhad
v. Citibank Berhad
vi. EON Bank Berhad
vii. Hong Leong Bank Berhad
viii. HSBC Bank (M) Berhad
ix. Malayan Banking Berhad
x. OCBC Bank (Malaysia) Berhad
xi. Public Bank Berhad
xii. RHB Bank Berhad
xiii. Southern Bank Berhad
xiv. Standard Chartered Bank Malaysia Berhad
b. Finance Companies:
i. Alliance Finance Berhad
ii. Arab-Malaysian Finance Berhad
iii. Asia Commercial Finance Berhad
iv. EON Finance Berhad
v. Hong Leong Finance Berhad
vi. Kewangan Bersatu Berhad
vii. Mayban Finance Berhad
viii. MBf Finance Berhad
ix. Public Finance Berhad
x. United Merchant Finance Berhad
c. Merchant Banks:
i. Alliance Merchant Finance Berhad
ii. Arab-Malaysian Merchant Bank Berhad
iii. Aseambankers Malaysia Berhad
iv. Malaysian International Merchant Bank Berhad
v. Affin Merchant Bank Berhad
d. Discount Houses:
i. Abrar Discounts Berhad
ii. Affin Discount Berhad
iii. Amanah Short Deposits Berhad
iv. BBMB Discount House Berhad
v. KAF Discounts Berhad
vi. Malaysia Discount Berhad
vii. Mayban Discount Berhad
29. Mauritania
a. Banque Alabaraka Mauritaninne Islamique (Dallah Al Baraka Group), Mauritania
30. Morocco
a. Faisal Finance Maroc S.A
b. The Netherlands
c. Faisal Finance (Netherlands ) B.V
d. Faisal Finance (Netherlands Antilles) N.V
31. Niger
a. Banque Islamique Du Niger, Niamey
32. Nigeria
a. Habib Nigeria Bank Ltd
b. Ahmed Zakari & Co
33. Oman
a. Bank Muscat International
b. Bank Saderat Iran, Muscat
c. Oman Arab Bank
34. Pakistan
a. Al Faysal Investment Bank Ltd, Islamabad
b. Al Towfeek Investment Bank Ltd (Dallah Al Baraka Group), Lahore
c. Faysal Bank Ltd, Pakistan
d. National Investment Trust Ltd., Karachi
e. Shamil Bank
f. Meezan Bank Limited
35. Palestine
a. Arab Islamic Bank
b. Arab Islamic International Bank (AIIB) Plc
c. Cairo Amman Bank
d. Palestine International Bank
e. The Palestine Islamic Bank
36. Qatar
a. Islamic Investment Company of the Gulf Ltd, Sharjah
b. Qatar International Islamic Bank, Doha
c. Qatar Islamic Bank SAQ, Doha
37. Russia
a. BADR Bank
38. Saudi Arabia
a. Albaraka Investment and Development Co., Jeddah
b. Al Rajhi Banking and Investment Corp., Riyadh
c. Arab Leasing International Finance (ALIF) Ltd
d. Faysal Islamic Bank of Bahrain E.C., Dammam
e. Islamic Development Bank, Jeddah.
f. National Commercial Bank Ltd, Jeddah
g. Riyad Bank
h. Saudi American Bank, Jeddah
i. Saudi Holland Bank
j. Bank Al Jazira
39. Senegal
a. Banque Islamique Du Senegal
40. South Africa
a. Albaraka Bank Ltd, Durban (Dallah Al Baraka Group)
41. Srilanka
a. Amana Islamic Bank
b. Amana Takaful Limited
42. Sudan
a. Al Baraka Al Sudani, Khartoum. (Dallah Al Baraka Group)
b. Al Shamal Islamic Bank
c. Al Tadamon Islamic Bank, Khartoum
d. Animal Resources Bank
e. El Gharb Islamic Bank (Islamic Bank for Western Sudan)
f. Faisal Islamic Bank of Sudan, Khartoum
g. Islamic Bank of Western Sudan, Khartoum
h. Islamic Co-operative Development Bank, Khartoum
i. Sudanese Islamic Bank
43. Switzerland
a. Cupola Asset Management SA, Geneva
b. Dar Al Maal Al Islami Trust, Geneva
c. Faisal Finance (Switzerland) SA, Geneva
d. Pan Islamic Consultancy Services Istishara SA, Geneva
e. United Bank of Switzerland (UBS)
f. Pictet & Cie
44. Tunisia
a. Beit Ettamwil al Tunisi al Saudi, Tunis (Dallah Al Baraka Group)
b. B.E.S.T. Re-Insurance (Dallah Al Baraka Group)
45. Turkey
a. Albarakah Turkish Finance House Istanbul
b. Emin Sigorts A.S
c. Faisal Finance Institution, Istanbul.
d. Faisal Islamic Bank of Kibris Ltd, Turkey
e. Ihlas Finance House
f. Kuwait-Turket Evkaf Finance House
g. Asya Finans Kurumu A.S
46. United Arab Emirates
a. Abu Dhabi Islamic Bank
b. Bank Muscat International (SOAG)
c. Dubai Islamic Bank, Dubai
d. Gulf International Bank, Bahrain
e. Islamic Investment Company of the Gulf Ltd, Abu Dhabi.
f. Islamic Investment Company of the Gulf Ltd, Sharjah Subsidiary of Dar Al Maal Islami Trust
g. National Bank of Sharjah
h. HSBC, Dubai
i. National Bank of Dubai
47. United Kingdom
a. Albaraka International Ltd, London
b. Albaraka Investment Co. Ltd, London
c. Al Rajhi Investment Corporation, London
d. Al Safa Investment Fund
e. Bank Sepah, Iran
f. Dallah Al Baraka (UK) Ltd., London
g. Takafol (UK) Ltd, London
h. Barclays Capital
i. HSBC Amanah Finance
j. ABCIB Islamic Asset Management, Arab Banking Corp
48. United Kingdom banks with Islamic windows
a. ABC International Bank, London
b. ANZ International Merchant Banking, London
c. Arab Bank Plc, London
d. Riyadh Bank , London
e. Citibank International Plc, London
f. Cedel International, London
g. Dawnay Day Global Investment Ltd
h. Global Islamic Finance, HSBC Investment Bank Plc
i. Gulf International Bank Bsc, Bahrain
j. The Halal Mutual Investment Company Plc
k. IBJ International, London (Subsidiary of Industrial Bank of Japan)
l. J. Aron & Co. (Goldman Sachs International Finance) Ltd., London
m. Islamic Investment Banking Unit (IIBU), United Bank of Kuwait, London
49. Ireland
a. Al Meezan Commodity Fund Plc, Dublin
b. Jersey, UK (+534)
c. The Islamic Investment Company, St Helier.
d. MFAI (Jersey) Limited (formerly – Massraf Faysal Al-Islami Ltd, Jersey)
50. United States of America
a. Abrar Investments, Inc., Stamford CT
b. Al-Baraka Bancorp Inc. Chicago
c. Al-Madina Realty, Inc., Englewood NJ
d. Al-Manzil Islamic Financial Services
e. Amana Mutual Funds Trust, State St. Bellingham WA
f. Ameen Housing Co-operative, San Francisco
g. American Finance House
h. Bank Sepah, Iran
i. BMI Finance & Investment Group, New Jersey
j. Dow Jones Islamic Index Fund of the Allied Asset Advisors Funds
k. Failaka Investments, Inc., Chicago IL
l. Fuloos Incorporated, Toledo OH
m. Hudson Investors Fund, Inc., Clifton NJ
n. MSI Finance Corporation, Inc., Houston TX
o. Samad Group, Inc., Dayton OH
p. Shared Equities Homes, Indianapolis IN
r. MEF Money, USA
s. Islamic Credit Union of Minnesota, (ICUM)
t. United Mortgage
51. Yemen
a. Islamic Bank of Yemen for Finance and Investment, Sana
b. Saba Islamic Bank, Sana
c. Faisal Islamic Bank
d. Yemen Islamic Bank, Sana
e. Yemen National Investment Co., Sana

APPENDIX-C: Islamic Equity Funds in the World

List of Islamic Equity Funds (
Fund Name Fund Manager(s) Fund Promoter(s) Inception Min. Invest
Global Equity Funds
1 Al Baraka Global Equity Mercury Asset Management Al Baraka Investment Bank Dec-97 $25,000
2 Al Rajhi Global Equity UBS Asset Management Al Rajhi Banking & Investment Jul-96 50 Shares
3 Al-Ahli Global Trading Equity Wellington Management Co. LLP National Commercial Bank (NCB) Jan-95 $2,000
4 Al-Bait Global Equity Fremont Investment Advisors Inc. Securities House Apr-00 $50,000
5 Al-Bukhari Global Equity Wafra Investment Advisory Group Wafra Investment Advisory Group Aug-98 $100,000
6 Al-Dar World Equities Pictet & Cie The International Investor/Pictet & Cie Feb-98 $100,000
7 Alfanar Investment Holdings Worms & Cie/SEDCO Permal Asset Management Dec-97 $5,000
8 Al-Firas Global Equity Arab Bank Plc Arab Bank Plc Oct-00 $10,000
9 Al-Kawthar Fund Wellington/Al-Ahli Global Trading Eq. National Bank of Kuwait Jan-95 $10,000
10 Al-Khair Global Equity Fund Pictet & Cie Bank Al-Jazira Sep-98 $5,000
11 Al-Safwa International Equity Roll & Ross Asset Management Al-Tawfeek Co. for Investment Funds May-96 $10,000
12 Arab Investor Crescent Fund Schroder Investment Mgmt Int’l Arab National Bank Apr-99 $5,000
13 Arzaq Investment Fund Global Alliance/Securities House Securities House Mar-98 $50,000
14 Bank Kanz Global Islamic Equity Bank Kanz Bank Kanz N/A $100,000
15 Barclays Global Equity Wellington Management Co. LLP Barclays Private Bank Feb-00 $1,000,000
16 Caravan Fund Wellington Management Co. LLP Commerical Bank of Qatar/BNP Dec-99 $10,000
17 Citi Global Portfolios SSB Citi Asset Management Citi Islamic Investment Bank Oct-97 $10,000
18 Dow Jones Islamic Index Fund Brown Brothers Harriman & Co. Wafra Invest. Advisory / AlTawfeeq Jul-99 $10,000
19 Global Equity 2000 Sub-Fund Alliance Capital Management LP First Investment Co Mar-00 $10,000
20 Hegira Global Equity Wellington Management Co. LLP Wellington Management Co. LLP Sep-96 $5,000,000
21 HSBC Amanah Global Equity HSBC Investment Funds (Lux.) SA HSBC Amanah Finance May-00 $5,000
22 Islamic Global Equity * N/A HSBC Bank USA Late 2001 $2,500
23 Miraj Global Equity Royal Bank of Canada Miraj International Investment Ltd. Aug-98 $10,000
24 Musharaka Equity Fund N/A Riyad Bank Jun-97 $10,000
25 Parsoli Global Equity Parosoli Capital & Finance Ltd. Parosoli Capital & Finance Ltd. Jun-01 £1,000
26 QIB Global Equities Global Asset Management (GAM) Qatar Islamic Bank N/A
27 SAMBA Global Equity SAMBA Capital Management SAMBA Capital Management Dec-99 $2,000
28 SUT Ethical Growth Fund Singapore Unit Trust Ltd. Malayan Banking & Daiwa Securities Aug-01 S$1,000
29 SUT Ethical Value Fund Singapore Unit Trust Ltd. Malayan Banking & Daiwa Securities Aug-01 S$1,000
30 TAIB Crescent Global Fund Wright Investors’ Service TAIB Bank of Bahrain Mar-00 $100,00
31 UBS Islamic Fund Global Equities UBS, AG & UBS Brinson UBS Islamic Fund Mgmt Co May-00 $100,000
North American Equity Funds
32 Al-Ahli US Trading Equity INVESCO Capital Mgmt Inc. National Commercial Bank (NCB) Dec-92 $2,000
33 Alfanar US Capital Growth Worms & Cie/SEDCO Permal Asset Management Jun-99 $5,000
34 Alfanar US Capital Value Worms & Cie/SEDCO Permal Asset Management May-99 $5,000
35 Amana Growth * Saturna Capital Saturna Capital Feb-94 $100
36 Amana Income * Saturna Capital Saturna Capital Jun-86 $100
37 Azzad DJIM Index Fund * Azzad Asset Management Azzad Asset Management Dec-00 1,000
38 Azzad Growth Fund LP Azzad Asset Management Azzad Asset Management Feb-98 $50,000
39 Azzad Income Fund Azzad Asset Management Azzad Asset Management Sep-01 $1,000
41 Dow Jones Islamic Index (US) Fund * Allied Asset Advisors Funds Allied Asset Advisors Funds Jun-00 $500
42 SAMI Navigator Nova Bancorp Group Nova Bancorp Group Jul-99 C$500
European Equity Funds
43 Al-Ahli Europe Trading Equity Gulf Int’l Bank (UK) Ltd. National Commercial Bank (NCB) Nov-94 $2,000
44 Al-Dar Europe Equities Pictet & Cie The International Investor/Pictet & Cie Feb-98 $100,000
45 Alfanar Europe Worms & Cie/SEDCO Permal Asset Management Jan-99 $5,000
46 Al-Sukoor European Equity Commerz Int’l Cap Mgmt/Al-Tawfeeq Co. Commerz Bank/Burgan Bank Mar-00 1 Share
47 Al-Thoraiya European Equity Lomard Odier & Cie Bank Al-Jazira Sep-99 $5,000
Small Cap & Technology Equity Funds
48 Al Rajhi Small Companies Franklin Mgmt & Lord Abbott Al Rajhi Banking & Investment Jun-99 200 Shares
49 Al-Ahli Small-Cap Trading Equity Wellington Management Co. LLP National Commercial Bank (NCB) Aug-98 $2,000
50 Alfanar Essex Technology Worms & Cie/SEDCO Permal Asset Management Jun-99 $5,000
51 Orbitex Islamic Comm. & IT Fund Orbitex Management Ltd. Orbitex Management Ltd. Dec-99 $50,000
52 TII Small Cap Equity (European) Pictet & Cie The International Investor Dec-96 $100,000
Balanced, Secured & Other Equity Funds
53 Al Hilal Fund Mercury Asset Management Abu Dhabi Islamic Bank (ADIB) Apr-00 $10,000
54 Al Kawthar Global Equity Secured National Commercial Bank (NCB) National Bank of Kuwait Sep-99 $10,000
55 Al Rajhi Balanced Fund I Al Rajhi Banking & Investment Al Rajhi Banking & Investment Nov-98 $5,000
56 Al Rajhi Balanced Fund II Al Rajhi Banking & Investment Al Rajhi Banking & Investment Dec-98 $5,000
57 Al-Ahli Global Equity Secured (Series B) Wellington Management Co. LLP National Commercial Bank (NCB) Nov-99 $25,000
58 Al-Ahli International Equity Secured Deutche Bank National Commercial Bank (NCB) Feb-00 $25,000
59 Al-Ahli US Equity Secured Deutche Bank National Commercial Bank (NCB) Oct-99 $25,000
60 Alkhawarizmi Fund AXA Rosenberg The International Investor Jul-97 $100,000
61 BHLB Pacific Dana Al Mizan (Balanced) BHLB Pacific Trust BHLB Pacific Trust Mar-01 RM 1,000
62 Faysal Shield Fund Banque National de Paris Faysal Islamic Bank of Bahrain Nov-99 $100,000
63 Mutajarah Fund (Balanced) Swiss Alternative Investment Strategies Group (SAIS) Towry Law International Oct-01 $100,000
64 Profit Sharing Fund (Aman-1) (secured) Al Rajhi Banking & Investment Al Rajhi Banking & Investment N/A $2,000
Emerging Market & Country Equity Funds
65 Al Arabi Saudi Co. Shares Arab National Bank Arab National Bank May-93 SR 10,000
66 Al Rajhi Egypt Equity EFG Hermes Al Rajhi Banking & Investment Jun-97 200 Shares
67 Al Rajhi Local Share Fund Al Rajhi Banking & Investment Al Rajhi Banking & Investment Jul-92 1 Share
68 Al Rajhi Middle East Equity Bakheet Financial Advisors Al Rajhi Banking & Investment May-98 200 Shares
69 Al-Ahli Saudi Trading Equity Bakheet Financial Advisors National Commercial Bank (NCB) Jun-98 SR 5,000
70 Al-Dar Eastern Europe Equities Pictet & Cie The International Investor/Pictet & Cie Feb-98 $100,000
71 Al-Taiyibat Fund (local share) Bank Al-Jazira Invesmtent Services Bank Al-Jazira Sep-98 SR 10,000
72 First Arabian Equity 2000 N/A First Investment Company N/A
73 Ibn Majid Emerging Markets UBS Brinson The International Investor Nov-95 $100,000
74 Khaled Ibn el-Waleed Fund PrimeCorp. Investment Management Al-Mal Islamic Company N/A
75 Oasis Crescent Fund Oasis Asset Management Ltd. Oasis Asset Management Ltd. Jan-99
76 Parsoli Islamic Equity Parosoli Capital & Finance Ltd. Parosoli Capital & Finance Ltd. 1996
77 Pure Specialist Fund Futuregrowth Unit Trust Management Futuregrowth Unit Trust Management Jun-92 R 200
78 Riyad Equity Fund 2 (Saudi Shares) Riyad Bank Riyad Bank Nov-96 SR 10,000
Asian Equity Funds
79 Al-Ahli Asia Pacific Trading Equity Gulf Int’l Bank (UK) Ltd. National Commercial Bank (NCB) May-00 $2,000
80 Al-Mashariq Japanese Equity Julius Baer Asset Management Bank Al-Jazira Apr-00 $5,000
81 Al-Nukhba Asian Equity Nomura Investment Bank Al-Tawfeek Co. for Investment Funds Jul-98 $10,000
82 Mendaki Global Fund DBS Asset Mgmt Mendaki Holding Pte. Ltd Sep-97 S$1,000
83 Mendaki Global Fund DBS Asset Mgmt Mendaki Holding Pte. Ltd May-91 S$500
Malaysian Equity Funds
84 Abrar Investment Fund Abrar Unit Trust Managers Abrar Unit Trust Managers 1996
85 Amanah Saham Bank Islam BIMB Unit Trust Mgmt Bhd. Bank Islam Malaysia Bhd Jun-94 500 Shares
86 Amanah Saham Darul Iman PTB Amanah Saham Darul Iman PTB Amanah Saham Darul Iman Oct-94
87 Amanah Saham Wanita Hijrah Unit Trust Management Bhd Hijrah Managers Bhd May-98 RM 100
88 BBMB Dana Putra BBMB Unit Trust Management BBMB Unit Trust Management Jun-96
89 BHLB Dana Al-Ihsan BHLB Pacific Trust BHLB Pacific Trust May-98 RM 500
90 Dana Al-Aiman Mara Unit Trust Mara Unit Trust May-68 RM 100
91 Kuala Lumpur Ittikal Fund Kuala Lumpur Mutual Funds Kuala Lumpur Mutual Funds May-97 RM 1,000
92 Mayban Dana Yakin Mayban Mgt Berhad Mayban Mgt Berhad Nov RM 1,000
93 Pacific Dana Amana Pacific Mutual Fund Trust Pacific Mutual Fund Trust Apr-98 RM 1,000
94 RHB Mudarabah Fund RHB Unit Trust Management RHB Unit Trust Management May-96 500 Shares
95 Tabung Amanah Bakti Asia Unit Trust Berhad Tabung Amanah Bakti May-71 RM 500
96 Tabung Ittikal Arab-Malaysian Arab-Malaysian Unit Trusts Bhd Arab-Malaysian Unit Trusts Bhd Jan-93 500 Shares
Islamic Bonds (Sukuk) Funds
97 RHB Islamic Bond RHB Unit Trust Mgt RHB Unit Trust Mgt Jun-00 RM 1,000
98 Kuala Lumper Islamic Bond Fund Kuala Lumper Mutual Funds Kuala Lumper Mutual Funds Aug-01 RM 1,000
99 Dahlia Syariah Income Fund Mayban Life Assurance Bhd. Mayban Life Assurance Bhd. Aug-01 RM 1,000

APPENDIX-D: The Dow Jones Islamic Market Indexes
Descriptive Statistics Market Capitalization Data (USD Billion) Component Weight (%)
Index Name Component Number Full Float-adjusted Mean Median Largest Smallest Largest Smallest
Dow Jones Islamic Market Index 1,422 7,603.2 6,591.6 4.6 0.8 234.2 0.0 3.55 0.00
Dow Jones Islamic Market Titans 100 Index 100 4,806.6 4,391.8 43.9 27.5 234.2 4.2 5.33 0.10
Dow Jones Islamic Market Europe Index 271 2,004.2 1,634.2 6.0 0.9 142.1 0.0 8.70 0.00
Dow Jones Islamic Market Asia/ Pacific Index 479 980.2 631.3 1.3 0.4 30.9 0.0 4.89 0.00
Dow Jones Islamic Market Technology Index 292 1,504.5 1,336.5 4.6 0.6 223.4 0.0 16.71 0.00
Dow Jones Islamic Market Canada Index 65 111.0 83.1 1.3 0.7 8.5 0.1 10.28 0.06
Dow Jones Islamic Market Japan Index 192 574.7 401.4 2.1 0.7 30.9 0.0 7.69 0.00
Dow Jones Islamic Market U.K. Index 101 723.7 710.3 7.0 0.9 142.1 0.1 20.01 0.01
Dow Jones Islamic Market U.S. Index 572 4,456.5 4,209.5 7.4 1.4 234.2 0.1 5.56 0.00

Performance Price Return (%) Annualized Price Return (%)
Index Name 1-Month YTD 2002 1-Year 3-Year 5-Year
Dow Jones Islamic Market U.S. Index 0.50 -3.78 -22.59 -24.93 -23.32 -4.34
Dow Jones Islamic Market U.S. Index 0.85 -4.15 -23.31 -25.18 -21.86 -4.26
Dow Jones Islamic Market U.S. Index -0.57 -8.18 -18.27 -24.44 -22.09 -6.77
Dow Jones Islamic Market U.S. Index -3.31 -6.90 -13.95 -22.90 -27.26 0.01
Dow Jones Islamic Market U.S. Index -1.71 -2.48 -39.18 -36.71 -39.45 -6.83
Dow Jones Islamic Market U.S. Index -2.11 2.49 -22.75 -17.92 -30.87 -6.92
Dow Jones Islamic Market U.S. Index -3.63 -7.61 -9.25 -19.35 -28.80 0.69
Dow Jones Islamic Market U.S. Index 0.55 -7.84 -9.25 -19.35 -28.80 0.69
Dow Jones Islamic Market U.S. Index 1.69 -1.47 -25.71 -25.61 -22.64 -4.01

Fundamentals P/E (including negative) P/E (excluding negative)
Index Name Trailing Projected Trailing Projected P/B Dividend Yield (%) P/ Sales P/ Cash Flow
Dow Jones Islamic Market U.S. Index 18.42 16.60 19.59 16.91 3.08 1.80 1.42 11.95
Dow Jones Islamic Market U.S. Index 22.24 18.36 19.40 16.91 3.04 1.98 1.75 12.34
Dow Jones Islamic Market U.S. Index 15.43 14.13 16.10 14.45 2.46 2.88 1.14 9.56
Dow Jones Islamic Market U.S. Index 17.29 16.66 19.76 17.18 2.11 1.88 1.24 10.28
Dow Jones Islamic Market U.S. Index 22.88 19.31 22.87 19.55 3.12 0.61 1.73 14.35
Dow Jones Islamic Market U.S. Index 21.79 14.32 19.14 14.32 2.06 0.66 1.52 9.07
Dow Jones Islamic Market U.S. Index 32.03 18.84 24.58 18.84 1.69 0.94 1.06 10.62
Dow Jones Islamic Market U.S. Index 54.03 26.97 14.96 13.77 1.49 3.09 1.08 9.32
Dow Jones Islamic Market U.S. Index 21.16 18.33 21.56 18.33 3.96 1.36 1.70 13.78

Appendix-E1: Assets, Deposits and Loans of 53 Conventional local Banks in GCC (US$ Millions)
Source: Research Unit of the Institute of Banking Studies, Kuwait
Assets Deposits Loans
Bank/ Year 2001 2000 1999 2001 2000 1999 2001 2000 1999
Abu Dhabi Commercial Bank 7,241.24 6,889.63 6,280.50 5,679.71 5,426.96 4,945.30 4453.6 4703.2 4050
AlAhli Bank of Kuwait 3,859.42 3,772.11 3,818.22 3,254.46 3,163.51 3,210.13 1769.6 1625.1 1679.1
Al-Ahli Bank of Qatar 581.10 720.41 732.53 512.78 654.00 644.62 291.88 333.93 364.73
Al-Ahli United Bank 4,102.72 3,512.35 865.97 3,145.19 2,740.21 713.02 1882.7 1766.3 526.82
Al-Bank Al-Saudi Al-Fransi 10,681.64 10,146.85 8,668.23 9,101.41 8,767.28 7,438.68 4479.7 4304.2 3853.5
Arab Bank for Inv. & Foreign Trade 1,572.79 1,509.88 1,435.01 1,215.31 1,130.05 1,060.83 348.92 336.1 336.83
Arab Banking Corporation 26,586.00 26,676.00 24,358.00 21,544.00 21,758.00 20,158.00 14225 14039 12903
Arab National Bank 10,784.30 10,052.71 9,466.77 9,196.05 8,714.86 8,360.40 3948.5 3715.3 3445.9
Bahrain International Bank 887.52 1,039.53 966.81 365.95 339.63 353.76 12.36 16.85 17.56
Bahrain Middle East Bank 512.83 620.85 655.58 189.53 271.86 267.56 14.53 12.53 13.12
Bahraini Saudi Bank 595.40 529.86 424.86 482.11 424.52 327.14 329.15 323.31 266.64
Bank Al-Jazira 1,364.41 1,383.23 1,322.26 1,154.20 1,178.03 1,133.66 568.59 556.85 460.65
Bank Dhofar Al-Omani Al-Fransi 876.61 708.80 680.34 737.09 581.51 556.10 705.96 553.35 513.15
Bank Muscat 3,501.86 3,477.18 1,942.10 2,901.22 2,927.21 1,661.78 2855.9 2592.1 1514.1
Bank of Bahrain & Kuwait 2,928.57 2,815.42 2,734.25 2,322.70 2,190.26 2,094.25 1278.7 1328.3 1344.8
Bank of Kuwait & Middle East 3,519.18 3,379.74 2,949.60 2,941.91 2,800.08 2,434.47 1383.7 1209.4 1095.4
Bank of Sharjah 524.82 514.15 465.52 409.31 404.25 363.43 280.43 298.04 266.81
Burgan Bank 4,839.90 3,721.98 3,777.05 3,994.08 3,141.46 3,195.10 1861.2 1644.5 1545.4
Commercial Bank International 651.76 542.28 469.55 548.74 450.96 390.47 469.47 400.4 357.94
Commercial Bank of Dubai 2,002.46 1,945.28 1,697.09 1,609.16 1,566.68 1,355.11 1237.2 1276.9 1239.7
Commercial Bank of Kuwait 5,504.05 5,056.48 4,530.84 4,278.49 3,822.62 3,646.12 2856 2377.4 1946.3
Commercial Bank of Qatar 1,430.77 1,391.51 1,274.92 1,102.22 1,064.76 1,026.26 749.87 667.37 627.37
Doha Bank 1,786.99 1,514.04 1,391.18 1,562.85 1,325.92 1,227.07 907.97 772.01 746.96
Emirates Bank International 6,405.88 5,335.05 5,605.89 4,622.91 3,671.30 4,554.79 4669.5 3062.9 4049.4
First Gulf Bank 937.99 652.11 556.94 762.82 489.69 408.61 466.91 382.45 356.51
Gulf Bank 6,114.70 5,413.48 5,840.87 5,246.43 4,626.97 5,069.92 3213.5 3067.3 2259.4
Gulf International Bank 15,232.00 15,119.50 15,679.40 10,949.70 11,414.50 11,462.40 3309.4 3923.1 4038
Industrial Bank of Kuwait 1,338.88 1,153.60 1,149.35 160.83 427.13 334.69 334.81 279.53 242.26
Investment Bank 700.28 676.03 607.64 549.59 534.58 478.41 465.6 434.71 399.66
Kuwait Real Estate Bank 2,151.98 2,117.96 1,788.29 1,403.49 1,342.08 1,092.75 1316.9 1192.9 1385.6
Mashreq Bank 6,181.22 6,014.33 5,442.62 5,113.20 5,049.63 4,524.65 2849 2941.5 3039.8
Middle East Bank 673.25 659.81 592.90 467.88 470.06 421.34 324.95 332.13 355.45
National Bank of Abu Dhabi 8,782.33 9,921.12 8,526.32 7,550.78 8,758.01 7,520.84 5538.4 5259.4 4559.7
National Bank of Bahrain 2,867.93 2,753.40 2,628.11 2,426.49 2,280.39 2,078.90 1200.3 1150.2 1068.2
National Bank of Dubai 8,893.32 7,664.57 6,784.70 7,514.11 6,329.01 5,480.48 1957.3 1902.2 1869.6
National Bank of Fujairah 717.79 752.42 667.25 554.03 594.20 522.26 412.89 436.3 386.13
National Bank of Kuwait 14,553.07 13,401.85 12,482.31 12,484.89 11,461.41 10,579.95 5089.3 4580.3 4245.7
National Bank of Oman 2,471.76 2,120.60 2,163.62 2,082.72 1,667.79 1,696.13 1871.3 1670.8 1599
National Bank of Ras Al-Khaimah 659.93 508.06 492.12 504.75 358.91 346.02 480.34 371.84 358.38
National Bank of Sharjah 557.38 505.20 423.17 355.05 346.67 289.76 355.44 362.01 332.03
National Bank of Umm Al-Qaiwain 466.00 461.81 478.03 327.56 328.07 346.73 315.35 317.33 329.05
Oman Arab Bank 832.49 718.40 685.22 705.77 594.36 571.16 600.01 591.42 550.62
Oman Housing Bank 429.18 429.15 444.56 16.36 23.08 80.86 412.99 421.62 435.05
Oman International Bank 1,748.80 1,921.68 2,172.34 1,295.70 1,423.04 1,656.34 1187.6 1332 1456.9
Qatar National Bank 7,795.86 6,763.51 6,141.24 6,416.61 5,444.03 4,934.41 5234.8 3744.3 3982.1
Riyad Bank 17,931.71 17,494.69 17,188.55 14,728.05 14,572.26 14,298.21 5657.3 5473.5 5165.6
Saudi American Bank 20,621.20 21,543.73 20,546.25 17,618.37 18,051.68 17,404.47 8984.2 8418 8452.9
Saudi British Bank 11,192.84 11,521.39 9,939.69 9,700.65 10,153.44 8,622.26 4277.5 4620.6 4338
Saudi Hollandi Bank 6,720.04 5,713.56 5,054.27 5,878.18 5,004.67 4,455.20 3067.3 2676.4 2454.2
Saudi Investment Bank 4,072.27 3,634.40 3,525.94 3,340.74 2,973.05 2,944.47 2009.7 2000.6 1885.8
Union National Bank 3,612.72 3,300.15 2,682.51 3,169.94 2,879.03 2,324.94 2155.7 2029.5 1788
United Arab Bank 484.50 464.59 411.46 358.74 350.17 310.47 364.86 341.22 321.91
United Gulf Bank 931.15 712.32 733.01 443.27 385.48 448.08 78.85 93.45 99.73

Appendix-E2: Assets, Deposits and Loans of 8 Islamic local Banks in GCC (All figures are in US$ Millions)
Source: Research Unit of the Institute of Banking Studies, Kuwait

Assets Deposits Loans
Bank/ Year 2001 2000 1999 2001 2000 1999 2001 2000 1999
Al-Rajhi Banking & Investment Corp. 13,815.03 12,997.68 11,448.90 10,542.35 9,785.78 8,661.74 11,275.91 10,520.67 9,243.73
Kuwait Finance House 7,733.64 6,632.26 5,817.23 5,779.20 5,065.40 4,388.63 5,875.00 4,937.21 4,092.62
Dubai Islamic Bank 4,175.44 3,205.90 2,543.70 3,573.03 2,661.05 2,077.63 3,399.98 2,595.28 2,096.63
Abu Dhabi Islamic Bank 1,664.61 1,188.18 725.72 1,167.26 804.43 408.24 1,460.42 1,038.86 648.05
Shamil Bank of Bahrain 1,241.90 1,316.34 1,092.05 58.19 64.73 44.3 677.92 580.08 555.91
Qatar Islamic Bank 1,212.82 1,115.02 1,094.23 1,003.48 910.66 902.34 974.20 940.30 860.66
Qatar International Islamic Bank 741.67 576.29 505.45 613.95 467.64 419.24 654.38 507.29 439.33
Bahrain Islamic Bank 508.47 516.85 414.86 401.54 408.57 366.26 406.30 417.60 354.87


August 22, 2010 Leave a comment

RR. Kathrin Irviana*), Rita Nurmalina, **)
Arif Imam Suroso,**)

*) HSBC Amanah Indonesia
**) Manajemen dan Bisnis, Institut Pertanian Bogor


The purpose of this research is for identifying market segment and customer behavior toward Islamic Banking and its marketing implications in all regions of DKI Jakarta. The research was conducted on August – October 2008 in East, West, North, South and Central of Jakarta. The survey was conducted by doing face to face interview and questionaires distribution to 120 proportional responden. The analytical tools applied are analysis of cluster, factor & descriptive and using SPSS version 11.5 as the statistic’s tool. The result of this research for segmentation aspect showed the characteristics and size of each market segment of Islamic banks. The market segment consists of syariah loyalist, floating mass and conventional loyalist. From this research, floating mass segment has been showed that this segment is the most potential segment among others in DKI Jakarta regions due to it has the largest target market compared to syariah loyalist and conventional loyalist segments. However responden with Islam as their religion are still priority target market for Islamic banks since floating mass responden have been collected from Islamic’s responden dominantly with employees and entrepreneurs as the occupations. Further, market segment will be analyzed in relation with customers’ category, region of geography, religion and occupation. In customer behavior side, customers preferences and information resources toward Islamic banks will be the important factors which could influence customers behavior when choosing Islamic banks. The four factors influence customers in choosing Islamic banks are building physical’s appearance, ATM network, variety of products and profit rate. Both results of market segmentation and consumer behavior toward Islamic Banking are important factors for Islamic Banking in formulating marketing strategy.

Keyword : market segmentation, consumer behavior, islamic banking.
Latar Belakang
Sejarah berdirinya perbankan sya-riah dikarenakan dua alasan utama yaitu adanya pandangan bahwa bunga (interest) pada bank konvensional hukumnya haram dan dari aspek ekonomi dimana penyerahan resiko usaha terhadap salah satu pihak dinilai melanggar norma keadilan. Hadirnya bank syariah di Indonesia didorong oleh keinginan masyarakat Indonesia (terutama masyarakat Islam) yang berpandangan bahwa bunga bank adalah riba. Sejak tahun 1992, industri perbankan syariah di Indonesia mulai berkembang cukup pesat sampai dengan saat ini, bahkan diperkirakan akan terus berkembang pesat di masa yang akan datang. Bank Indonesia (2004) memperkirakan bahwa jumlah aset perbankan syariah dibandingkan seluruh jumlah per-bankan nasional mencapai 9,10% pada tahun 2011.
Hal ini didukung pula oleh terbitnya Undang-Undang No. 10 tahun 1998 tentang Perbankan yang secara eksplisit memperbolehkan operasional bank berdasarkan prinsip syariah baik bagi Bank Umum maupun Bank Perkreditan Rakyat. Era inilah yang menandai dimulainya sistem perbankan ganda (dual banking system) dalam sistem hukum perbankan di Indonesia, yaitu sistem perbankan konvensional dan sistem perbankan syariah. Bahkan bank umum konvensional diperkenankan untuk membuka layanan syariah melalui islamic window dengan terlebih dahulu membentuk Unit Usaha Syariah (UUS).
Pertumbuhan ekonomi provinsi DKI Jakarta (termasuk Banten) yang tinggi dan menjadi penyumbang pertumbuhan ekonomi terbesar secara nasional, yaitu sebesar 26,4% pada tahun 2007. Berdasarkan data yang dikeluarkan oleh Bappeda DKI Jakarta (2008), kinerja perbankan di wilayah provinsi DKI Jakarta pada tahun 2007 juga menunjukkan peningkatan. Penghimpunan Dana Pihak Ketiga (DPK) mencapai Rp 725,7 trilyun atau meningkat sebesar 13,6% dibandingkan tahun sebelum-nya. Komposisi DPK terbesar dalam bentuk deposito, yaitu sebesar Rp 401,8 trilyun atau 55,4% dari keseluruhan DPK. Nilai kredit yang disalurkan juga mengalami peningkatan sebesar 26,4% dengan nilai kredit yang telah disalurkan sebesar Rp 503,8 trilyun. Oleh karena itu, DKI Jakarta meru-pakan provinsi yang memiliki pangsa pasar perbankan terbesar di Indonesia sehingga dibutuhkan informasi berbasis pasar yang dapat digunakan sebagai pertimbangan dalam merancang strategi pengembangan sistem perbankan sya-riah yang tepat dan disesuaikan dengan kebutuhan masyarakat.
Perumusan Masalah
Bagaimana segmen pasar perbankan syariah di wilayah provinsi DKI Jakarta ?
Bagaimana preferensi dan sumber informasi nasabah tentang bank syariah ?
Apakah faktor-faktor yang mem-pengaruhi responden dalam memilih bank syariah ?
Bagaimana formulasi strategi pema-saran bagi industri perbankan sya-riah sesuai dengan segmentasi pasar dan perilaku nasabah terhadap bank-bank syariah yang akan/telah ber-operasi di wilayah penelitian ?
Tujuan Penelitian
1. Menganalisis segmen pasar per-bankan syariah di Provinsi DKI Jakarta.
2. Menganalisis preferensi dan sumber informasi nasabah tentang bank syariah.
3. Menganalisis faktor-faktor yang mempengaruhi responden memilih bank syariah.
4. Menyusun formulasi strategi pemasaran bagi industri perbankan sya-riah sesuai dengan segmentasi pasar dan perilaku nasabah terhadap bank- bank syariah yang akan/telah ber-operasi di wilayah penelitian.
Manfaat Penelitian
Dapat menjadi literatur bagi kepentingan akademisi, praktisi dan regulator yang ingin mema-hami tentang segmentasi dan perilaku nasabah terhadap bank syariah
Mampu memberikan rekomenda-si strategi pemasaran perbankan syariah sesuai dengan segmentasi pasar beserta dengan karakteristik dan perilaku nasabahnya.
Mampu memberikan informasi yang dapat digunakan dalam me-rancang program pengembangan perbankan syariah yang sesuai dengan masyarakat wilayah DKI Jakarta. Dan secara nasional sebagai informasi untuk pemetaan potensi masyarakat dalam pengembangan bank syariah di Indonesia.
Ruang Lingkup Penelitian
Dibatasi pada analisis segmentasi pasar dan perilaku nasabah perbankan yang dihubungkan dengan karakteristik demografi masyarakat terhadap lembaga perbankan syariah di wi-layah DKI Jakarta.

Riba secara bahasa bermakna ziyadah yang artinya adalah tambahan. Dalam pengertian lain, secara linguistik, riba juga berarti tumbuh dan membesar (Saeed, 1996). Antonio (1999) menyatakan bahwa menurut istilah teknis, riba berarti pengambilan tambahan dari pokok atau modal secara batil. Riba bukan hanya merupakan persoalan Islam saja, tetapi berbagai kalangan di luar Islam pun memandang serius persoalan ini.
Beberapa penelitian terdahulu yang mendasari penelitian ini adalah Karim Business Consulting (2005), melakukan penelitian tentang segmentasi dan perilaku nasabah terhadap bank syariah di Indonesia dengan pendekatan value graphic map dan service orientation. Penelitian ini menghasilkan tiga seg-mentasi pasar perbankan syariah, yaitu syariah loyalist, floating mass dan conventional loyalist. Pembagian seg-men pasar dilakukan dengan pendekatan kualitatif (Focus Group Discussion dan In Depth Interview).
Wijaya (2006), melakukan analisis segmen pasar dan perilaku nasabah terhadap bank syariah di wilayah Daerah Istimewa (DI) Yogyakarta de-ngan membagi segmen pasar perbankan syariah menjadi syariah loyalist, floating more syariah, floating less syariah dan conventional loyalist dengan analisis deskriptif, analisis fak-tor dan analisis klaster. Hasil penelitian menunjukkan bahwa segmen floating more syariah merupakan pasar sasaran yang paling potensial di wilayah DI Yogyakarta dibandingkan segmen-segmen lainnya.
Harahap (2003) melakukan pene-litian untuk melihat potensi pendirian BNI Syariah di Kota Bogor dengan mellihat respon masyarakat terhadap beberapa perbankan syariah. Pengambilan sampel dilakukan dengan teknik cluster sampling dan non-probability sampling yaitu dengan teknik quota sampling. BI dan LP IPB (2000) melakukan penelitian tentang potensi, sikap dan perilaku masyarakat terhadap bank syariah di Jawa Barat dengan survei yang dilakukan dengan menggunakan metode regresi logistic dan analisis deskriptif. Penelitian ini mengatakan bahwa profesionalisme dan jenis pelayanan bank syariah masih berada di bawah bank konvensional dan masyarakat berpenghasilan menengah ke bawah lebih meminati bank syariah karena sistem “jemput bola” yang diterapkan oleh bank syariah rendah.
BI dan CBR Universitas Andalas (2006) melakukan penelitian mengenai identifikasi faktor penentu keputusan konsumen dalam memilih jasa perbankan antara bank syariah dengan bank konvensional. Penelitian dilakukan di 4 wilayah Sumatera Barat dengan kriteria bahwa pada masing-masing wilayah telah beroperasi kedua tipe bank (bank syariah dan bank konvensional) dengan menggunakan analisis statistik deskriptif (tabulasi silang, grafik, rata-rata dan frekuensi), analisis faktor, crosstab analysis. Hasil penelitian ini memberikan informasi tentang pertimbangan responden yang paling dominan di dalam memilih jasa bank syariah, yaitu faktor keyakinan bahwa bunga bank bertentangan dengan agama.
Hendrawan (2004) melakukan penelitian di Tebet tentang perilaku nasabah tabungan bank setelah dikeluarkannya fatwa MUI mengenai bunga bank. Penelitian dilakukan dengan metode survey dan metode purposive sampling (hanya nasabah muslim dari seluruh populasi). Responden sebesar 100 orang dan pengambilan sampling dilakukan dengan metode convenience sampling. Data yg diperoleh diolah dengan analisis deskriptif, tabulasi silang, uji chi square, regresi logistic dan metode Thurstone. Penelitian ini mendapatkan bahwa perilaku nasabah muslim pasca fatwa MUI adalah menyesuaikan pola pikirnya dengan pengetahuan yang baru.


Kerangka pemikiran penelitian ini disajikan secara ringkas pada Gambar 1.

Gambar 1. Kerangka Pemikiran Penelitian


Penelitian dilakukan di wilayah provinsi DKI Jakarta selama bulan Agustus-Oktober 2008.Penelitian dilakukan dengan metode deskriptif dan kuantitatif melalui pendekatan survei. Survei dilakukan dengan melakukan wawancara langsung (face to face interview). Metode pengumpulan data responden dilakukan dengan menggunakan sampel tak berpeluang (non probability sampling). Teknik yang dipilih dalam penelitian ini adalah menggunakan teknik sampel kemudahan (convenience sampling).
Jenis data yang digunakan dalam penelitian ini adalah data primer (pengamatan dan penelitian langsung di lapangan, wawancara dan pengisian kuesioner oleh responden) dan data sekunder (literatur-literatur buku, jurnal dan penelitian-penelitian sebelumnya) baik yang bersifat kualitatif maupun kuantitatif.

Teknik Pengambilan Sampel

Penentuan jumlah sampel dari populasi yang diinginkan (Suharjo, 2002)

Setelah no diketahui maka selanjutnya dilakukan koreksi, sehingga menjadi :
n =
dimana :
Z= tingkat kepercayaan dugaan (1-a)
p= proporsi sampel
e= kesalahan dugaan (sampling error)
n= jumlah sampel setelah koreksi
populasi terhingga
no= jumlah sampel sebelum koreksi
populasi terhingga
N= jumlah populasi

Berdasarkan pendekatan tersebut, maka dalam menentukan jumlah sampel yang akan digunakan dalam penelitian ini digunakan ketentuan sebagai berikut:

N = populasi penduduk provinsi DKI
Jakarta 8.468.471 orang
Z = 90% (tingkat kepercayaan 90%)
p = 50% (proporsi sampel 50%)
e = 7,5% (sampling error 7,5%)

Perhitungan :

= 120,26778

Setelah no diketahui sebesar 120,26778 maka selanjutnya dilakukan koreksi populasi terhingga dengan jumlah populasi (N) sebanyak 8.468.471 orang.

n =
n = 120,26608
n = 120 (pembulatan)
Berdasarkan perhitungan, maka ukuran sampel yang digunakan sebanyak 120 responden, terdiri dari 13 responden berasal dari Jakarta Pusat (11%), 20 responden berasal dari Jakarta Utara (16,8%), 23 responden berasal dari Jakarta Barat (19,3%), 27 responden berasal dari Jakarta Selatan (22,3%) dan 37 responden berasal dari Jakarta Timur (30,6%).

Teknik Pengolahan dan Analisis Data

Sebelum penelitian dilakukan, maka terlebih dahulu dilakukan penelitian awal untuk menguji instrumen pengum-pulan data dengan uji validitas dan uji reliabilitas. Setelah mendapatkan hasil yang valid dan reliabel melalui uji validitas dan uji reliabilitas, kemudian dilakukan penelitian lanjutan dengan menggunakan tiga jenis analisis yaitu analisis klaster (cluster analysis), analisis faktor (factor analysis) dan analisis deskriptif (descriptive analysis).


Uji validitas dan reliabilitas pada penelitian awal ini, dilakukan dengan teknik Cronbach’s Alpha dengan alat bantu SPSS 11.5. Hasil pengujian ini menunjukkan bahwa kuesioner yang dibuat telah memenuhi standar yang valid dan reliabel pada taraf kepercayaan 95%.

Demografi Responden

Responden dianalisis berdasarkan karakteristik demografi. Hasil yang didapat dari analisis ini, yaitu mayoritas responden sudah berusia diatas 40 tahun (28,33%), status keluarga belum menikah (29,17%), beragama Islam (82,50%), jenis kelamin perempuan (53,33%), pekerjaan pegawai swasta (49,17%), memiliki tingkat pendidikan formal sampai dengan S1 atau setara (66,67%), kedudukan sosial masyarakat biasa (94,17%), rata-rata jumlah pengeluaran (per orang) per bulan kurang dari Rp 1.000.000,- (41,67%) dan responden dengan 5,01%-10,00% dari penghasilan ditabung (30,83%).

Segmentasi Pasar Perbankan Syariah

Analisis segmentasi pasar perbankan syariah menggunakan alat analisis multivariate (K-Means Cluster Analysis) dengan menggunakan data survei dari 120 responden di wilayah DKI Jakarta. Analisis ini menghasilkan klaster 1 yang merupakan segmen syariah loyalist dengan jumlah 32 orang, klaster 2 merupakan segmen floating mass dengan jumlah 49 orang. Sementara segmen conventional loyalist sudah diidentifikasi sebelum analisis ini dilakukan yang terdiri dari responden yang tidak tertarik dengan bank syariah dengan jumlah 39 orang.

Preferensi dan Sumber Informasi Nasabah tentang Bank Syariah
Segmen pasar syariah loyalist memperoleh sumber informasi mayori-tas dari teman atau keluarga sebesar 20,2%. Sedangkan, segmen pasar floating mass mendapatkan informasi dari melihat iklan di media cetak sebesar 16,9% dan segmen pasar conventional loyalist mendapatkan informasi mengenai bank syariah secara dominan dari 2 jenis sumber informasi yang berbeda yaitu melihat iklan di TV dan melihat langsung kantor cabang bank syariah masing-masing sebesar 18,9%.
Penelitian ini juga menganalisis lebih lanjut tentang preferensi tentang Bank Syariah yaitu mayoritas responden memilih menggunakan Bahasa Indonesia sebagai nama ideal produk bank syariah agar dapat lebih mudah dimengerti, daerah perkantoran dan pemukiman sebagai lokasi ideal bank syariah, karyawan bank syariah sebaiknya Islam, jilbab sebaiknya digunakan oleh karyawan wanita di bank syariah.

Perilaku Nasabah Berdasarkan Faktor-Faktor Dalam Memilih Bank

Analisis faktor dilakukan dengan uji Keiser-Meyer_Olkin (KMO) measures of adequacy dan Bartlett Test of Sphericity. Menurut Simamora (2005), analisis faktor layak untuk dilanjutkan apabila nilai KMO uji berkisar mem-punyai nilai indeks tinggi yakni berkisar antara 0,5 sampai 1,0. Hasil uji KMO menunjukkan bahwa nilai yang didapatkan adalah 0,855 yang berarti bahwa sampel sudah men-cukupi dan dinyatakan baik berdasarkan pedoman rekomendasi dari Sharma (1994). Setelah dilakukan uji Bartlett’s Test, tampak bahwa nilai chi-square adalah 852,856 dengan df 153 dan signifikansi 0,000 yang berarti bahwa matriks korelasi yang diuji bukan merupakan matriks identitas sehingga matriks korelasi dinyatakan layak untuk dilakukan analisis faktor.
Tahapan selanjutnya dilakukan pengujian secara parsial terhadap setiap variabel dan didapatkan hasil dari tabel anti-image matrices bahwa nilai MSA (Measures of Sampling Adequacy) dari setiap variabel ³ 0,5 sehingga semua variabel bisa diproses lebih lanjut. Tahap selanjutnya yang dilakukan adalah mengetahui banyaknya faktor yang akan terbentuk yang didentifikasi dari nilai eigenvalues ³ 1. Dengan menggunakan metode ekstraksi Principal Component Analysis, maka terbentuk 4 faktor yang diekstrak dari 18 variabel yang ditandai dengan nilai eigenvalues ³ 1.
Setelah diketahui terdapat 4 kelompok faktor, maka dilakukan pro-sedur varimax rotation untuk meng-identifikasi hubungan antara faktor dan variabel individual sehingga matriks menjadi lebih sederhana dan mudah diinter-pretasikan. Berdasarkan hasil out-put Rotated Component Matrix, maka dilakukan interprestasi terhadap faktor yang telah mengelompok dan penamaan terhadap 4 kelompok faktor dengan menggunakan pendekatan surrogate variable yakni pemilihan nama berdasarkan nilai factor loading tertinggi yaitu
Faktor 1 : Tampilan Fisik
Faktor 2 : Jaringan ATM
Faktor 3 : Keragaman Produk
Faktor 4 : Tingkat Bagi Hasil
Dari hasil analisis faktor (dengan uji KMO) dan analisis deskriptif yang telah dilakukan dalam melihat perilaku nasabah yang berkaitan dengan faktor-faktor yang mem- pengaruhi untuk memilih suatu bank, tampak tidak terdapat perbedaan yang signifikan. Responden menganggap bahwa jaringan kantor dan ATM yang luas, keragaman produk, reputasi dan image suatu bank, kecepatan dan efisiensi pelayanan yang baik, tingkat bagi hasil yang menarik, waktu operasi yang sesuai maupun keramah-tamahan karyawan bank merupakan faktor-faktor dominan yang mempengaruhi mereka dalam memilih suatu bank. Kemudian dilakukan analisis lebih lanjut berkaitan dengan alasan respon-den berminat terhadap produk dan jasa bank syariah berdasarkan kategori nasabah.

Nasabah Bank Syariah
Alasan responden berminat terhadap produk dan jasa bank syariah bila di-bandingkan dengan bank konvensional adalah karena adanya aspek syariahnya yaitu sesuai dengan syariat Islam (55,0%) dan faktor tidak adanya riba sehingga halal dalam pengelolaan dana (27,0%).

Gambar 1. Alasan Nasabah Bank Syariah Berminat Produk dan Jasa Bank Syariah

Nasabah Bank Syariah dan Bank Konvensional
Alasan responden berminat terhadap produk dan jasa bank syariah bila dibandingkan dengan bank konven-sional adalah karena bank syariah tidak riba atau halal dalam pengelolaan dananya (49%) dan sesuai dengan syariat agama Islam (26%).

Gambar 2. Alasan Nasabah Bank Syariah dan Bank Konvensional Berminat Produk dan Jasa Bank Syariah

Nasabah Bank Konvensional
Alasan responden berminat terhadap produk dan jasa bank syariah dikarenakan sesuai dengan ajaran agama Islam (30,0%), adanya aspek syariahnya yaitu faktor tidak adanya riba dalam pengelolaan dana (28,0%).

Gambar 3. Alasan Nasabah Bank Konvensional Berminat Produk dan Jasa Bank Syariah

Alasan utama mengenai tetap dipertahankannya rekening di bank kon-vensional bagi nasabah yang mempu-nyai rekening di bank syariah dan bank konvensional secara bersamaan yaitu kurang lengkapnya fasilitas bank syariah (27,0%) sehingga menyebabkan nasabah tetap menggunakan bank konvensional.

Gambar 4. Alasan Tetap Mempertahankan Rekening di Bank Konvensional
Alasan utama nasabah bank konvensional tidak berminat terhadap produk dan jasa bank syariah yaitu dikarenakan minimnya informasi yang didapat mengenai bank syariah semen-tara nasabah bank konvensional sangat mudah untuk mendapatkan informasi lengkap mengenai bank konvensional (37,0 %).

Gambar 5. Alasan Tidak Berminat Produk dan Jasa Bank Syariah

Dari hasil analisis yang dilakukan yaitu analisis klaster dan analisis faktor, tampak bahwa antar segmen yang dihasilkan yaitu segmen syariah loyalist, floating mass dan conventional loyalist tidak terdapat perbedaan yang signifikan terhadap faktor-faktor yang mempengaruhi dalam memilih suatu bank. Yang membedakan hanyalah urutan prioritasnya. Faktor-faktor yang menjadi pertimbangan bagi responden dalam memilih suatu bank adalah ja-ringan kantor dan ATM yang luas, kecepatan dan efisiensi pelayanan, keramah-tamahan karyawan bank serta reputasi dan image bank itu sendiri. Jaringan kantor dan ATM yang luas menduduki peringkat tertinggi sedang-kan bila dilihat dari aspek demografi, responden memilih perkantoran dan pe-mukiman sebagai lokasi ideal bank sya-riah. Hal ini dimungkinkan karena ma-yoritas responden memiliki jenis pekerjaan sebagai pegawai swasta dan wiraswasta.
Selain itu, uji analisis KMO menghasilkan tampilan fisik bank baik internal maupun eksternal, jaringan kantor dan ATM yang luas, reputasi dan image suatu bank, keragaman produk, waktu operasi bank serta tingkat bagi hasil yang menarik sebagai faktor-faktor yang mempengaruhi responden dalam memilih suatu bank. Waktu operasi bank juga merupakan hal yang penting bagi pegawai swasta bila dikaitkan dengan waktu bekerja mereka yang terbatas dan sudah ditentukan. Kebutuhan akan keragaman produk muncul dari latar belakang responden yang mayoritas tamat S1 atau setara sehingga cenderung memiliki kebutuhan akan variasi produk bank.
Apabila analisis ini dikaitkan de-ngan analisis minat responden terhadap bank syariah, tampak bahwa responden masih tetap memper-tahankan rekening di bank kon-vensional ataupun tidak berminat sama sekali terhadap bank syariah disebabkan faktor-faktor kurang lengkapnya fasilitas bank syariah dibandingkan bank konvensional, ku-rangnya informasi mengenai bank syariah sehingga mereka menganggap belum perlu bank syariah ataupun tidak ada perbedaan antara bank syariah dan bank konvensional. Belum tersosialisasinya sumber-sumber informasi bank syariah merupakan salah satu kendala bagi responden dalam memenuhi kebu-tuhannya akan informasi tentang bank syariah. Bagi responden yang berminat terhadap bank syariah disebabkan aspek syariat Islam dan tidak riba, hal ini dimungkinkan karena responden didominasi oleh responden beragama Islam. Dari semua analisis yang dilakukan, penelitian ini memiliki keterbatasan yaitu tidak dilakukannya identifikasi terhadap hubungan antara faktor-faktor yang mempengaruhi responden dalam memilih suatu bank. Hal ini dapat di-lakukan dengan penelitian selanjutnya menggunakan crosstab analysis.
Formulasi Strategi Pemasaran
Pencapaian tujuan dan sasaran pemasaran bagi perbankan syariah dapat dicapai dengan menerapkan strategi pemasaran yang tepat dengan memperhatikan faktor-faktor yang mempengaruhi dalam pemilihan suatu bank. Pembahasan tentang formulasi strategi pemasaran bagi perbankan syariah di wilayah propinsi DKI Jakarta didasarkan pada analisis yang telah dilakukan. Dari hasil penelitian ini telah menunjukkan bahwa segmen pasar perbankan syariah di wilayah DKI Jakarta terdiri dari syariah loyalist, floating mass dan conventional loyalist yang memiliki karakteristik maupun besar segmen yang berbeda-beda. Untuk itu, maka bank syariah perlu menggunakan strategi pemasaran yang difokuskan kepada Segmenting, Targeting dan Positioning (STP) didasarkan atas perbedaan karakteristik dan besar segmen yang ada.
Setelah karakteristik dan besar setiap segmen pasar diketahui, maka formulasi strategi pemasaran perbankan syariah hendaknya dimulai dengan pemahaman segmen yang ada tersebut. Setelah itu, perbankan syariah dapat merumuskan target market dengan mempertimbangkan potensi pasar serta kekuatan dan kelemahan yang dimiliki oleh bank syariah terkait dengan karakteristik nasabah yang hendak dijadikan target market-nya.
Berdasarkan potensi pasar dan besar segmen yang ada, maka segmen pasar floating mass merupakan potential target market di wilayah propinsi DKI Jakarta. Apabila perbankan syariah ingin menjadikan segmen ini sebagai target market nya, maka perbankan syariah harus dapat menentukan positioning yang tepat dengan menjaga keseimbangan antara atribut syariah dengan atribut perbankan, bahkan akan lebih baik lagi bila dapat meningkatkan kualitas dan kuantitas atribut syariahnya sehingga segmen floating mass tidak ragu-ragu untuk menentukan mana prioritas atribut yang dipilihnya. Hal ini dapat dilakukan seperti dengan menjaga secara konsisten penerapan prinsip syariah dalam praktik perbankan syariah sehingga dapat menciptakan rasa aman dan jaminan bebas dari riba.
Berdasarkan hasil analisis terhadap faktor-faktor yang dipertimbangkan dalam memilih bank syariah, maka bank syariah sebaiknya memberikan kemudahan aksesibilitas lokasi jaringan kantor dan ATM yang bisa dilakukan dengan pengembangan jaringan kantor kas (office channeling) dan penambahan jumlah mesin ATM ataupun melalui kerjasama dengan beberapa jaringan ATM (seperti penggunaan ATM bersama) di lokasi perkantoran dan pemukiman. Kecepatan dan efisiensi pelayanan dapat diberikan melalui karyawan bank yang cakap dan terlatih. Hal ini dapat dilakukan dengan memberikan pelatihan-pelatihan yang memadai terhadap karyawan bank syariah sehingga tingkat pelayanan yang diberikan oleh bank syariah dapat bersaing dengan bank konvensional. Begitupula dengan keramah-tamahan pun perlu dijaga agar nasabah merasa nyaman bila berinteraksi dengan bank syariah. Reputasi dan image bank syariah sebagai bank yang mengedepankan prinsip-prinsip syariah harus dipertahankan sehingga tidak tercipta opini bahwa bank syariah sama saja dengan bank konvensional. Produk perbankan yang dikembangkan hendaknya bervariasi sehingga memudahkan nasabah dalam memilih produk sesuai dengan kebutuhannya. Tingkat bagi hasil simpanan yang menarik dan juga tingkat bagi hasil pembiayaan yang rendah dapat mem-buat nasabah menjadi lebih tertarik de-ngan bank syariah dibandingkan bank konvensional. Fasilitas yang lengkap juga perlu ditingkatkan dan setidaknya dapat sejajar dengan bank konvensional.
Selain itu diperlukan juga perbaikan sumber-sumber informasi untuk menso-sialisasikan perbankan syariah. Per-bankan syariah seharusnya mampu memberikan fasilitas dan pelayanan yang dapat bersaing dengan perbankan konvensional. Jika perbankan syariah memiliki keunggulan dalam aksesi-bilitas, fasilitas dan pelayanan diban-dingkan dengan perbankan konvensio-nal, maka segmen floating mass meru-pakan target market yang paling tepat. Sedangkan apabila ingin mengem-bangkan segmen syariah loyalist, maka perbankan syariah harus mampu me-ningkatkan, menerapkan maupun meng-komunikasikan seluruh atribut potensial syariahnya. Pertimbangan utama res-ponden yang berasal dari segmen syariah loyalist memilih menggunakan bank syariah adalah karena sesuai de-ngan syariat Islam dan tidak riba (halal). Untuk menjaga loyalitas responden, bank syariah harus mampu menjaga dengan konsisten aspek-aspek yang berhubungan dengan pertimbangan ter-sebut. Bank syariah harus konsisten menjalankan ekonomi Islam dalam praktek perbankan syariah agar rasa aman yang diharapkan oleh responden dapat terjaga dan terus meningkat.
Strategi pemasaran yang harus dikembangkan adalah dengan mengkomunikasikan dengan baik keunggulan aspek syariah terutama aspek yang berhubungan dengan syariat Islam seperti produk yang sesuai dengan akad. Walaupun responden bank syariah sudah dalam tahap penggunaan, namun bank syariah harus meningkatkan loyalitas responden terhadap penggunaan bank syariah dengan menjaga harapan-harapan responden, termasuk menjaga motivasi responden dalam menggunakan bank syariah karena sistem bagi hasil, untuk menjalankan syariat agama dan karena tidak meng-gunakan sistem bunga. Hal ini meng-indikasikan bahwa responden bank syariah lebih mengedepankan aspek fanatisme sebagai muslim bukan karena faktor ekonomi. Tantangan bagi bank sya-riah adalah harus menonjolkan aspek-aspek yang logis dan real bagi responden agar penggunaan bank syariah lebih karena faktor ekonomi Islam yang ideal. Selain itu, jumlah segmen pasar ini memang relatif kecil dibandingkan seg-men pasar yang lain, namun memiliki keunggulan yakni tidak terlalu sensitif dengan pricing produk. Apabila perbankan syariah mampu menunjukkan konsistensinya terhadap aspek syariah, maka akan membuat nasabah menjadi loyal. Keberhasilan perumusan dan penerapan formulasi strategi pemasaran sangat ditentukan oleh kemampuan untuk mempelajari karakteristik dan besar segmen pasar, sehingga penentuan target market dan positioning dapat dirumuskan dengan tepat sehingga akhirnya dapat membuat perbankan syariah khu-susnya di wilayah DKI Jakarta mampu bersaing dengan perbankan konvensional lainnya.

Terdapat 3 segmen pasar perbankan syariah di wilayah DKI Jakarta yaitu segmen syariah loyalist, segmen floating mass dan segmen conven-tional loyalist.
Segmen syariah loyalist dominan berada di wilayah Jakarta Timur dan Jakarta Selatan, segmen floating mass berada di wilayah Jakarta Timur dan segmen conventional loyalist berada di wilayah Jakarta Barat. Selain itu, segmen floating mass merupakan target pasar yang paling potensial di wilayah provinsi DKI Jakarta karena memiliki pangsa pasar terbesar bila dibandingkan dengan segmen syariah loyalist ataupun segmen conventional loyalist. Walaupun demikian, masyarakat beragama Islam masih merupakan target pasar utama bagi bank syariah dikarenakan jumlah segmen floating mass secara dominan diperoleh dari responden beragama Islam dan didominasi oleh jenis pekerjaan pegawai swasta dan wiraswasta.
Berdasarkan analisis klaster dan analisis faktor, dihasilkan bahwa se-mua segmen tidak memiliki perbe-daan yang signifikan terhadap fak-tor-faktor yang mempengaruhi da-lam memilih suatu bank. Yang membedakan hanyalah urutan prio-ritasnya. Faktor-faktor yang mem-pengaruhi responden dalam memilih suatu bank adalah jaringan kantor dan ATM yang luas, kecepatan dan efisiensi pelayanan, keramah-tamahan karyawan bank serta reputasi dan image bank itu sendiri. Jaringan kantor dan ATM yang luas menduduki peringkat tertinggi. Sedangkan bila dilihat dari aspek demografi, responden lebih memilih perkantoran dan pemukiman sebagai lokasi ideal bank syariah. Hal ini dimung-kinkan karena mayoritas respon-den memiliki jenis pekerjaan se-bagai pegawai swasta dan wiraswasta.
Uji analisis KMO menghasilkan tampilan fisik bank baik internal maupun eksternal, jaringan kantor dan ATM yang luas, reputasi dan image suatu bank, keragaman produk, waktu operasi bank serta tingkat bagi hasil yang menarik sebagai faktor-faktor yang mempengaruhi responden dalam memilih suatu bank. Waktu operasi bank juga merupakan hal yang penting bagi pegawai swasta bila dikaitkan dengan waktu bekerja mereka yang terbatas dan sudah ditentukan. Kebutuhan akan keragaman produk muncul dari latar belakang responden yang mayoritas tamat S1 atau setara sehingga cenderung memiliki kebutuhan akan variasi produk bank.
Semua segmen dikaitkan dengan analisis minat responden terhadap bank syariah, maka hasil analisis yang didapat adalah bila responden masih tetap memper-tahankan rekening di bank konvensional ataupun tidak berminat sama sekali terhadap bank syariah disebabkan faktor-faktor kurang lengkapnya fasilitas bank syariah dibandingkan bank konvensional, kurangnya infor-masi mengenai bank syariah sehingga mereka menganggap belum perlu bank syariah ataupun tidak ada perbedaan antara bank syariah dan bank konvensional. Belum tersosialisasinya sumber-sumber informasi bank syariah merupakan salah satu kendala bagi responden dalam memenuhi kebu-tuhannya akan informasi tentang bank syariah. Sedangkan, bagi responden yang berminat terhadap bank syariah cenderung disebabkan aspek syariat Islam dan tidak riba, hal ini dimungkinkan karena responden didominasi oleh respon-den beragama Islam.
Empat kelompok faktor yang mem-pengaruhi nasabah dalam memilih suatu bank dengan pendekatan sur-rogate variable yakni : (1) Faktor 1: Tampilan Fisik, terbentuk karena responden menganggap bahwa tam-pilan internal dan eksternal bank yang menarik merupakan salah satu faktor penting dalam memilih bank. Hal ini tentunya berkaitan dengan kenyamanan bagi nasabah apabila sedang berada di bank; (2) Faktor 2: Jaringan ATM, terbentuk karena kebutuhan jaringan kantor dan ATM yang luas serta reputasi dan image baik suatu bank. Jaringan kantor dan ATM yang luas dapat memudahkan responden dalam mendapatkan ak-ses bank. Begitu pula dengan repu-tasi dan image bank juga menetukan apakah bank yang dipilih merupa-kan bank yang besar serta aman; (3) Faktor 3 : Keragaman Produk, terbentuk dari waktu operasi per-bankan dan keragaman produk yang ditawarkan. Waktu operasi perbank-an merupakan salah satu faktor yang dipertimbangkan oleh responden mengingat responden sebagian besar adalah pegawai swasta yang terikat dengan waktu bekerja. Sedangkan, keragaman produk juga mempeng-aruhi responden dalam memilih suatu bank; dan (4) Faktor 4 : Ting-kat Bagi Hasil, terbentuk dari ting-kat bunga atau margin/bagi hasil pembiayaan uang rendah dan pembayaran bunga atau bagi hasilsimpanan yang tinggi. Responden menginginkan tingkat bunga/bagi hasil yang rendah apabila mereka akan mengambil fasilitas pembiayaan mengingat besarnya bunga pembiayaan bank konven-sional yang ada saat ini. Sedang-kan, tingkat bagi hasil simpanan yang tinggi juga merupakan hal yang menarik bagi responden.
Sumber informasi mengenai bank syariah untuk segmen pasar syariah loyalist mayoritas didapatkan dari teman atau keluarga, segmen pasar floating mass mendapatkan informasi dari melihat iklan di media cetak dan segmen pasar conventional loyalist mendapatkan informasi mengenai bank syariah secara dominan dari 2 jenis sumber in-formasi yang berbeda yaitu melihat iklan di TV dan melihat langsung kantor cabang bank syariah. Sedangkan preferensi nasabah tentang bank syariah adalah responden cenderung memilih bahasa Indonesia sebagai bahasa yang digunakan untuk nama produk, daerah perkantoran dan pemukiman sebagai lokasi ideal bank syariah, karyawan bank syariah sebaiknya beragama Islam dan karyawan wanita sebaiknya menggunakan jilbab.
Formulasi strategi pemasaran bagi perbankan syariah khususnya di wilayah provinsi DKI Jakarta seba-iknya disesuaikan dengan segmen-tasi pasar, preferensi dan sumber informasi nasabah tentang bank syariah dan faktor memilih bank. Dikarenakan DKI Jakarta memiliki segmen pasar, karak-teristik maupun besar segmen yang berbeda-beda, maka bank syariah perlu menggunakan stra-tegi pemasaran yang difokuskan kepada Segmenting, Targeting dan Positioning (STP). Berdasarkan potensi pasar dan besar segmen yang ada, maka segmen floating mass merupakan potential target market di wilayah propinsi DKI Jakarta. Apabila perbankan syariah ingin menjadikan segmen ini sebagai target market-nya, maka perbankan syariah harus dapat me-nentukan positioning yang tepat de-ngan menjaga keseimbangan antara atribut syariah dengan atribut per-bankan, bahkan akan lebih baik lagi bila dapat meningkatkan kualitas dan kuantitas atribut syariahnya (seperti bank syariah dapat mem-berikan rasa aman dan bebas dari riba) sehingga segmen pasar floating mass tidak ragu-ragu untuk menentukan mana prioritas atribut yang dipilihnya. Walaupun demi-kian, bank syariah juga dapat tetap menjadikan segmen syariah loyalist sebagai target pasarnya dengan mengedepankan aspek syariah dibandingkan atribut perbankan lainnya dikarenakan mayoritas responden tertarik dengan bank syariah karena alasan aspek syariahnya.


Peningkatan upaya sosialisasi lebih intensif dalam memberikan gambar-an yang jelas mengenai keunggulan komparatif perbankan syariah mengingat ada kesan dalam masy-arakat bahwa bank syariah tidak berbeda dengan bank konvensional lainnya sebagian besar disebabkan olah belum pahamnya masyarakat terhadap sistem dan produk perbankan syariah melalui media interpersonal (kyai/ulama) maupun media cetak dan elektronik.
Lebih mempertegas diferensiasi produk antara bank syariah dengan bank konvensional sehingga masyarakat yakin bahwa terdapat keunikan pada produk bank syariah melalui komunikasi below the line. Komunikasi yang ada saat ini, seperti misalnya komunikasi above the line hanya mampu menciptakan awareness masyarakat terhadap keberadaan bank syariah, tetapi belum mampu untuk mengubah keyakinan masyarakat terhadap bunga bank.
Bagi kelompok yang sudah dan ingin berhubungan dengan perbankan syariah harus dijaga rasa sim-patinya jangan sampai dikecewakan, karena sekali dikecewakan maka upaya pemulihan memerlukan waktu dan upaya yang tidak sedikit.
Prospek perbankan syariah di wilayah DKI Jakarta ke depannya masih relatif besar untuk dikembangkan (40,8% nasabah yang masih ragu tetapi memiliki minat terhadap bank syariah). Kurang lengkapnya fasilitas bank syariah dan informasi tentang manfaat dan kelebihan yang bisa diperoleh dari bank syariah perlu ditunjang oleh kegiatan promosi yang lebih bersifat informatif (bukan imaginer) seperti seminar dan brosur.
Aksesibilitas bank syariah oleh masyarakat menjadi hal penting yang harus dipertimbangkan dalam menetapkan lokasi bank syariah yang meliputi kemudahan masyarakat dalam mengakses bank syariah berupa jaringan layanan yang luas. Perlu diperhatikan pula bahwa umumnya wilayah-wilayah dengan aksesibilitas yang baik telah berkembang bank-bank konvensional sehingga diperlukan kombinasi yang baik antara aksesibilitas, pemanfaatan media interpersonal dan profesionalisme bank syariah menjadi syarat mutlak dalam pengembangan bank syariah.
Dapat dilakukan penelitian selanjutnya menggunakan crosstab analysis untuk mengidentifikasi hubungan antara faktor-faktor yang mempengaruhi responden dalam memilih suatu bank maupun penelitian yang sejenis untuk wilayah-wilayah lain dikarenakan karakteristik responden tiap wilayah berbeda sehingga dapat menambah jumlah referensi bagi perkembangan bank syariah di Indonesia.


Antonio, M.S. 1999. Bank Syariah : Wacana Ulama dan Cendekiawan. Bank Indonesia dan Tazkia Institue, Jakarta.

Bank Indonesia dan CBR Universitas Andalas. 2006. Identifikasi Faktor Penentu Keputusan Konsumen dalam Memilih Jasa Perbankan antara Bank Syariah dengan Bank Konvensional di wilayah Sumatera Barat.

Bank Indonesia dan LP Institut Pertanian Bogor. 2000. Potensi, Sikap dan Perilaku Masyarakat terhadap Bank Syariah di wilayah Jawa Barat.

Bank Indonesia dan Pusat Penelitian Kajian Pembangunan Lembaga Penelitian Universitas Diponegoro Semarang. 2000. Penelitian Potensi, Preferensi dan Perilaku Masyarakat terhadap Bank Syariah di Wilayah Jawa Tengah dan Daerah Istimewa Yogyakarta.

Bappeda DKI Jakarta. 2008. Data Perbankan Provinsi DKI Jakarta (termasuk Banten). diakses tanggal 26 februari 2008

Direktorat Penelitian dan Pengaturan Perbankan Bank Indonesia. Desembar 2000. Potensi, Preferensi dan Perilaku Masyarakat terhadap Bank Syariah di Pulau Jawa.

Direktorat Perbankan Syariah Bank Indonesia. 2004. Bank Indonesia. Statistik Perbankan Syariah. diakses tanggal 25 Febtuari 2008.

Direktorat Perbankan Syariah Bank Indonesia. 2008. Bank Indonesia. Statistik Perbankan Syariah. diakses tanggal 25 Febtuari 2008.

Karim Business Consulting. 2005. Inslamic Banking Consumer Behaviour in Indonesia : A Qualitative Approach.

Priyatno, D. 2008. Mandiri Belajar SPSS untuk Analisis Data dan Uji Statistik. MediaKom, Yogyakarta.

Saeed, A. 1996. Islamic Banking and Interest : A Study of prohibition of Riba and its Contemporary Interpretation. Leiden : EJ Brill

Sharma, S. 1994. Applied Multivariate Techniques. Penerbit Erlangga, Jakarta.

Simamora, B. 2005. Analisis Multivariate Pemasaran. Penerbit PT Gramedia Pustaka Utama, Jakarta.

Suharjo, B. 2006. Sampling Technique. Mars School of Marketing & Research, Jakarta.

Suku Dinas Kependudukan dan Catatan Sipil DKI Jakarta. Januari 2008. Jumlah Penduduk Provinsi DKI Jakarta.

Undang-Undang No. 10 Tahun 1998 tentang Perbankan

Wijaya, A. 2006. Analisis Segmen Pasar dan Perilaku Nasabah tergadap Bank Syariah di Wilayah Yogyakarta dan Implikasi Pemasarannya. Tesis MB-IPB.


August 22, 2010 1 comment


The next govenment must recover every sectors including monetary. The syariah bank will push the realization of monetary inter-mediation. With its different business charateristics to conventional banks, syariah banks are hoped to be able to hush up fluctuation in inter-mediation monetary business in Indonesia. In addition, with the large number of moslems, Bank Indonesia along together with goverment should have strengthen the role of syariah banks, not only on monetary inter-mediation but also on other monetary services.

Krisis ekonomi global dan domestik yang terjadi pada tahun 1998 dan masih berlangsung hingga kini, bersumber dari krisis yang terjadi dalam dunia perbankan. Di Indonesia, krisis yang terjadi pada 1998 dipicu oleh terjadinya banyak pelanggaran terhadap peraturan perbankan, seperti dilanggarnya prinsip kehati-hatian perbankan (prudential-banking principle) dalam menyalurkan kredit dan juga pelanggaran terhadap peraturan Batas Maksimum Pemberian Kredit (BMPK). Akibatnya, kredit macet (NPL) melebihi batas maksimum. Di sisi lain, kepercayaan masyarakat terhadap dunia perbankan pada waktu itu menurun, sehingga terjadilah penarikan dana besar-besaran (rush).
Krisis ekonomi pada 2008 dan awal 2009, bersumber dari krisis di pasar keuangan Amerika Serikat. Krisis itu bermula dari krisis kredit macet di sektor perumahan di Amerika Serikat (sub-prime mortgage) yang mulai merebak pada Juli 2007. Krisis keuangan global semakin parah pada 2008, yang ditandai dengan bangkrutnya perusahaan keuangan raksasa Amerika Serikat Lehman Brothers pada 15 September 2008 (Kompas, 16 September 2008).
Dengan semakin terintegrasinya pasar keuangan antar negara, maka krisis keuangan global ini akhirnya mengimbas ke Pasar Keuangan Indonesia, termasuk pasar perbankan. Imbas krisis Pasar Keuangan Amerika Serikat yang segera dapat dirasakan oleh industri keuangan Indonesia adalah jatuhnya harga aset-aset keuangan dan semakin langkanya likuiditas perbankan. Indikasi kejatuhan harga aset keuangan yang langsung dapat diamati adalah terjadinya penurunan IHSG di Bursa Efek Indonesia, sedangkan kelangkaan likuiditas karena terjadinya penarikan dana secara serentak, seperti yang terjadi pada Bank Century.
Dalam dunia perbankan, prinsip bisnis yang digunakan adalah kepercayaan (trust) dan kerahasiaan (secret). Jika kedua prinsip ini hilang, maka bisnis perbankan akan mengalami masalah. Kepercayaan dan kerahasiaan akan terbangun di antara bank dengan deposan, dan bank dengan debitor, jika kedua belah dalam melakukan transaksi disertai dengan kejujuran, menggunakan etika bisnis yang sehat, dan saling menguntungkan. Hal inilah yang sekarang relatif sulit dipraktikkan pada sistem perbankan berbasis bunga. Akibatnya, kejahatan dalam dunia perbankan relatif tinggi. Selama 2006, potensi kerugian negara akibat kejahatan perbankan mencapai Rp 1,209 triliun dan US$52 juta. Indikasi ini muncul dari 134 kasus perbankan (Kompas, 9 Maret 2007).
Dengan adanya praktik-praktik bisnis yang kurang sehat dalam pasar keuangan konvensional, baik di pasar perbankan maupun pasar modal, maka perlu adanya lembaga keuangan alternatif yang dapat digunakan untuk menjalankan fungsi intermediasi dengan lebih sehat dan baik. Dengan karakteristik bisnisnya yang berbeda, perbankan syariah dapat digunakan sebagai intermediasi keuangan alternatif di luar lembaga keuangan konvensional yang ada, dalam rangka menjembatani antara pihak-pihak yang mengalami kelebihan dana dengan pihak yang mengalami kekurangan dana.
Dari sisi fungsinya, antara perbankan konvensional dan perbankan syariah sama, yaitu sebagai lembaga penyedia jasa intermediasi dan jasa keuangan lainnya. Jasa intermediasi dijalankan dengan berusaha mempertemukan antara kepentingan pemilik dana (unit surplus) dengan kepentingan pengguna dana (unit defisit). Jasa keuangan meliputi jasa pembayaran, penjaminan, sewa, dan sebagainya. Sekalipun demikian, antara perbankan konvensional dan syariah memiliki karakteristik yang berbeda.
Perbankan syariah, yang dalam operasi bisnisnya mendasarkan diri pada tuntunan Islam, memiliki karakteristik yang berbeda secara fundamental dibanding perbankan konvensional. Menurut Chapra (2000: 107-108), ada enam perbedaan mendasar antara perbankan syariah dibanding perbankan konvensional. Pertama, penghapusan riba. Dalam perbankan syariah, unsur riba dalam bentuk pengenaan bunga (interest) dilarang. Pengembalian bagi pemilik dana dilakukan dengan sistem bagi hasil. Perbedaan antara sistem bunga dengan bagi hasil dapat dilihat pada Tabel 1.
Kedua, fokus pelayanan adalah kepentingan publik, bukan individu atau kelompok. Perbankan syariah menggunakan semua deposito yang berasal dari publik untuk merealisasikan kepentingan publik dan sasaran sosioekonomi Islam. Mereka menjalankan peran yang berorientasi pada tujuan dan bukan sekadar mencari keuntungan sebesar-besarnya dan harus melakukan penyesuaian-penyesuaian terhadap kebutuhan-kebutuhan perekonomian Islam.
Ketiga, perbankan syariah akan bersifat universal atau suatu bank yang memiliki tujuan ganda dan bukan sekedar bank komersial. Perbankan syariah menjalankan fungsi ganda, yaitu sebagai bank komersial dan bank investasi, dan mereka akan berusaha menawarkan produk pelayanan bagi para pelanggan yang mempunyai hubungan jangka panjang. Perbankan syariah akan melayani pembiayaan jangka panjang, yaitu dalam bentuk penyertaan modal, dan mayoritas melayani pembiayaan jangka pendek.

Tabel 1
Perbedaan antara Sistem Bunga dan Bagi Hasil

No. Bunga Bagi Hasil
1. Penentuan bunga dibuat pada waktu akad. Penentuan besarnya rasio/nisbah bagi hasil dilakukan pada waktu akad.
2. Besarnya dana dinyatakan dalam bentuk prosentase. Besarnya rasio bagi hasil didasarkan pada jumlah keuntungan.
3. Bunga dapat mengambang/variabel. Rasio bagi hasil tetap tidak berubah selama akad masih berlaku.
4. Pembayaran bunga tetap seperti yang diperjanjikan. Bagi hasil bergantung pada keuntungan usaha yang dijalankan. Jika rugi akan ditanggung bersama.
5. Jumlah pembayaran bunga tidak meningkat sekalipun keuntungan berlipat ganda. Jumlah pembagian laba meningkat sesuai dengan peningkatan keuntungan.
6. Eksistensi bunga diragukan oleh semua agama. Tidak ada yang meragukan keabsahan bagi hasil.
Sumber: Ascarya dan Yumanita, 2005.
Keempat, perbankan akan melakukan evaluasi yang hati-hati terhadap permohonan pembiayaan yang berorientasi kepada penyertaan modal. Perbankan syariah melakukan hal ini karena mereka harus berbagi risiko dengan pemohon dana. Jika ternyata bahwa bisnis yang dibelanjai mengalami kerugian di masa mendatang, maka bank syariah harus ikut menanggungnya, sesuai dengan akad di awal. Dengan demikian, praktik berbagi risiko ini dapat menciptakan dimensi yang sehat dalam keseluruhan bisnis peminjaman. Ini berbeda dengan praktik yang dilakukan oleh perbankan konvensional.
Kelima, bagi hasil akan cenderung mempererat hubungan antara bank dan pengusaha yang merupakan tonggak bank multitujuan. Langkah ini diharapkan dapat meningkatkan keahlian keuangan pada perusahaan-perusahaan pemohon dan juga menjadikan bank mampu berperan sebagai konsultan teknis dan penasehat pemasaran, dan bertindak sebagai katalisator dalam proses industrialisasi dan pembangunan.
Keenam, suatu kerangka kerja didesain untuk membantu bank mengatasi kesulitan likuiditasnya. Dalam sistem berbasis bunga, bank dapat berlindung kepada pasar uang atau bank sentral. Akses kepada pasar uang tidak mungkin dilakukan untuk pinjaman yang berjangka sangat pendek karena sulitnya bagi hasil dalam transaksi pinjaman yang terpisah. Akses bebas bunga kepada bank sentral dapat menimbulkan penggunaan yang salah terhadap fasilitas ini, sedangkan pinjaman mudharabah oleh bank sentral hanya dapat dilakukan dalam suatu kerangka yang disepakati yang ditentukan oleh besarnya kebutuhan ekonomi terhadap uang berdaya tinggi (high-powered money).

Kondisi Umum Kinerja Perbankan Syariah
Perbankan syariah secara resmi mulai berdiri di Indonesia pada 1 November 1991, dengan ditandatanganinya pendirian PT Bank Muamalat Indonesia (BMI) sebagai Bank Umum Syariah pertama, dan mulai beroperasi pada 1 Mei 1992 (Antonio, 2001). Untuk Bank Perkreditan Rakyat Syariah (BPRS) yang pertama adalah BPRS Dana Mardhatillah dan BPRS Berkah Amal Sejahtera, yang didirikan pada tahun 1991 di Bandung, yang diprakarsai oleh Institute for Sharia Economic Development (ISED).
Perkembangan perbankan syariah di Indonesia selanjutnya tidak terlepas dari dukungan pemerintah yang dicerminkan dari kebijakan di bidang perbankan yang dikeluarkan oleh pemerintah. Dukungan nyata ditunjukkan oleh pemerintah melalui penerbitan Undang-Undang No. 10 Tahun 1998, tentang Pokok-Pokok Perbankan. Undang-undang tersebut memberikan landasan kelembagaan dan operasional untuk perkembangan perbankan syariah secara komprehensif, sehingga landasan hukumnya menjadi lebih jelas dan kuat.
Perbankan syariah di Indonesia, secara umum dikelompokkan menjadi tiga jenis, yaitu; (1) Bank Umum Syariah (BUS), (2) Unit Usaha Syariah (UUS), dan (3) Badan Perkreditan Rakyat Syariah (BPRS). Bank Umum Syariah, seperti Bank Umum Konvensional, menawarkan jasa intermediasi dan jasa keuangan lainnya, termasuk jasa pembayaran, dengan ciri bebas bunga. Unit Usaha Syariah merupakan bank berbasis syariah yang merupakan divisi khusus yang dimiliki oleh Bank Umum Konvensional. Bank Perkreditan Rakyat Syariah, mempunyai karakteristik seperti Bank Umum Syariah, tetapi tidak menawarkan jasa pembayaran.
Perkembangan jumlah BUS, UUS, BPRS, dan jumlah kantor BUS dan UUS, pada tahun 2002 – 2008, secara lengkap dapat dilihat pada Tabel 2. Ditinjau dari jumlahnya, Bank Umum Syariah, mengalami perkembangan yang stagnan. Hal ini disebabkan karena persyaratan untuk pendiriannya memang relatif berat. Penambahan jumlah BUS syariah hanya terjadi pada 2004 dan hingga saat ini belum ada tambahan baru. Perkembangan jumlah bank syariah relatif tinggi terjadi pada UUS. Selama 5 (lima) tahun terakhir perkembangan jumlah UUS yang beroperasi ini tinggi, terutama didorong dengan pembukaan UUS oleh Bank Umum Konvensional milik pemerintah, seperti Bank Mandiri, Bank BNI, dan Bank BRI.

Tabel 2
Jumlah Bank Umum Syariah (BUS), Unit Usaha Syariah (UUS),
Bank Perkreditan Rakyat Syariah (BPRS), dan Jumlah Kantor BUS dan UUS,
Tahun 2002 – 2008

Kelompok Bank 2002 2003 2004 2005 2006 2007 2008*)
BUS 2 2 3 3 3 3 3
UUS 6 8 15 19 20 26 28
BPRS 83 84 86 92 105 114 117
Jumlah Kantor BUS dan UUS 127 299 401 504 531 564 609
Sumber:, 2009
Keterangan: *) sampai Juni 2008
Berdasarkan Tabel 2, dapat dilihat bahwa jenis perbankan syariah yang jumlahnya terbanyak adalah BPRS. Dengan persyaratan pendirian yang relatif lebih ringan, dan dengan melayani operasi perbankan lokal, jumlah BPRS meningkat relatif cepat. Dari sisi lain, sekalipun jumlah Bank Umum Syariah dan Unit Usaha Syariah jumlahnya relatif sedikit jika dibanding BPRS, tetapi jika dilihat dari perkembangan jumlah kantor mengalami peningkatan tinggi sejak 2002 hingga 2008.
Dalam operasinya, selama tiga tahun terakhir perbankan syariah memiliki kinerja yang semakin membaik. Hal ini dapat dilihat pada 6 indikator kinerja, yaitu: nilai aset yang dikelola, Dana Pihak Ketiga (DPK) yang dihimpun, nilai pembiayaan yang disalurkan, pangsa pasar (share), rasio pembiayaan terhadap deposito (FDR), dan kredit bermasalah bersih (NPF nett). Data indikator-indikator kinerja perbankan syariah di Indonesia tersebut sejak 2006 hingga 2008, secara lengkap tersaji pada Tabel 3.

Tabel 3
Kinerja Perbankan Syariah 2006–2008 (dalam triliun rupiah)

Indikator 2006 2007 November 2008
Aset 26,722 36,536 47,178
DPK 20,445 27,944 34,422
Pembiayaan 20,672 28,011 38,557
Share (%) 1,58 1,84 2,07
FDR (%) 98,9 99,8 111,7
NPF Nett 3,3 2,4 2,4
Sumber: Jawa Pos, 27 Januari 2009

Berdasarkan data pada Tabel 3, dapat diamati bahwa nilai aset yang dikelola perbankan syariah mengalami pertumbuhan yang relatif tinggi selama 2 tahun terakhir. Pada tahun 2007 nilai aset yang dikelola tumbuh sebesar 36,73% dibanding pada tahun 2006, sedangkan pada tahun 2008 tumbuh sebesar 29,13% dibanding pada tahun 2007. Dana pihak ketiga yang berhasil dihimpun perbankan syariah mengalami pertumbuhan yang tinggi. Selama dua tahun terakhir DPK perbankan syariah mengalami pertumbuhan rata-rata sebesar 29,93%.
Dari sisi pembiayaan yang dilakukan, kinerja perbankan syariah juga mengalami peningkatan. Selama dua tahun terakhir, pembiayaan yang dilakukan tumbuh lebih dari 35%. Dari sisi pangsa pasar pembiayaan kepada pihak lain, walaupun pangsa pasar untuk penyaluran dana masih sangat kecil jika dibandingkan dengan perbankan konvensional, tetapi perbankan syariah mengalami pertumbuhan yang signifikan dari tahun ke tahun.
Dalam menjalankan fungsinya sebagai lembaga intermediasi keuangan, perbankan syariah memiliki kinerja yang sangat baik. Hal ini dibuktikan dengan hasil perbandingan antara dana yang disalurkan dengan dana yang dikumpulkan dari pihak ketiga yang sangat tinggi, bahkan pada tahun 2006 melebihi 100%. Ini mengindikaskan bahwa hampir seluruh dana yang dihimpun dari pihak ketiga disalurkan kepada pihak yang membutuhkan dana. Indikator ukuran kinerja terakhir adalah kredit bermasalah, ternyata selama dua tahun terakhir mengalami penurunan.

Tantangan Penguatan Perbankan Syariah
Sebagai intermediasi keuangan yang relatif baru, perbankan syariah menghadapi cukup banyak tantangan dalam melakukan operasinya. Secara umum tantangan-tantangan yang teridentifikasi meliputi enam macam. Pertama, belum terbangunnya pemahaman masyarakat dan dunia usaha tentang operasi perbankan syariah. Pemahaman masyarakat dan dunia usaha tersebut berkaitan dengan posisinya sebagai pihak ketiga (deposan), pengguna dana, dan pengguna jasa keuangan yang ditawarkan oleh perbankan syariah, yang secara mendasar sangat berbeda dengan perbankan konvensional.
Dalam menyalurkan dana, ada kemungkinan bank syariah mengalami kerugian. Hal ini perlu juga dipahami oleh deposan, sehingga jika mengalami kerugian, mereka sadar juga ikut menanggung risiko tersebut. Di sisi lain, pengguna dana dan jasa keuangan juga harus mempunyai kesadaran bahwa dalam menggunakan dana bank syariah merupakan amanah, sehingga dituntut kejujuran, baik untuk peruntukan maupun implementasi atas hasil kesepakatan sebelumnya.
Kedua, adanya image dalam sebagian masyarakat bahwa perbankan syariah dikhususkan hanya untuk Islam. Perbankan syariah merupakan konsep bermuamalat dalam Islam sesuai dengan tuntunan Al-Qur’an dan Al-Hadist, yang diterapkan dalam mengatur simpan-pinjam dan penyediaan jasa keuangan lainnya dalam masyarakat sehingga dapat meningkatkan kesejahteraan hidup manusia. Ini berarti sebagai konsep bisnis islami, sebenarnya perbankan syariah dapat diterapkan secara universal.
Ketiga, dukungan pemerintah. Pada awal-awal pendiriannya, dukungan pemerintah terhadap perbankan syariah memang relatif besar. Hal ini dibuktikan dengan dipenuhinya komitmen modal disetor awal sebesar Rp 106.126.382.000,00 kepada PT Bank Muamalat Indonesia (BMI) oleh Presiden pada tanggal 3 November 1991. Di samping itu dengan keluarnya peraturan-peraturan tentang operasi perbankan syariah. Seiring dengan perkembangan operasi perbankan syariah akhir-akhir ini, tuntutan terhadap pembaharuan dan pendalaman aturan yang ada saat ini, sangat mendesak.
Keempat, ketersediaan tenaga kerja yang menguasai operasi perbankan syariah. Antara kebutuhan tenaga kerja yang menguasai operasi perbankan syariah dengan yang tersedia di pasar tenaga kerja sangat timpang. Dalam kenyataannya cukup banyak tenaga kerja yang menguasai hukum Islam yang berkaitan dengan muamalat, tetapi masalahnya kurang menguasai tentang konsep-konsep ekonomi dan bisnis yang dapat diterapkan dalam dunia perbankan. Sebaliknya, cukup banyak tenaga kerja yang menguasai tentang konsep-konsep dan teori-teori ekonomi dan bisnis perbankan, tetapi lemah dalam penguasaan hukum muamalat.
Kelima, persaingan yang semakin ketat dengan perbankan dan lembaga keuangan konvensional lainnya. Dengan pangsa pasar atas penyaluran dana yang selama 3 tahun terakhir kurang dari 2,5%, perbankan syariah masih kalah jauh dibanding perbankan konvensional. Pangsa pasar kurang dari 2,5% ini belum termasuk penyaluran dana yang dilakukan lembaga keuangan nonbank. Dengan kondisi ini menuntut perbankan syariah untuk melakukan terobosan-terobosan dalam operasinya, sehingga dapat mengejar ketertinggalan ini secara lebih cepat.
Keenam, keterbatasan kantor cabang. Kantor cabang merupakan ujung tombak pemasaran produk-produk perbankan, baik dalam pengumpulan maupun dalam penyaluran dana. Dengan jumlah kantor cabang sebagaimana tercantum pada Tabel 2, jumlah kantor cabang perbankan syariah masih sangat sedikit jika dibanding kantor cabang yang dimiliki oleh perbankan konvensional. Pada tahun 2006, jumlah kantor cabang bank umum konvensional sebanyak 9.110 buah, sedangkan pada akhir September 2007 sudah mencapai sebanyak 9.619 kantor cabang (Kompas, 16 November 2007).

Peluang Penguatan Perbankan Syariah
Dalam rangka mengelola bisnis, terutama di masa krisis ekonomi seperti saat ini, teridentifikasi enam peluang yang mendukung perbankan syariah mencapai tujuannya apabila mampu mengelolanya. Pertama, mayoritas masyarakat Indonesia beragam Islam. Dengan jumlah penduduk lebih dari 220 juta saat ini, lebih dari 80%-nya beragama Islam. Selama beberapa dekade terakhir ini, seperti yang diungkapkan Huntington dalam bukunya The Clash and the Remaking of the World Order, telah terjadi trend global, yaitu adanya peningkatan kesadaran atas identitas etnis, kultural, dan agama.
Sebagai bagian dari masyarakat global, jika fenomena kesadaran akan identitas agama ini benar, maka akan terjadi kecenderungan bahwa masyarakat Indonesia yang beragama Islam akan berusaha menjalankan syariat Islam secara konsekuen, termasuk dalam bermuamalat. Dalam menyimpan dan meminjam dana, tentunya akan berusaha untuk menggunakan intermediasi keuangan yang sesuai dengan akidah Islam. Dengan demikian dapat disimpulkan bahwa potensi pasar perbankan syariah di Indonesia sangat besar.
Kedua, penerapan prinsip profit and risk sharing. Dalam kondisi krisis ekonomi, risiko berinvestasi sangat tinggi. Dalam kondisi ini jika dalam simpan-pinjam menggunakan sistem bunga, dapat dipastikan bahwa risiko yang harus ditanggung para pemilik dana sangat tinggi. Dengan menanggung risiko sangat tinggi, maka pemilik dana akan mensyaratkan tingkat bunga sangat tinggi. Akibatnya, bisnis di sektor riel kurang dapat berkembang. Hal ini akan berbeda jika menggunakan prinsip bagi hasil, jika penggunaan dana oleh pengguna dana menghasilkan keuntungan akan dinikmati bersama, sebaliknya jika terjadi kerugian akan ditanggung bersama pula, walaupun proporsi pembagiannya tidak harus sama.
Ketiga, krisis ekonomi yang masih terjadi dan tidak pasti kapan akan berakhir. Krisis ekonomi yang masih mendera Indonesia hingga saat ini, bisa justru menjadi blessing in disguise (berkah terselubung) bagi perbankan syariah. Berdasarkan pengalaman pada tahun 1998, krisis dalam dunia perbankan konvensional dianggap sebagai salah penyebab krisis ekonomi Indonesia. Begitu juga beberapa krisis keuangan pasca 1998, kebanyakan bersumber dari perbankan konvensional. Dengan semakin meningkatnya risiko yang harus ditanggung oleh deposan, maka perbankan syariah dapat digunakan sebagai alternatif untuk menginvestasikan dana, karena karakteristiknya tidak hanya mengejar keuntungan semata-mata dan terbebas dari praktik spekulasi.
Keempat, ketersediaan dana yang berlimpah di Timur Tengah. Dana yang jumlahnya berlimpah di kawasan tersebut, sebagai hasil peningkatan harga minyak mentah yang sanga tajam pada tahun 2008. Harga minyak mentah waktu itu mencapai rekor tertinggi sepanjang jaman, yaitu mencapai US$147 per barelnya pada Juli 2008. Dengan dana miliaran dollar yang tersedia, jika perbankan syariah di Indonesia mampu memanfaatkan peluang ini, maka itu merupakan sumber dana yang sangat potensial.
Kelima, potensi perkembangan Usaha Mikro, Kecil, dan Menengah (UMKM). UMKM diakui tahan banting, kebal terhadap krisis, dan menyerap tenaga kerja dalam jumlah yang banyak. Sudah empat tahun pencanangan program aksi penanggulangan kemiskinan melalui pemberdayaan UMKM oleh Presiden Susilo Bambang Yudoyono, tetapi usaha ini masih menghadapi banyak masalah, antara lain sulitnya akses ke bank untuk mendapatkan kredit. Dengan jumlah UMKM sebanyak 47.102.744 unit dan tenaga kerja yang terserap sebanyak 83.233.793 orang atau 96,28% dari total penyerapan tenaga kerja (Kompas, 29 Februari 2008), ini merupakan pasar potensial yang dapat digarap oleh perbankan syariah dalam menyalurkan dananya.
Keenam, jumlah dana Departemen Agama yang besar, baik di pusat maupun daerah. Jika dana ini ditaruh di perbankan syariah, maka ini merupakan salah satu sumber dana pihak ketiga (DPK) yang besar. Muhammad Nafik (Jawa Pos, 27 Januari 2009) memberikan contoh untuk pengelolaan dana yang bersumber dari biaya haji. Dengan jumlah calon jemaah haji sebanyak 210 ribu, dengan biaya rata-rata Rp30,00 juta, maka akan terkumpul dana di Departemen Agama sebesar Rp63,00 triliun. Jika ini ditaruh di perbankan syariah, maka menjadi DPK yang potensial.

Solusi untuk Penguatan Perbankan Syariah
Berdasarkan tantangan dan peluang yang dihadapi perbankan syariah saat ini, ada beberapa solusi alternatif yang dapat diusulkan kepada pihak-pihak terkait. Pertama, peningkatan intensitas sosialisasi dan edukasi tentang operasi perbankan syariah. Hal ini dapat dilakukan kepada masyarakat dan dunia usaha. Dengan sifatnya yang universal, perlu adanya penekanan bahwa perbankan syariah merupakan bentuk penerapan akidah bermuamalat dalam bisnis perbankan.
Salah satu ilustrasi bahwa perbankan syariah bersifat universal dibuktikan dengan pembukaan kantor cabang Bank HSBC yang berkantor pusat di Hongkong di Indonesia yang merupakan Unit Usaha Syariah. Manajemen Bank HSBC berani melakukan pembukaan UUS ini dengan pertimbangan bahwa potensi pasar perbankan syariah di Indonesia sangat besar dan prospektif.
Kedua, dukungan pemerintah yang lebih besar. Undang-Undang Nomor 10 Tahun 1998, memang sudah mengatur tentang operasi perbankan syariah, tetapi kebanyakan aturan lebih terfokus pada perbankan konvensional. Dengan karakteristik bisnisnya yang berbeda dengan perbankan konvensional, dan terjadinya perkembangan yang cepat dalam praktik-praktik bisnis perbankan syariah, maka sudah saatnya peraturan-peraturan di bidang perbankan syariah dipisahkan dari perbankan konvensional. Bentuk dukungan pemerintah nyata lain dalam bisnis perbankan syariah dapat dilakukan dengan mewajibkan Departemen Agama untuk menaruh dana-dananya pada perbankan syariah
Ketiga, pengintensifan pelatihan dan pengembangan sumberdaya manusia. Dengan terjadinya kelangkaan sumberdaya manusia yang menguasai operasi perbankan syariah, perlu adanya usaha bersama dari pihak-pihak yang terkait dengan pengelolaan perbankan syariah, seperti manajemen perbankan syariah, Majelis Ulama Indonesia, Bank Indonesia, dan Perguruan Tinggi. Dalam kenyataannya hingga saat ini masih sangat sedikit Perguruan Tinggi yang membuka program studi yang mengkhususkan kajian-kajiannya pada perbankan syariah, termasuk Fakultas Ekonomi UMM.
Keempat, diversifikasi produk. Persaingan yang semakin ketat dalam bisnis perbankan, menuntut para pelakunya untuk kreatif dan inovatif dalam memasarkan produk-produknya, sehingga dapat tetap bertahan dan berkembang. Produk perbankan dikelompokkan menjadi dua macam, yaitu: produk pengumpulan dana, dan produk penyaluran dana. Secara umum, prinsip pengumpulan dana yang digunakan perbankan syariah meliputi: wadi’ah (rekening giro dan tabungan), mudharabah (mutlaqah dan muqayyamah), sedangkan prinsip dalam penyaluran dananya meliputi: bai’ (jual beli), ijarah wa iqtina (sewa beli), syirkah (bagi hasil), dan pembiayaan lain.
Kelima, perbaikan dalam manajemen permodalan. Dalam teori perbankan, modal berfungsi sebagai penyerap atas kerugian. Dengan sistem permodalan yang sehat, maka jaminan atas keamanan dana deposan di perbankan syariah menjadi semakin baik. Di samping itu, modal dapat digunakan sebagai instrumen untuk keperluan ekspansi bagi perbankan syariah dalam rangka mengejar pertumbuhan. Berdasarkan data pada Tabel 3, FDR tahun 2008 melebihi 100%. Ini mengindikasikan bahwa potensi pasar perbankan syariah dalam penyaluran dana sangat besar dan ini membutuhkan tambahan dana di luar DPK, termasuk modal, dalam nilai yang relatif besar.
Keenam, perluasan kantor cabang. Kantor cabang perbankan syariah saat ini masih berada di kota-kota besar dan belum menjangkau kota-kota kecil. Dengan besarnya potensi pasar perbankan syariah yang tidak hanya berada di kota-kota besar, maka sudah saatnya pendirian kantor cabang di kota-kota kecil segera dilakukan. Hal ini untuk mengimbangi ekspansi yang dilakukan oleh perbankan konvensional, walaupun segmen pasarnya berbeda.

Berdasarkan tantangan dan peluang yang dimiliki, dapat disimpulkan bahwa perbankan syariah kemungkinan besar akan memiliki peranan yang semakin besar dalam perekonomian Indonesia di masa mendatang, khusus pada era pemerintahan mendatang. Khusus untuk tahun 2009 saja, proyeksi Bank Indonesia menyatakan bahwa pertumbuhan perbankan syariah akan lebih besar dibanding pertumbuhan perbankan konvensional (Jawa Pos, 27 Januari 2009). Dengan skenario pertumbuhan moderat, aset perbankan syariah diperkirakan akan tumbuh sebesar 37%, yang berarti pada akhir 2009 aset tersebut akan menjadi sebesar Rp68,00 triliun. Sementara skenario lain adalah skenario optimis, yang memproyeksikan bahwa perbankan syariah akan tumbuh sebesar 75%, dengan total aset di akhir tahun 2009 mencapai Rp87,00 triliun.
Untuk mencapai peranan yang semakin besar, dan dengan tingkat pertumbuhan yang tinggi perbankan syariah memerlukan upaya perkuatan, terutama dari Bank Indonesia dan pihak pemerintah. Upaya perkuatan peranan perbankan syariah dari Bank Indonesia dalam bentuk regulasi dan pengawasan operasi, sedangkan dari pihak pemerintah dilakukan melalui penciptaan iklim usaha perbankan syariah yang kondusif. Di samping itu upaya perkuatan dapat dilakukan melalui pihak manajemen perbankan syariah (sebagai pengelola langsung), Majelis Ulama Indonesia (dalam bentuk dukungan dari aspek hukum syariah), dunia usaha (sebagai pengguna dana), individu atau masyarakat (sebagai deposan dan sekaligus pengguna dana), dan Perguruan Tinggi (sebagai penyedia sumberdaya manusia).

Daftar Pustaka

Antonio, M. S. Bank Syariah, dari Teori ke Praktik. Edisi Pertama. Penerbit Gema Insani: Jakarta. 2001.

Ascarya dan D. Yumanita. Bank Syariah. Seri Kebanksentralan No. 14 (1st). Jakarta: Penerbit Bank Indonesia. 2005.

Chapra, M.U. Sistem Moneter Islam (1st). Jakarta: Penerbit Gema Insani. 2000.

Jawa Pos, 27 Januari 2009.

Muhammad. Manajemen Bank Syariah. Yogyakarta: Penerbit UPP AMP YKPN. 2005.

Kompas. 16 September 2008.

Kompas, 29 Februari 2008.

Kompas. 16 November 2007.

Kompas. 9 Maret 2007.

Sumitro, W. 2004. Asas-Asas Perbankan Islam (1st) Jakarta: Penerbit PT RajaGrafindo Persada.


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This series contains eight brief position papers commissioned by UN-HABITAT. For a fuller treatment of the issues see Siraj Sait and Hilary Lim, Human Rights in Islam: Law, Property and Access to Land (London: Zed 2006) ISBN Numbers Paperback: 1 84277 811 0 Hardback: 1 84277 810 2. For longer versions and further information regarding the UN-HABITAT research and activities contact

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This research and publication was made possible through funding to the UN-HABITAT’s Global Campaign for Secure Tenure from the Governments of Belgium, Italy and Netherlands.

Paper 8: Islamic Credit and Microfinance



8.1.2 Modern revival of Islamic finance 9
8.1.3 Islamic economic foundations 9
8.1.4 Ethical dimensions of Islamic economic systems 9
8.1.5 Benefits of Islamic banking 9
8.1.6 Islamic economic principles – do they promote or stifle growth? 10

8.2.1 Principles of Islamic financial systems 10
8.2.2 Prohibition on speculation or risk (gharar) 10
8.2.3 Prohibition on usury (riba) and hoarding 10
8.2.4 Prohibition on usury (riba) and interest 10
8.2.5 Profits as distinct from usury (riba) 10

8.3.1 Interface of Islamic Banking Principles and Microfinance 11
8.3.2 Islam and microfinance 11
8.3.3 Social and development roles of Islamic banks 11
8.3.4 Informal Banking and Debt transfer (hawala) 11
8.3.5 Is Islamic microfinance truly Islamic? 11

8.4.1 Financial products 12
8.4.2 Islamic Mortgages 12
8.4.3 Conventional Banking through the ‘back door’? 12
8.4.4 Need for regulation 12

8.5.1 Expansion of microfinance in the Arab world 13
8.5.2 Islamic microfinance in the Arab world 13
8.5.3 Experiences in Yemen 13
8.5.4 Experiences in Bangladesh 13
8.5.5 Resistance to the Grameen Bank 13
8.5.6 Microfinance and Islamic values 13
8.5.7 Muslim women and microfinance 14

8.6.1 Authenticate Islamic finance products 14
8.6.2 Regulate Islamic microfinance 15
8.6.3 Diversify Islamic microfinance products 15
8.6.4 Ensure Stability of Microfinance Financial Institutions (MFIs) 16
8.6.5 Mainstream Islamic Microfinance 17


The global mandate and activities of UN-HABITAT (United Nations Human Settlements Programme) in promoting access to land and protecting security of tenure are derived from a range of international human rights and development standards. While land, property and housing rights are generally cross-cultural and asserted within every socio-economic and political system, it is recognised that practice regarding their regulation and protection may take different forms. The Land and Tenure Section, Shelter Branch of UN-HABITAT has carried out systematic research into distinctive land, housing and property issues and approaches in various regions of the world including Africa, Latin America and the Balkans. It uses a ‘best practices’ approach to develop affordable, pro-poor and flexible tenure types and land tools, particularly for women. These tools are incorporated into UN-HABITAT’s global campaigns and programmes as well as made available to governments, civil society and all stakeholders for their advocacy work and for implementation of relevant laws and policies.
During its work in a range of countries from Afghanistan to Indonesia, UN-HABITAT has been increasingly aware of the importance of Islamic land tenure conceptions and land rights. Over 20 percent of the world’s population is Muslim but there has been little research on the complex and distinctive forms of land tenure and land rights. Too often global reviews of land tenure are undertaken without taking Islamic laws relating to land sufficiently into account. The Land and Tenure Section of UN-HABITAT therefore commissioned two experts Mr. M. Siraj Sait and Dr. Hilary Lim from University of East London, United Kingdom to carry out a year long in depth study of the Islamic and other dimensions of land and property rights in the Muslim world.
The objective of this research was to produce a body of material, through eight position papers, accompanied by a database, with proposed strategies which could enhance the knowledge and augment the capacity of UN-HABITAT and its partners to work more effectively in Muslim contexts. However, these papers have been written for a general audience without any assumption of knowledge regarding Islam, law or property rights and are therefore offer basic information as well as an opportunity to revisit first principles.
The general findings of the research are that there are distinctive Islamic conceptions of land and property rights which are varied in practice throughout the Muslim world. Though Islamic law and human rights are often an important factor in the conceptualisation and application, they intersect with State, customary and international norms in various ways. In doing so, they potentially offer opportunities for the development of ‘authentic’ Islamic land tools which can support the campaign for the realization of fuller land rights for various sections of Muslim societies, including women. However, in order to facilitate that role, the various stakeholders must constructively review the normative and methodological Islamic frameworks and their relationship with other systems of formal and informal land tenure.

Paper I on Islamic Land theories and Applications contextualises and introduces Islamic property and land concepts as part of a sophisticated and alternate land framework running alongside international regimes. The Islamic property rights framework conceives of land as a sacred trust but promotes individual ownership with a re-distributive ethos. It argues that engagement with Islamic dimensions of land may potentially support land rights initiatives in Muslim societies and has implications for programmes relating to land administration, land registration, urban planning and environmental sustainability. Position Paper II on Islamic Land Tenure and Reforms explores how land tenure concepts, categorisations and arrangements within the Islamic world are multi-faceted, generally distinctive and certainly varied. This paper explores the socio-historical context and development of Islamic land tenure regimes leading to the ‘web of tenure’ in contemporary Muslim societies. An appreciation of the historical context of land tenure in Muslim societies and the range of land tenure forms contributes towards development of authentic and innovative strategies for enhancing access to land and land rights.

Position Paper III on Islamic Law, Land and Methodologies finds Islamic law (Shari’a) an important factor influencing land rights and tenure systems in Muslim societies. Islamic law can be seen as an evolving, responsive and assimilating sphere of competing ideologies and interests, though it is a site of struggle between conservatives and liberals. An appreciation of the distinctive features and sources of Islamic law, its methodologies and diversity in application and its dispute resolution mechanisms would contribute towards strategies aimed at enhancing security of tenure. Position Paper IV Islamic Human Rights and Land sets out to examine the relationship between international human rights and Islamic conceptions of human rights in theory and practice. It argues that, with respect to land rights, the difference between these two sets of rights appears minimal and a sensitive and careful recognition of Islamic religious and political sensitivities can help deliver international human rights more effectively in Muslim societies, without offending Islamic principles.

Position Paper V Muslim Women’s Rights to Property explores the nature and scope of women’s rights to property and land under Islamic law (Shari’a) through a socio-historical background to women’s property rights, an appraisal of modern legal reforms and the avenues for enhancing their security of tenure. It argues that despite assumptions to the contrary, there are potential empowering strategies for women through Islamic law which can enhance women’s access to land and enforcement of their other property rights. Position Paper VI Islamic Inheritance Laws and Systems considers how Muslim societies generally derived their inheritance rules from religious sources for the division of an individual’s property upon death, some of which are controversial. Yet, it argues that the application of these formal inheritance rules pertaining to designated shares must be understood in a broader socio-cultural and economic context and within wider inheritance systems of practice.

Position Paper VII Islamic Endowments (Waqf) and Indigenous Philanthropy outlines how the endowment (waqf. plural awqaf) is a key Islamic institution, which has incorporated within its legal sphere vast areas of land within the Muslim world, connected firmly with the religious precept of charity. Modern reforms in several Muslim countries have abolished, nationalised or highly regulated endowments but the endowment (waqf) remains influential and there are clear signs of its reinvigoration. The paper evaluates the role for the Islamic endowment (waqf) in strategies to improve security of tenure based on its legal foundations, history and socio-economic impacts. Position Paper VIII Islamic Credit and Microfinance considers the increasing demand from within Islamic communities that financial services be compliant with Islamic law (Shari’a). This paper explores the Islamic context which stimulates such alternative credit systems, the key distinguishing features of the Islamic banking models, the development of Islamic microfinance models and the practical challenges to these innovations. It considers how Islamic finance, banking principles and credit, particularly housing microfinance, can contribute to security of tenure and in transforming the lives of the poor.

The findings of this study were discussed at a workshop on ‘Land tenure and Land law tools in the Middle East and North Africa’ in Cairo, Egypt on December 17 2005. This preparatory meeting for World Urban Forum (WUF III) 2006 was part of a meeting hosted by the Government of Egypt and organised by United Nations Economic and Social Commission for Western Asia (ESCWA), UN-HABITAT, and the League of Arab States. This research was also presented at the Expert Group Meeting (EGM) at Bangkok, Thailand on ‘Secure Land Tenure: New legal frameworks and tools in Asia and Pacific’ December 7-9 2005 organised by UN-HABITAT, United Nations Economic and Social Commission for Asia and Pacific (UNESCAP), International Federation of Surveyors (FIG) and World Bank.

Through this preliminary study, UN-HABITAT and its partners seek to discuss and develop appropriate strategies through identification and development of innovative and pro-poor land tools in their particular context.

Paper 8: Islamic Credit and Microfinance

[An] important function of Islamic finance that is seldom noted … is the ability of Islamic finance to provide the vehicle for financial and economic empowerment … to convert dead capital into income generating assets to financially and economically empower the poor …
(Mirakhor 2002)


Acquisition of land and the access to, improvement and enjoyment of property are often predicated on the ability of individuals to secure easy and affordable credit and a range of financial and banking services. The significant and increasing demand from within Islamic communities that financial services be compliant with Islamic law (Shari’a) has led to diversification and innovation of banking activities from both Islamic and Western commercial banking institutions. This paper explores the Islamic context which stimulates such alternative credit systems, the key distinguishing features of the Islamic banking models, the development of Islamic microfinance models and the practical challenges to these innovations. As part of an overall project concerning Islamic law, security of tenure and poverty alleviation, this paper sets out to explore the extent to which Islamic finance, banking principles and credit, particularly housing microfinance, may contribute specifically to transforming the lives of the poor.

Scope of this Position Paper: This position paper contextualises the development of Islamic Financial Systems in Section 1. It examines some of the distinguishing features of Islamic finance, particularly the prohibition against riba (usury) in Section 2. Section 3 analyses the application of Islamic principles to microfinance while Section 4 discusses some Islamic financial objectives and products, and the need for regulation. Section 5 assesses the experiences of Muslim countries with microfinance, particularly Yemen and Bangladesh, and the opportunities for women. Section 6 offers five strategies for empowerment through Islamic Microfinance

* Authenticate Islamic finance products
* Regulate Islamic microfinance
* Diversify Islamic microfinance products
* Ensure Stability of Microfinance Financial Institutions (MFIs)
* Mainstream Islamic Microfinance


Islamic financial systems are located within the larger context of Islamic religious, ethical and economic systems.
8.1.2 Modern revival of Islamic finance

Rapid growth in Islamic banking has led to most countries in the Muslim world, and many beyond, now having Islamic banks or financial institutions. In some countries, such as Iran and Sudan, Islamic banks are the only ones allowed to operate owing to their conformity with Islamic law (Shari’a). In other countries, such as Bahrain, Indonesia, Jordan, Egypt, Malaysia and Bangladesh, Islamic banking competes with conventional banking and finance. Islamic finance has seen annual growth rates of over 15% and the Islamic capital invested in global financial institutions is currently estimated at US$1.3 trillion. A key growth area is in the provision of Islamic mortgages, both within the Arab world and in Europe and North America.
8.1.3 Islamic economic foundations

The growth in Islamic finance is rooted in a desire for socio-political and economic systems based on Islamic principles. Economic activities are not considered to be a separate part of human behaviour within the Islamic framework and material pursuits occupy a sphere linked to spiritual values and religious beliefs. Commercial activities conducted in order to provide for the individual, family and loved ones are both permitted (halal) and in many circumstances commendable. There are sayings within the Muslim tradition in support of trade and which encourage, respect and praise it as a means for providing human sustenance, although not as an end in itself.
8.1.4 Ethical dimensions of Islamic economic systems

While the Qur’an celebrates good trading practices, it is also conscious of those who are unable to trade and praises charitable acts towards the poor and the destitute. The payment by Muslims of a levy or tax on certain kinds of wealth (zakat), to be distributed for charitable purposes, is one of the five pillars of Islam. It serves to purify both wealth and the person who makes the charitable payment.

Islamic law (Shari’a) lays down the boundaries of permissible economic behaviour and gains should not be achieved at the expense of spiritual or moral values.
8.1.5 Benefits of Islamic banking

Islamic banks have several interrelated benefits. They are able to mobilise funds and savings amongst those excluded from commercial banks because they are easier to access and conform to Islamic values. Islamic banks can provide a service for those who wish to assert their identity, are intimidated, or distrust large conventional banks, and/or prefer a system in which mutual co-operation between bank and customer is implicit. The close bank-customer relationship also offers responsible and profitable financial services.
8.1.6 Islamic economic principles – do they promote or stifle growth?

The role of religion in modern economics is controversial. Some commentators argue that Islamic principles are responsible for the backwardness of some Muslim countries, others that Islam promotes growth. There is no reason why Islamic beliefs should hold back development and there is space within the Islamic framework for ‘inductive reasoning’ in the development of Islamic economics.

8.2.1 Principles of Islamic financial systems

Islamic financial systems have distinctive principles including: avoidance of interest; risk sharing; treating of money as potential capital; prohibition on speculation; sanctity of contracts; avoidance of prohibited activities such as gambling; the encouragement of entrepreneurs; and the promotion of economic/social development through charity.
8.2.2 Prohibition on speculation or risk (gharar)

The prohibition on risk or speculation requires risk sharing by a lender (a bank) with the borrower, the bank should be a partner in the borrower’s risk. A relationship of creditor and debtor, as in the western model of commercial banking, in which interest is the price of credit and the pressure/risk is all on the borrower is not permitted.
8.2.3 Prohibition on usury (riba) and hoarding

The Qur’an prohibits usury (riba) in several different contexts and this prohibition arises out of an Islamic concept of money as nothing more than a means of exchange. Money has no value in itself and cannot be allowed to give rise to more money, it cannot accrue any return (i.e. interest). The prohibition against usury is a corollary of the prohibition against hoarding, or an excess accumulation of personal riches. Trade and financial gain are lawful, but excessive profiteering is immoral. Neither goods nor money should be hoarded.
8.2.4 Prohibition on usury (riba) and interest

The condemnation of usury as money lending for interest (riba) is well established within the Islamic framework. The dominant view, arising out of classical interpretations, is that the spirit of the prohibition on interest covers all forms of interest and ‘interest-like’ practices. There are a minority of Islamic thinkers who argue that there is a difference between usury, which is prohibited, and interest when it is for commercial lending, which is permitted.
8.2.5 Profits as distinct from usury (riba)

Labour and effort, including that of merchants and entrepreneurs, IS the creator of value and profits from trade are not unlawful. Profits are distinct from usury (riba). Profits do include a return on financial investment, but the rate of return is neither fixed nor predetermined and carries with it a risk.


Microfinance in Muslim countries offers a choice of conventional, informal and Islamic financial products, but Islamic microfinance is better suited to some contexts.
8.3.1 Interface of Islamic Banking Principles and Microfinance

Islamic microfinance has emerged from the same principles of Islamic financing that have been applied to trading, business, investing and mortgages within Muslim communities.
8.3.2 Islam and microfinance

Islamic principles of equal opportunity, advocacy of entrepreneurship, risk sharing, disbursement of collateral free loans, and participation of the poor are supportive of microfinance principles. Islamic finance has an important role to play in widening provision of funds to enable the purchase of, or building of, homes, and in enabling their owners to use the property for further income generation.
8.3.3 Social and development roles of Islamic banks

Islamic banking has multiple objectives. It facilitates commerce, investment and legitimate socio-economic activity, but consciously works towards the alleviation of poverty and the more equitable distribution of economic opportunities. Islamic banks often offer interest-free benevolent loans to the needy, on which the bank has no expectation of making a profit. Competition is accompanied, therefore, by a deeper responsibility for social welfare through financing and some Islamic banks have used innovative schemes to meet the needs of the poorest Sections of society. There is potential for Islamic banks to play an important role in widening the provision of funds to enable the purchase of, or building of, homes or the use of property for income generation.
8.3.4 Informal Banking and Debt transfer (hawala)

There are several informal financing systems, some which are beneficial. A system of transfer of debt from one debtor’s charge to another (hawala) operates in a number of Muslim countries. The lack of documentation circumvents official control and this debt transfer (hawala) system has been banned in most countries. The system is not, therefore, useful for extending housing, land and property rights.
8.3.5 Is Islamic microfinance truly Islamic?

In some social contexts MFI’s make only cosmetic changes to their operations and products, such as changing the term ‘interest’ to ‘service charge’, in order to acquire Islamic credentials. In other cases, where beliefs regarding the prohibition of interest (riba) are strongly held, MFI’s may have to make greater and more fundamental adaptations to their systems and operations.


An Islamic financial system/institution will try to ensure that its business activities avoid prohibited activities and that its financial products permit the financing of individuals or commercial enterprises through the profit and loss sharing principle.
8.4.1 Financial products

Islamic banks have developed a variety of financial products but only a few are commonly used in practice. These transactions include: mark up/cost plus sale (murabaha); joint venture (musharaka); trust financing or limited partnership (mudaraba); and lease (ijara). Other products have developed to permit forms of cooperative Islamic insurance (takaful and micro-takaful), which also use the solidarity trust model (mudaraba).
8.4.2 Islamic Mortgages

Mainstream lending institutions across the Muslim world, in Europe and North America have developed Islamic law (Shari’a) compliant financial products to enable the purchase of residential properties. The most commonly used instruments are the mark up/cost plus sale (murabaha) and mortgages involving the payment of rent, as opposed to interest (ijara). A further cooperative diminishing partnership model – which is particularly well established in Canada – may hold out greater possibilities for addressing the needs of Muslims in less privileged social sectors, not least because of its strong correlation to the microfinance institution.
8.4.3 Conventional Banking through the ‘back door’?

The Islamic credentials of Islamic banks and their financial products have been doubted in both newspapers and scholarly articles. It has been suggested that to the man on the street the Islamic bank may look very similar to its conventional counterpart. In particular the predominant murabaha contract, which is the financing of the purchasing of goods by banks and their subsequent sale to clients at mark-up prices, does appear to mirror conventional consumer credit.
8.4.4 Need for regulation

The relative infancy of Islamic financial institutions, in comparison to longer established conventional interest (riba) based banking, has led to some regulatory problems and some spectacular bankruptcies for Islamic investment institutions. There may be a lack of sufficient expertise amongst staff and/or a lack of training in some banks. No uniform regulatory and legal framework for an Islamic financial system has been developed, with Islamic banks having their own boards of guidance. The Asian Development Board, with the Islamic Financial Board set up in Kuala Lumpur, recently took the initiative to provide a regulatory structure. An appropriate regulatory framework for Islamic banks and microfinance institutions is critical for the robust financing of the housing, land and property industry, especially as housing usually forms a major part of the national asset of any country.

8.5.1 Expansion of microfinance in the Arab world

Although microfinance is a relatively new phenomenon in some parts of the Muslim world, its outreach in the Arab world has grown considerably to more than 700,000 borrowers at the end of 2003.
8.5.2 Islamic microfinance in the Arab world

Microfinance services, including some compliant with Islamic law (Shari’a), in the Arab region tend to be limited to credit for enterprise, rather than the building or purchase of homes or home improvement. The most commonly used Islamic transaction is one in which the MFI purchases goods at the request of the ‘borrower’ and then sells the goods to the ‘borrower’ for a fee to cover administrative costs, with repayments in instalments (murabaha).

8.5.3 Experiences in Yemen

A large proportion of microfinance initiatives in Yemen is based on Islamic financial principles. There are administrative challenges to these initiatives and additional costs, but their strength is in reaching out to those otherwise excluded and in terms of acquiring broader local approval from their clients and the communities in which they live.
8.5.4 Experiences in Bangladesh

The Grameen Bank is largely a success story, particularly in terms of reaching out to Muslim women in Bangladesh. Membership of the bank leads to an expansion of assets for many women, including home improvements, the provision of services and the purchase of land for building houses or agriculture. Though it is not organised consciously on Islamic financial principles, the beneficiaries who are Muslim have not had qualms about the authenticity of its products.
8.5.5 Resistance to the Grameen Bank

The Grameen Bank has been subject to criticism and resistance, both at a local level from groups like moneylenders who stand to lose from cheap collateral free loans and at a national level from forces which denounce the Bank as a manifestation of an un-Islamic, foreign and secular culture.
8.5.6 Microfinance and Islamic values

There is great potential to apply Islamic financial principles and banking practices in a concerted manner to the provision of microfinance, particularly housing microfinance which remains less widespread than the provision of entrepreneurial credit. The complementary aspects of microfinance and Islamic banking principles hold out considerable possibilities for social and economic transformation. The strong correlation between Islamic principles and the values underpinning microfinance, particularly the emphasis upon partnership and mutual guarantee, may provide the basis for innovation even in the seemingly inauspicious circumstances of informal settlements.
8.5.7 Muslim women and microfinance

One of the potential benefits of microfinance is the empowerment of Muslim women. The ability of MFI’s to deliver financial services to rural women is of particular relevance in gender segregated societies. The Arab region has seen a significant improvement in terms of outreach from MFI’s to women borrowers who form as a group more than half of such institutions’ clients. Working with Muslim women is a sensitive issue, sometimes raising accusations of meddling with social codes.

8.6.1 Authenticate Islamic finance products

Many customers of Islamic banks may have a history of banking in the conventional commercial banking sector. However, there is also evidence that an institution rooted in Islamic values and financial principles will draw in customers new to banking. These customers may have excluded themselves due to their religious beliefs, but the behaviour of the bank itself may also be a factor. The increasing demand for Islamic banking and financial products, the entry of a variety of financial institutions into the market and the sheer range of Islamic products, raises the question of whether these justify the label ‘Islamic’.

That demand, rather than inherent Islamic expertise, triggered the explosion in Islamic finance is well documented. For example, a Western bank, Lloyds TSB, opened its Islamic banking services in the UK on the basis that there is a ‘demand from over two-thirds of the 2 million Muslims in the UK who want Islamic banking’ (BBC 2005). Global financial institutions that have established Islamic banking with Shari’a compatible services include Citibank, BNP Paribas, UBS and ABN Amro. Equally, there are an increasing number of national and local providers in the field. In many countries Islamic and conventional microfinance coexist and the difference is not always obvious.
Fadel (2004) notes that this proliferation has led to Islamic Law in the area of banking and finance being in a ‘flux’ with Islamic products needing to be ‘sufficiently distinctive from conventional banking and finance to justify the label ‘Islamic finance’ (Fadel 2004). ‘Islamic’ banks are a co-operative venture between financial experts and shari’a experts (or committees) who comment on the Islamic validity of the product. However, there is room for interpretive differences of opinion among jurists and different Shari‘a committees may and do react differently to similar contractual provisions.
There are no easy answers, but sharing of best practice and harmonisation of general Islamic products, allowing for inherent diversity, would enhance the credibility of the Islamic finance industry. The demand for the development of Islamic microfinance products may not be as obvious or as strong as the demand for Islamic financial instruments in the commercial banking sector. However, it is also important in this regard that the vulnerable, particularly those on very low-incomes, are provided with the opportunities and fora to learn about Islamic products, particularly Islamic microfinance products, and ultimately to participate in their development. Microfinance schemes, particularly those funding the purchase of houses, their improvement or services, have an important role to play in extending and enhancing property and land rights, while alleviating poverty. In many Islamic countries, or in those countries with significant Muslim populations, Islamic microfinance which is both Islamic law (Shari’a) compliant and shaped by local communities has the potential for enjoying consumer confidence and acceptance within those communities, which may not be so readily available to conventional schemes.
8.6.2 Regulate Islamic microfinance

The modern Islamic microfinance institutions are still a recent phenomenon and have not yet fully evolved. They have experienced also haphazard growth. While diverse models and practices are inherent in the choice and flexibility Islamic microfinance offers, these services need to be regulated in order to provide transparency, instil consumer confidence and prevent fraud on beneficiaries due to the unfamiliarity with the products. State regulation, though necessary, has been ad hoc and sometimes an obstacle to the evolution of effective microfinance mechanisms. Housing microfinance programmes in particular, although less developed than entrepreneurial credit, tend to involve larger loans and traditionally require guarantees and/or collateral. Effective regulation of housing microfinance schemes which are Islamic law (Shari’a) compliant is, therefore, of particular importance.

A recent International Monetary Fund working paper (2004) points to the special risks surrounding Islamic banking. The first is that the profit and loss sharing modes of financing make the Islamic banks vulnerable to the risks that are normally borne by equity investors rather than holders of debt. The second relates to the special nature of investment deposits where capital value and rate of return are not guaranteed. Some suggest a modified CAMEL (capital adequacy, asset quality, management, earnings and liquidity) system of supervision for Islamic banking. There is a special risk for those banks involved in the profit-sharing forms of lending. In the case of microfinance, states should be encouraged to support the membership of Microfinance Financial Institution (MFIs) in the Islamic Financial Services Board (IFSB) and provide fora for sharing of best practice and success. An appropriate regulatory framework is required for a vigorous housing finance system, especially given the importance of housing as a key national asset in most countries.
8.6.3 Diversify Islamic microfinance products

Though Islamic microfinance schemes are relatively limited at present, their potential is significant. Islamic Microfinance products are suitable to enable housing microfinance that is within Islamic law and to enhance security of tenure, particularly for the poor. However, several studies of microfinance in the Muslim world show that there is an emphasis on loans to the ‘entrepreneurial poor’, rather than the variety of financial services that the poor need. In addition to credit, microfinance needs to offer savings, insurance, and money transfer services.

A study by a Harvard research group points to groups within the general finance industry’s target population that are not currently being served by housing microfinance programs. In particular, the poorest of the urban poor, including squatters on remote or unutilized land and those living in rental arrangements in overcrowded inner-city slum tenements fall outside the net. The study argues that the development of appropriate financial instruments to meet the shelter needs of this latter population group is without doubt the greatest challenge facing the housing microfinance industry today. Appropriate financial instruments have been developed by the Islamic banking sector, which avoid usury (riba) and can enable individuals to purchase houses, just as they can provide funds to start up or expand businesses and loan money to those in particular need.

Similarly, there are types of Islamic insurance, based on cooperation, which can enable the poor to avoid the asset sales, including the sale of various rights of access to land, which are a common response to natural and personal disasters. There are dangers of high expectations and the limits of microfinance in the overall macroeconomic poverty alleviation strategies must be recognized. However, while priorities may differ according to contexts, microfinance programmes must expand the range of products for their target groups which are sustainable and viable in the long term. Islamic jurisprudence (fiqh), with its emphasis upon partnership and a concern for community welfare, together with the expansion in Islamic banking and microfinance, has the ability to respond creatively to the needs of the urban poor.

8.6.4 Ensure Stability of Microfinance Financial Institutions (MFIs)

Though banks and financial institutions offer capital, general management and expertise, it is the MFIs that deliver financial services to the poor, particularly the rural poor in remote areas. The success of any microfinance project is dependent on the building of permanent local financial institutions that can attract domestic deposits, recycle them into loans, and provide other financial services. The failures of microfinance in general have occurred when MFIs have not been regulated or supported by either their funding bodies or government.

The MFIs cannot exist in a hostile economic environment, just as they need to cultivate their credibility in a given socio-cultural and religious community. The role of the government is not to be a lender itself but to work through MFIs. Their most important responsibility is to support macroeconomic stability and the promotion of an enabling policy environment for the development of a vibrant financial sector. Similarly, donor funds should complement private capital, not compete with it and the success of MFIs lies in their ability to sustain themselves in the long run through their own capital.

The capacity building of MFIs depends on building strong and transparent management structures. Merely espousing Islamic principles does not absolve them from creating a culture of accountability. As several reports have indicated, microfinance works best when it measures —and discloses —its performance. Reporting not only helps stakeholders to judge costs and benefits, but it also improves performance. Microfinance institutions (MFIs) need to produce accurate and comparable data on financial performance (for example on cost recovery) as well as social performance. An example of good practice comes from some smaller financial institutions. These are participative, not necessarily in terms of being owned and managed by the poor but in employing the poor, and have understood the experience, expectations and practices of the poor. Islamic MFIs which seek to enhance the position of the poor, including the realisation of their rights to secure shelter, must develop, like conventional microfinance institutions, a culture of financial and social accountability, which embraces innovative approaches to participation by their members.

8.6.5 Mainstream Islamic Microfinance

To improve the access of target groups to microfinance, it should shift from being considered as a marginal program and be integrated within the general banking and financial services industry. Microfinance will reach its full potential, both generally and with respect to extending housing and property rights, only if it is integrated into a country’s mainstream financial system. This is necessary to promote greater awareness of products, standardize regulation and transparency and strengthen outreach mechanisms. Rather than being ignored or bypassed on the basis of its perceived complexity or the sensitivity owing to its religious orientation, Islamic finance should be recognized for what it ultimately is – a financial product that needs to meet several standards. This is particularly important where microfinance is part of the informal economy or debt transfer (hawala) and based on trust and community practices.

Improving access to Islamic microfinance is not only an implicit social goal but also an imperative for the survival of most microfinance projects. In order to pay for itself it must reach out to very large numbers of poor people in order to be self-sustaining. Strategies to enhance the opportunities for the poor to participate in, and become educated about Islamic microfinance and products are an essential component of outreach. In the case of Islamic microfinance where interest is replaced by profit and loss methods and there may be uncertainty as to returns, reasonable service charges from a wider constituency are necessary to cover costs particularly where government subsidies and donor funds cannot be guaranteed in the long run.


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August 22, 2010 Leave a comment


“Dan jika Kami hendak membinasakan suatu negeri, maka Kami perintahkan kepada orang-orang yang hidup mewah di negeri itu (supaya mentaati Allah) tetapi mereka melakukan kedurhakaan dalam negeri itu, maka sudah sepantasnya berlaku terhadapnya perkataan (ketentuan Kami), kemudian kami hancurkan negeri itu sehancur-hancurnya.” (Al Qur’an surat Al Isra’ ayat 16)

Sebagai dampak dari krisis yang berkepanjangan, banyak pihak yang mulai mencari jawaban yang lebih hakiki atas penyebab terjadinya krisis yang berkepanjangan ini. Salah satu yang dianggap menjadi penyebab utama dari kerawanan ekonomi terhadap krisis adalah moral hazard dalam pembiayaan. Karena itu masyarakat mulai mencari sistim ekonomi lain yang diharapkan dapat mengurangi moral hazard. Sehingga sistim Ekonomi Islami yang berlandaskan etika keimanan mulai diterapkan di berbagai kegiatan. Perkembangan ini membawa dampak meningkatnya kebutuhan akan sumber daya yang berkompeten. Akibatnya mulai berkembang sistim pelatihan dan pendidikan untuk meningkatkan kompetensi dalam Ekonomi Islami, yang lazim disebut Ekonomi Syariah, termasuk dalam pendidikan tinggi.


Untuk memahami etika usaha yang Islami, terlebih dahulu harus difahami peran (dan tugas) manusia di dunia. Allah SWT telah berfirman dalam surat Adz Dzaariyat ayat 56:
“Dan tidak Ku-Ciptakan jin dan manusia melainkan (semata mata) agar mereka beribadah (mengabdi) kepada-Ku”.

Oleh karena itu semua tindakan manusia di dunia ini adalah semata-mata ibadah, semata-mata untuk mengabdi kepada Allah SWT. Dan sebagai abdi Allah SWT maka manusia dalam semua tindakannya harus mengikuti perintah-Nya dan menghindari larangan-Nya. Semua tindakan tersebut juga termasuk tindakan dalam berusaha.

Disamping sebagai abdi dari Allah SWT, manusia juga diangkat oleh Allah SWT untuk menjadi khalifah di muka bumi. Sebagaimana firman dalam surat Al Baqarah ayat 30:
“Ingatlah ketika Tuhanmu berfirman kepada para malaikat: ”Sesungguhnya Aku hendak menjadikan seorang khalifah di muka bumi.”

dan surat Al A’raf ayat 128:
“Sesungguhnya bumi kepunyaan Allah, dipusakakan-Nya kepada yang dikehendaki-Nya dari hamba-hamba-Nya.”

Karena itu semua tindakan manusia di dunia adalah sebagai wakil Allah SWT untuk memanfaatkan bumi yang telah dipusakakan kepada manusia untuk sebanyak-banyak manfaat dan maslahat bagi manusia, sesuai dengan ketentuan Allah SWT.

Ketentuan Allah SWT yang berkaitan dengan manusia disebut sebagai syariat yang artinya adalah jalan atau hukum/aturan. Menurut Imam Ghazali, tujuan utama syariat adalah memelihara kesejahteraan manusia yang mencakup perlindungan keimanan (aqidah), kehidupan, akal, keturunan dan harta benda (mal) mereka. Segala sesuatu yang menjamin terlindungnya kelima perkara ini adalah maslahat bagi manusia dan oleh karenanya dikehendaki oleh manusia.

Pendapat ahli fikir Islam ini sangat baik untuk dijadikan panduan dalam menentukan prioritas hidup. Urutan kelima perkara yang dikemukakan oleh Imam Ghazali pantas menjadi urutan prioritas hidup. Keimanan atau aqidah haruslah selalu menjadi prioritas utama. Segala sesuatu yang dapat mengganggu apalagi sampai mengurangi keimanan haruslah ditinggalkan. Kemudian kehidupan haruslah didahulukan daripada akal, atau hasil penalaran akal tidak boleh dipakai untuk mengganggu nilai kehidupan. Dan selanjutnya keturunan dan harta benda tidak boleh membuat manusia kehilangan akal.

Itulah sebabnya cita-cita manusia haruslah untuk menegakkan agama Allah – agama Islam – serta semata-mata untuk mendapat ridha Allah SWT, kepada siapa manusia mengabdi. Contoh yang paling sempurna tentunya adalah Nabi Muhammad SAW. Sebagai seorang rasul cita-cita Nabi Muhammad adalah berdakwah untuk menegakkan agama Islam, sebagaimana telah disabdakan oleh Rasulullah SAW:
“Demi Allah, seandainya mereka meletakan matahari di tangan kananku dan bulan di tangan kiriku agar aku meninggalkan da’wah ini, tak akan aku tinggalkan hingga Allah SWT memenangkan agama ini atau aku binasa tanpa agama”

Ahli fikir Islam, Ibnu Qayyum juga menyatakan bahwa orang yang tinggi cita-citanya hanya menggantung segala urusannya kepada Allah, tidak mengharapkan sesuatu balasan kecuali ridha Allah. Tingkah laku dan etika yang menghiasi pribadinya menjadi dasar dalam berda’wah yang tidak ditukar dengan sesuatu yg merusak kepribadiannya. Sehingga jelaslah bahwa syariat Islam akan menentukan kepribadian seorang muslim yang tentunya akan tercermin dalam tingkah lakunya sehari-hari, termasuk tingkah laku dalam berusaha dan dalam menghadapi tantangan hidup di dunia.

Dalam menjalankan perannya sebagai wakil Allah SWT menjadi Khalifah di dunia, manusia harus mengikuti tata nilai yang telah ditetapkan oleh Allah SWT. Tata nilai tersebut mengacu pada tujuan hidup manusia, yaitu memperoleh kesejahteraan hidup di dunia dan di akhirat. Allah SWT telah menentukan bahwa kesejahteraan di akhirat lebih penting dari kesejahteraan di dunia, namun Allah SWT juga memperingatkan manusia untuk tidak melupakan haknya atas kenikmatan di dunia, antara lain sebagaimana tercantum dalam surat Asy Syura ayat 20:
“Barangsiapa menghendaki keuntungan di akhirat akan Kami tambah keuntungan itu baginya dan barangsiapa menghendaki keuntungan di dunia Kami berikan kepadanya sebagian dari keuntungan dunia dan tidak ada baginya suatu bagianpun di akhirat”

dan surat Qashash ayat 77:
“Dan carilah dari apa yang telah dianugerahkan Allah kepadamu (kebahagiaan) akhirat, dan janganlah kamu melupakan bagianmu dari (kenikmatan) duniawi…”

Dalam menjalankan tugas mengabdi kepada Allah SWT sebagai khalifah di dunia, manusia juga diperingatkan untuk tidak terperosok dalam kenikmatan menggunakan rahmat Allah SWT semata-mata untuk memenuhi hasrat pribadi saja.
“Dijadikan indah pada manusia kecintaan pada syahwat dari wanita-wanita, anak-anak, harta yang banyak …”. (Q.S. Ali Imran:14))

“Telah nampak kerusakan di daratan dan di lautan disebabkan perbuatan tangan manusia, supaya Allah merasakan kepada mereka sebagian dari (akibat) perbuatan mereka, agar mereka kembali (ke jalan yang benar)” (Q.S. Ar Ruum : 41)

Islam juga menjanjikan bahwa semua manusia pasti akan memperoleh balasan yang sempurna atas segala sesuatu yang diusahakannya. Balasan tersebut dijanjikan oleh Allah SWT akan sempurna dalam jumlah maupun waktu menurut ketentuan yang digariskan oleh Allah SWT. Walaupun memang harapan manusia mungkin berbeda dengan ketentuan Allah, sehingga manusia yang tidak pandai bersyukur dapat merasa kecewa dengan ketentuan Allah tersebut.

“Dan bahwa seorang manusia tiada memperoleh selain yang telah diusahakannya. Dan bahwa usahanya itu kelak akan diperlihatkan (kepadanya). Kemudian (kelak) akan diberi balasan kepadanya dengan balasan yang paling sempurna” (Q.S. An Najm 38-40)

Islam menyatakan bahwa semua yang ada di langit dan di bumi adalah milik Allah SWT, dan sebagian manusia dijadikan untuk menguasainya dengan amanah untuk menafkahkan di jalan Allah karena sebagian dari harta tersebut terdapat bagian tertentu yang menjadi hak orang lain.

“Berimanlah kamu kepada Allah dan rasul-Nya dan nafkahkanlah sebagian dari hartamu yang telah jadikan kamu menguasainya. Maka orang-orang beriman diantara kamu dan menafkahkan hartanya memperoleh pahala yang besar.” (Q.S. Al Hadiid:7)

”Dan orang-orang yang dalam hartanya tersedia bagian tertentu bagi orang (miskin) yang meminta dan yang tidak mempunyai apa apa (yang tidak mau meminta)” (Q.S. Al Ma’arij : 24-25)

Demikianlah tata nilai kehidupan menurut ajaran agama Islam, dimana :

Tujuan hidup manusia adalah untuk mencapai kebahagiaan di akhirat karena kesejahteraan di akhirat lebih utama dari kesejahteraan di dunia, namun manusia tidak boleh melupakan haknya atas kenikmatan dunia.
Kenikmatan dunia tidak boleh membuat manusia melupakan kewajibannya sebagai abdi Allah dan sebagai khalifah di dunia untuk membawa rahmat bagi seluruh alam guna mencapai kehidupan yang lebih baik (hayatan thoyyibah)
Manusia tidak akan memperoleh kecuali yang diusahakannya, dan Allah SWT menjamin akan mendapat balasan yang sempurna. Oleh karena itu manusia harus berusaha secara baik dengan bersungguh-sungguh untuk mendapatkan hasil yang halal dan thoyib.
Semua manusia yang beriman adalah bersaudara, karena itu di dalam setiap rahmat dari Allah berupa harta yang diterima oleh manusia terdapat hak orang lain, sehingga harta harus dibersihkan dengan mengeluarkan zakat, infaq dan shadaqah.


1. Berusaha hanya untuk mengambil yang halal dan baik (thoyib)
Allah SWT telah memerintahkan kepada seluruh manusia –jadi bukan hanya untuk orang yang beriman dan muslim saja- untuk hanya mengambil segala sesuatu yang halal dan baik (thoyib). Dan untuk tidak mengikuti langkah-langkah syaitan –dengan mengambil yang tidak halal dan tidak baik.

”Hai sekalian manusia, makanlah (ambillah) yang halal lagi baik dari apa yang terdapat di bumi, dan janganlah kamu mengikuti langkah-langkah syaitan; karena sesungguhnya syaitan itu adalah musuh yang nyata bagimu” (Q.S. Al Baqarah 168)

Oleh karena itu dalam berusaha, Islam mengharuskan manusia untuk hanya mengambil hasil yang halal. Yang meliputi halal dari segi materi, halal dari cara perolehannya, serta juga harus halal dalam cara pemanfaatan atau penggunaannya. Banyak manusia yang memperdebatkan mengenai ketentuan halal ini. Padahal bagi umat Islam acuannya sudah jelas, yaitu sesuai dengan sabda Rasulullaah SAW:

Sesungguhnya perkara halal itu jelas dan perkara haram itupun jelas, dan diantara keduanya terdapat perkara-perkara yang syubhat (meragukan) yang tidak diketahui oleh orang banyak. Oleh karena itu, barangsiapa menjaga diri dari perkara syubhat, ia telah terbebas (dari kecaman) untuk agamanya dan kehormatannya…. ……Ingat! Sesungguhnya didalam tubuh itu ada sebuah gumpalan, apabila ia baik, maka baik pula seluruh tubuh, dan jika ia rusak, maka rusak pula seluruh tubuh, tidak lain ia adalah hati” (Hadits)

Jadi sesungguhnya yang halal dan yang haram itu jelas. Dan bila masih diragukan maka sebenarnya ukurannya berkaitan erat dengan hati manusia itu sendiri, bila hatinya jernih maka segala yang halal akan menjadi jelas. Dan sesungguhnya segala sesuatu yang tidak halal –termasuk yang syubhat – tidak boleh menjadi obyek usaha dan karenanya tidak mungkin menjadi bagian dari hasil usaha.

2. Memperoleh hasil usaha hanya melalui perniagaan yang berlaku secara ridho sama ridho karena saling memberi manfaat.

“Wahai orang-orang yang beriman, janganlah kamu saling memakan harta sesamamu dengan jalan yang bathil, kecuali dengan jalan perniagaan yang berlaku secara ridho sama ridho di antara kamu”. (Q.S. An Nisaa:29)

Kemudian Allah SWT memerintahkan kepada orang yang beriman –jadi bukan kepada seluruh manusia- agar bila ingin memperoleh keuntungan dari sesamanya hanya boleh dengan jalan perniagaan (baik perniagaan barang atau jasa) yang berlaku secara ridho sama ridho. Jalan perniagaan itu sendiri mungkin sudah cukup jelas, namun kaidah ‘berlaku secara ridho sama ridho’ –bukan sekedar ‘suka sama suka’- mungkin tidak terlalu jelas. Untuk penjelasannya dapat dikaji hadits berikut ini:

Nabi Muhammad saw. pernah mempekerjakan saudara Bani `Adiy Al Anshariy untuk memungut hasil Khaibar. Maka ia datang dengan membawa kurma Janib (kurma yang paling bagus mutunya). Nabi Muhammad SAW bertanya kepadanya: Apakah semua kurma Khaibar demikian ini? Orang itu menjawab: Tidak, demi Allah, wahai Nabi Utusan Allah. Saya membelinya satu sha` dengan dua sha` kurma Khaibar (sebagai bayarannya). Nabi Muhammad SAW bersabda: Janganlah berbuat begitu, tetapi tukarkan dengan jumlah yang sama, atau juallah ini (kurma Khaibar) lalu belilah kurma yang baik dengan hasil penjualan (kurma Khaibar) tadi.

Intisari dari pelajaran yang diberikan oleh Rasulullah SAW adalah bahwa harga dalam setiap perniagaan harus mengikuti penilaian (valuasi atau mekanisme) pasar. Karena penilaian yang dilakukan (oleh masyarakat) melalui mekanisme pasar akan memberikan penilaian yang adil. Tentunya selama pasar berjalan dengan wajar. Sehingga kaidah ‘ridho sama ridho’ yang disyaratkan dapat dicapai. Dan untuk memfasilitasi perniagaan melalui mekanisme pasar tersebut diperlukan prasarana alat tukar nilai yang disebut sebagai uang.

3. Fungsi Uang yang utama adalah sebagai alat tukar nilai di dalam transaksi.

Dalam syariah Islam, uang semata-mata berfungsi sebagai alat tukar nilai. Oleh karena itu salah seorang pemikir Islam, Imam Ghazali, menyatakan bahwa “Uang bagaikan cermin, ia tidak mempunyai warna namun dapat merefleksikan semua warna.” Maksudnya uang itu sendiri seharusnya tidak menjadi obyek (perniagaan) melainkan semata-mata untuk merefleksikan nilai dari obyek. Dan bagaikan cermin yang baik, uang harus dapat merefleksikan nilai dari obyek (perniagaan) secara jernih dan lengkap. Oleh karena itu pada zaman Rasulullah SAW uang dibuat dari logam mulia (emas atau perak) dan mempunyai spesifikasi (mutu dan berat) yang tertentu.

Pemerintahan Rasulullah SAW sendiri tidak menerbitkan uang. Karena pemerintahan Rasulullah SAW tidak perlu menerbitkan uang sendiri selama uang itu mempunyai nilai yang dapat diterima di semua pasar yang terkait. Sehingga pemikir Islam lainnya, Ibnu Khaldun menyatakan “Kekayaan suatu negara tidak ditentukan oleh banyaknya uang di negara tersebut, tetapi ditentukan oleh tingkat produksi di negara tersebut dan kemampuan untuk memperoleh neraca perdagangan yang positif.”

Karena dalam syariah Islam uang adalah alat tukar nilai, maka uang diperlukan untuk memperlancar perniagaan. Artinya peran uang sejalan dengan pemakaian uang itu dalam perniagaan. Sehingga bila uang disimpan dan tidak dipakai dalam perniagaan maka masyarakat akan merugi karena perniagaan akan mengalami hambatan. Karena pada zaman Rasulullah SAW uang dibuat dari emas dan perak, maka dalam surat At Taubah ayat 34 dinyatakan:

Dan orang-orang yang menyimpan emas dan perak dan tidak menafkahkannya di jalan Allah, maka beritahukanlah kepada mereka (bahwa mereka akan mendapat siksa yang pedih).

4. Berlaku adil dengan menghindari keraguan yang dapat merugikan dan menghindari resiko yang melebihi kemampuan.

Kemudian dalam melakukan perniagaan, Islam mengharuskan untuk berbuat adil tanpa memandang bulu –termasuk kepada pihak yang tidak disukai. Karena orang yang adil akan lebih dekat dengan takwa.

“Hai orang-orang beriman, hendaklah kamu jadi orang-orang yang selalu menegakkan (kebenaran) karena Allah, menjadi saksi dengan adil. Dan janganlah sekali-kali kebencianmu terhadap suatu kaum, mendorong kamu untuk berlaku tidak adil. Berlaku adillah karena adil itu lebih dekat dengan taqwa” (Q.S. Al Ma’idah:8)

Bahkan Islam mengharuskan untuk berlaku adil dan berbuat kebajikan dimana berlaku adil harus didahulukan dari berbuat kebajikan.

“Sesungguhnya Allah menyuruh berlaku adil dan berbuat kebajikan” (Q.S. An Nahl:90)

Dalam perniagaan, persyaratan adil yang paling mendasar adalah dalam menentukan mutu dan ukuran (takaran maupun timbangan).

“..Maka sempurnakanlah takaran dan timbangan dengan adil..” (Q.S. Al An’am:152)
“Dan Allah telah meninggikan langit dan Dia meletakkan neraca (keadilan) supaya kamu jangan melampaui batas neraca itu. Dan tegakkanlah timbangan itu dengan adil dan janganlah kamu mengurangi neraca itu” (Q.A. Ar Rahman:7,8,9)

Berlaku adil akan dekat dengan takwa, karena itu berlaku tidak adil akan membuat seseorang tertipu pada kehidupan dunia. Karena itu dalam perniagaan, Islam melarang untuk menipu –bahkan ‘sekedar’ membawa suatu kondisi yang dapat menimbulkan keraguan yang dapat menyesatkan atau gharar. Contoh yang diajarkan Rasulullah SAW adalah sesuatu (ikan) dalam air, karena pandangan pada segala sesuatu yang berada dalam air akan terbias dan dapat menimbulkan keraguan yang menipu.

Wahai manusia, sesungguhnya janji Allah benar maka janganlah sekali-kali kamu tertipu kehidupan dunia dan janganlah sekali-kali tertipu tentang Allah (karena) seorang penipu (al gharuur). (Q.S. Al Faatir: 5)

“Janganlah kalian membeli ikan di dalam air (kolam/laut) karena hal itu adalah gharar”. (HR Ahmad)

Sebaliknya atas harta milik sendiri dilarang untuk mengambil resiko yang melebihi kemampuan yang wajar untuk mengatasi resiko tersebut. Walaupun resiko tersebut mempunyai probabilita untuk membawa manfaat, namun bila probabilita untuk membawa kerugian lebih besar dari kemampuan menanggung kerugian tersebut maka tindakan usaha tersebut adalah sama dengan mengeluarkan yang lebih dari keperluan sehingga harus difikirkan dengan matang.

Mereka bertanya kepadamu tentang khamar dan maysir, (maka) katakanlah pada keduanya terdapat dosa besar dan beberapa manfaat bagi manusia, dan dosa keduanya lebih besar dari manfaat keduanya,
Dan mereka bertanya kepadamu apa yang mereka nafkahkan (keluarkan), maka katakanlah yang lebih dari keperluan, demikianlah Allah menerangkan kepadamu ayat-ayat-Nya supaya kamu berfikir.(Q.S. Al Baqarah:219)

5. Menjalankan usaha harus memenuhi semua ikatan yang telah disepakati.

Sebagai abdi Allah SWT menjalankan tugas sebagai khalifah di muka bumi, atas nama Allah SWT, dalam menjalankan usaha Islam mengharuskan dipenuhinya semua ikatan yang telah disepakati. Perubahan ikatan akibat perubahan kondisi harus dilaksanakan secara ridho sama ridho, disepakati oleh semua fihak terkait.

“Hai orang-orang beriman, penuhilah aqad-aqad itu.” (Q.S. Al Ma’idah:1)
“Tuhanku hanya mengharamkan perbuatan yang keji, baik yang nampak maupun yang tersembunyi, dan perbuatan dosa, melanggar hak manusia tanpa alasan yang benar..” (Q.S. Al A’raf : 33)
“Dan tepatilah perjanjian dengan Allah apabila kamu berjanji dan janganlah kamu membatalkan sumpah-sumpah(mu) itu sesudah meneguhkannya, sedang kamu telah menjadikan Allah sebagai saksimu..” (Q.S. An Nahl:91)

6. Manusia harus bekerjasama untuk memenuhi kebutuhan.

Manusia memang ditakdirkan untuk diciptakan dengan perbedaan, dimana sebagian diantaranya diberi kelebihan dibandingkan sebagian yang lain, dengan tujuan agar manusia dapat bekerjasama untuk mencapai hasil yang lebih baik.

“Kami telah menentukan antara mereka penghidupan mereka dalam kehidupan dunia, dan Kami telah meninggikan sebagian mereka atas sebagian yang lain beberapa derajat, agar sebagian mereka dapat mempergunakan sebagian yang lain. Dan rahmat Tuhanmu lebih baik dari apa yang mereka kumpulkan.” (Q.S. Az Zukhruf :32)

Pakar ekonomi Islami, Ibnu Khaldun menyatakan bahwa “Setiap individu tidak dapat dengan sendirinya memperoleh kebutuhan hidupnya. Semua manusia harus bekerjasama untuk memperoleh kebutuhan hidup dalam peradabannya.” Lebih lanjut Ibnu Khaldun juga menerangkan akan hasil kerjasama yang sekarang kita sebut synergy, sebagai berikut: “Hasil kerjasama sejumlah manusia dapat menutupi kebutuhan beberapa kali lipat dari jumlah mereka sendiri.”


Terdapat perbedaan yang sangat mendasar antara sistim ekonomi konvensional dengan Sistim Ekonomi Islami atau yang lebih dikenal di Indonesia sebagai Sistim Ekonomi Syariah. Menurut Alfred Marshall (1842-1924), “Economics is a study of mankind in the ordinary business life”. Sebagaimana telah diterangkan di atas, menurut syariah Islam “Ekonomi adalah ilmu untuk menggunakan sumber daya yang diamanatkan kepada manusia sebagai khalifah Allah SWT di muka bumi dalam menjalankan tugas manusia sebagai abdi Allah SWT.”

Dalam sudut pandang sistim ekonomi konvensional, seperti yang disampaikan oleh Samuelson, “Economics is the study of the use of scarce resources to satisfy unlimited human wants”. Jadi menurut sistim ekonomi konvensional terdapat kelangkaan dari sumber daya yang diperlukan untuk memenuhi keinginan manusia yang tidak terbatas. Sehingga timbul pilihan-pilihan atas penggunaan sumber daya yang bisa dimiliki. Akibatnya timbul kemungkinan penggunaan sumber daya dalam suatu kegiatan (produksi) dan menghasilkan konsep opportunity cost. Samuelson tidak menggunakan istilah ‘needs’ tetapi menggunakan istilah ‘wants’ untuk menandaskan ketidak terbatasan dari keinginan manusia.

Sedangkan dalam sudut pandang Islam, Allah SWT telah menyediakan sumber daya secara cukup dan seimbang bagi kebutuhan manusia.

“Dan Kami telah menghamparkan bumi dan menjadikan padanya gunung-gunung dan Kami tumbuhkan padanya segala sesuatu menurut ukuran (yang seimbang). Dan Kami telah menjadikan untukmu di bumi keperluan-keperluan hidup (ma’aayisya), dan (Kami menciptakan pula) mahluk-mahluk yang kamu sekali-kali bukan pemberi rezeki kepadanya. Dan tidak ada sesuatupun melainkan dari sisi Kami-lah sumbernya, dan Kami tidak menurunkannya kecuali sesuai dengan kadar yang (Kami) ketahui.” (Al Qur’an surat Al Hijr ayat 19 – 21)

“Tidakkah kamu perhatikan sesungguhnya Allah telah memudahkan bagimu apa yang di langit dan apa yang di bumi dan menyempurnakan untukmu nikmat-Nya lahir bathin.” (Al Qur’an surat Luqman ayat 20)

Kemudian menurut pandangan Islam, kebutuhan manusia adalah tertentu (terbatas) dimana Islam mengenal pembedaan (differenciation) antara kebutuhan (al-haajat), keinginan (al-raghbat) dan rangsangan jiwa (al-syahwat). Al haajat adalah sesuatu yang secara mendasar perlu dipenuhi untuk mencapai fitrah manusia, sehingga bila tidak dipenuhi akan mengganggu keseimbangan hidup sebagai manusia. Sedangkan al-raghbat adalah sesuatu yang diharapkan dipenuhi untuk mencapai kepuasan yang luas. Dan al-syahwat adalah hasrat untuk segera memenuhi keinginan nafsu (jiwa).

Untuk membedakan ketiga hal tersebut, Islam memberikan kaidah-kaidah dasar sebagai alat saring (screening) yang oleh Imam Ghazali didefinisikan sebagai ‘Maqashid asy-Syariah’. Alat saring atau yang disebut oleh Umer Chapra sebagai mekanisme filter dalam Islam adalah berlandaskan keimanan dan keihsanan yang memberikan motivasi untuk berbuat adil karena berharap mendapat pahala di akhirat.

Ibnu Khaldun menerangkan timbulnya keinginan (wants) sebagaimana yang disampaikan oleh Samuelson sebagai berikut: “Bila pekerjaan penduduk sebuah kota dibagi bagikan semua sesuai dengan kepentingan dan kebutuhan penduduk itu, maka hasilnya akan lebih banyak dari yang dibutuhkan. Kelebihan tersebut akan dikeluarkan untuk kemewahan dan untuk memenuhi kebutuhan penduduk kota-kota lain. Para penduduk akan saling mengambil barang-barang yang mereka butuhkan dan yang mereka kehendaki dari penduduk yang memiliki surplus melalui tukar-menukar atau jual-beli. Maka penduduk yang memiliki surplus akan mendapat bagian yang baik dari kekayaan.”


Menurut Islam, kepemilikan atas sumber daya adalah bersifat sementara dan merupakan amanat dari Allah SWT. Amanat ini diberikan dalam status manusia sebagai khalifah Allah SWT di muka bumi. Bukan hanya kepemilikan atas sumber daya yang bersifat sementara, bahkan keuntungan yang diperoleh seseorang tidaklah selalu menjadi rezeki (hak) dari orang yang diberi kepemilikan tersebut.

Dalam hal ini Ibnu Khaldun menyatakan :”Keuntungan adalah nilai yang timbul dari kerja manusia, namun keuntungan juga bisa datang tidak dengan usaha sebagaimana hujan menumbuhkan tanaman, dan lain sebagainya. Keuntungan akan merupakan penghidupan bila sesuai dengan kadar kepentingan dan kebutuhan manusia yang memperolehnya. Keuntungan akan merupakan ‘akumulasi modal’ bila ia lebih dari kadar kebutuhannya. Keuntungan (baik yang tergolong penghidupan maupun akumulasi modal) yang digunakan untuk memenuhi kebutuhan (masa kini maupun masa mendatang) disebut rezeki, sedangkan kelebihan dari keuntungan yang tidak digunakan untuk memenuhi kebutuhan (sehingga mubazir) adalah bukan rezeki.”

Menurut Islam, kegiatan produksi dalam memanfaatkan sumber daya untuk memberikan hasil produksi yang berguna untuk memenuhi haruslah berbasis pada pemanfaatan yang berkesinambungan dari sumber daya tersebut. Dalam hal ini Ibnu Khaldun berpendapat bahwa: “Pertanian adalah dasar (pelopor) bagi penghidupan karena yang paling sesuai dengan alam. Pertukangan adalah penghidupan yang kedua karena timbul dari hasil pikiran dan keahlian manusia. Perdagangan adalah termasuk cara penghidupan yang wajar karena ia berusaha menghubungkan antara hasil dan kebutuhan dengan mengambil keuntungan dari perbedaan antara harga pembelian dan penjualan. Jasa pelayanan bukanlah termasuk jalan penghidupan yang wajar dan alami, tetapi ia dibutuhkan karena ketidak mampuan sebagian dari manusia untuk memenuhi kebutuhan hidupnya.”

Jelaslah bahwa kebutuhan akan jasa pelayanan timbul karena ketidak mampuan sebagian dari manusia untuk memenuhi kebutuhan hidupnya. Baik karena secara total manusia tersebut tidak mampu memenuhi kebutuhan hidupnya (misalnya karena cacat, atau kebutuhan makanan dan tempat tinggal selama dalam perjalanan) ataupun karena manusia tersebut memusatkan perhatian (fokus) pada suatu aspek kehidupan agar dapat mencapai tingkat produksi yang optimal. Sehingga timbul defisiensi pada salah satu aspek pemenuhan kebutuhannya yang harus dipenuhi dengan memakai jasa pihak lain.

Tetapi disamping itu kebutuhan akan jasa pelayanan juga timbul karena keinginan manusia untuk mendapatkan sesuatu yang lebih dari yang dapat dikerjakannya (kemewahan), walaupun untuk itu ia harus menggantinya dengan sesuatu yang berharga. Misalnya kebutuhan untuk menikmati makanan yang enak, perjalanan yang nyaman, tempat pertemuan yang nyaman, pakaian dengan model yang bagus, dsb.

Karena manusia memang diperintahkan untuk saling memanfaatkan kelebihan yang telah dikaruniakan oleh Allah SWT kepada sebagian yang lain, maka timbul kebutuhan untuk berserikat. Perserikatan tersebut kemudian akan mengadakan transaksi dengan pihak lain sehingga perserikatan tersebut harus menggantikan peran manusia dan oleh karenanya harus menjadi ‘badan’ yang dapat bertindak mengadakan ikatan (hukum) atau yang disebut sebagai badan hukum. Badan hukum ini yang akan menerima manfaat (positif atau negatif) dari transaksi yang dilakukan untuk kemudian meneruskan hasilnya kepada pihak-pihak yang berserikat dalam badan hukum tersebut.

Pada dasarnya menurut Islam, perserikatan antar menusia dapat dikelompokkan dalam:

Perserikatan antar pihak-pihak dimana masing-masing memberikan modal dan tenaga serta sepakat untuk membagi tanggung jawab dan hasil menurut ketentuan tertentu. Perserikatan ini lazimnya berbentuk ‘Musyaraka’.
Perserikatan antar pihak-pihak dimana sebagian pihak (disebut Pemilik Harta atau shahibul maal atau rab-al-maal) menyediakan modal dan berhak mendapat pembagian atas hasil usaha namun harus menanggung resiko usaha sedangkan pihak lain (disebut Pemilik Usaha atau Mudharib) melaksanakan kegiatan usaha menurut kesepakatan dan berhak mendapat pembagian atas hasil usaha yang positif saja. Perserikatan ini lazimnya berbentuk ‘Mudharaba’
Perserikatan antar pihak-pihak dimana sebagian pihak yang memiliki modal atau harta (Pemilik Modal/Harta) menyerahkan kepada pihak lain (Pemberi Jasa) untuk bertindak atas nama Pemilik Modal/Harta tersebut melakukan suatu kegiatan usaha atau mengelola modal/harta yang diserahkan oleh Pemilik Modal/Harta tersebut. Semua hasil kegiatan usaha atau pengelolaan (positif atau negatif) adalah hak Pemilik Modal/Harta, sedangkan pihak Pemberi Jasa berhak untuk mendapatkan imbal jasa baik yang bernilai tetap, merupakan prosentase dari nilai Modal/Harta, maupun kombinasi nilai tetap dan prosentase pertambahan nilai Modal/Harta. Perserikatan ini lazimnya berbentuk ‘Wakala’.

Jelaslah bahwa dalam Islam, badan hukum atau perusahaan adalah personifikasi dari para pihak yang berserikat membentuk badan hukum atau perusahaan tersebut dan beroperasi semata-mata untuk kepentingan atau maksud dari para pihak tersebut. Sehingga bila badan hukum atau perusahaan tersebut ingin mengikuti Syariah Islam, maka badan hukum atau perusahaan tersebut juga harus mengkuti tata nilai berusaha yang sesuai dengan Syariah Islam adalah sebagai berikut:

Melakukan Usaha adalah semata-mata untuk mendapatkan hasil yang Halal dan Baik (thoyib) yang dapat diperoleh hanya melalui Perniagaan yang berlaku secara ridho sama ridho karena saling memberi manfaat. Obyek transaksi harus barang dan jasa yang halal, sehingga barang dan jasa yang haram tidak boleh menjadi obyek transaksi sedangkan barang dan jasa yang subhat sebaiknya dihindari.
Memakai uang dalam transaksi semata-mata sebagai Alat Tukar Nilai sehingga uang tidak dapat menjadi obyek perniagaan (komoditi). Akibatnya tidak boleh mencari keuntungan akibat penguasaan (pemilikan sementara) dari uang, termasuk mencari keuntungan dari perubahan nilai tukar valuta.
Berlaku adil terhadap pihak-pihak (counterparties) dalam bertransaksi dengan menghindari kondisi memungkinkan Keraguan yg Menipu. Akibatnya badan hukum atau perusahaan harus mengusahakan transparansi dari transaksi.
Berlaku adil dalam mengelola usaha dengan melaksanakan Praktek Terbaik dalam Pengelolaan (corporate governance).
Berlaku adil kepada pihak Pemilik Modal/Harta dengan menjalankan kegiatan usaha mengikuti Prinsip Kehati-hatian (prudential management), termasuk dalam menjaga rasio-rasio keuangan seperti rasio hutang terhadap modal, rasio piutang terhadap pendapatan/penjualan, rasio persediaan dll.
Menjalankan usaha harus memenuhi semua ikatan yang telah disepakati.
Bekerjasama dalam menjalankan usaha untuk mendapatkan manfaat yang optimal dan berkelanjutan bagi semua pihak, bukan semata-mata mengejar manfaat yang maksimal bagi badan usaha atau perusahaan itu sendiri.


Sistim ekonomi juga merupakan arus lingkar dari kegiatan usaha dalam masyarakat yang meliputi kegiatan dari rumah tangga (penyedia faktor produksi sumber daya manusia) dengan badan usaha (penghasil produk/jasa yang dibutuhkan oleh rumah tangga). Untuk dapat mengatur arus lingkar kegiatan usaha yang memberikan manfaat yang optimal dan berkelanjutan, masyarakat membentuk Pemerintah yang diharapkan akan bertanggung jawab atas pemenuhan kepentingan masyarakat tersebut.

Oleh karena itu, dalam sistim ekonomi Syariah, Pemerintah harus dapat memberikan dukungan pada kelangsungan arus lingkar kegiatan usaha dengan cara yang sesuai Syariah Islam. Dukungan tersebut meliputi :

Menciptakan infrastruktur pembayaran dan penyelesaian transaksi meliputi uang, pasar uang dan sistim perbankan.
Menjaga nilai dari kekayaan dan hasil produksi melalui pengendalian inflasi (kebijakan moneter)
Mendorong pengembangan produk domestik dan pelaksanaan distribusi kesejahteraan yang adil melalui kebijakan fiskal dan anggaran belanja negara.

Dalam menyediakan infrastruktur pembayaran dan penyelesaian transaksi yang sesuai dengan syariah Islam, Pemerintah harus memastikan bahwa:

Uang diterbitkan dan digunakan dengan cara yang sesuai Syariah Islam dimana Pemerintah harus menyatakan uang sebagai alat pembayaran yang sah serta menjamin nilai dari uang yang diterbitkan. Kemudian Pemerintah harus menjaga agar tersedia uang yang cukup untuk melayani kebutuhan transaksi serta menghalangi penggunaan uang untuk kegiatan spekulasi.
Pemerintah juga harus menyediakan mekanisme pasar uang yang sesuai Syariah Islam dimana pihak-pihak yang memiliki kelebihan uang dapat menyalurkan kepada pihak-pihak yang membutuhkan uang untuk kegiatan transaksi. Bila terjadi ketidak-seimbangan maka Pemerintah harus dapat mengatur jumlah uang yang beredar.
Pemerintah harus mendorong tersedianya jasa lembaga keuangan yang sesuai Syariah Islam untuk memenuhi kebutuhan masyarakat akan penyimpanan, tabungan, investasi serta pembiayaan.

Pemerintah juga harus dapat menjaga nilai dari kekayaan dan akumulasi modal serta nilai dari hasil produksi masyarakat dengan mengatur jumlah uang yang beredar untuk mendukung tata perniagaan sehingga terjadi keseimbangan antara kelebihan produksi dengan kebutuhan, baik antar pihak-pihak di dalam dan di luar negeri. Untuk itu Pemerintah harus dapat menjamin nilai dari uang dengan harta kekayaan dan sumber daya milik negara, yaitu harta kekayaan dan sumber daya milik Allah SWT yang disediakan bagi kepentingan ummat manusia yang membentuk Pemerintah/Negara.

Pemerintah juga harus dapat mendorong pengembangan produk domestik dan distribusi kesejahteraan dengan mengatur pengumpulan zakat dan cukai sehingga terjadi redistribusi yang wajar atas diperolehnya keuntungan akibat nilai tambah yang melebihi kebutuhan wajar pihak yang bersangkutan. Pemerintah juga harus menggunakan anggaran belanja negara untuk mendorong pertumbuhan produksi barang dan jasa yang diperlukan.

Dalam menjalankan perannya, Pemerintah bertanggung jawab atas tercapainya keadilan dalam masyarakat. Mengenai hal ini, Ibnu Khaldun menyatakan bahwa:

Kekuatan Penguasa (al-Mulk) tidak dapat diwujudkan tanpa implementasi Syariah
Syariah tidak dapat dilaksanakan kecuali oleh Penguasa,
Penguasa tidak dapat memperoleh kekuatan kecuali dari Rakyat (ar-Rijal)
Rakyat tidak dapat berdiri (sejahtera), kecuali dengan kekayaan (al-Maal)
Kekayaan tidak dapat diperoleh kecuali dengan Pembangunan (al-Imarah)
Pembangunan tidak dapat dicapai kecuali dengan Keadilan (al-’Adl)
Keadilan adalah ukuran (al-Mizan) perhitungan Akhirat
Berdasarkan pemikiran Ibnu Khaldun, Umer Chapra mengajukan relasi fungsional dalam sistim ekonomi syariah sebagai berikut:

G = f ( S, N, W, g dan j)

Dimana keberhasilan suatu Pemerintahan (G = government) merupakan fungsi dari penerapan Syariah (S = syariah) dalam masyarakat (N = nation) untuk mewujudkan kesejahteraan (W = wealth dan welfare) dengan menjalankan pembangunan atau pertumbuhan ekonomi (g = growth) dan menegakkan keadilan (j = justice).


Menyimak uraian mengenai sistim ekonomi dan etika usaha Islami tersebut di atas, maka harus diakui bahwa diperlukan penyesuaian dalam kurikulum pendidikan ilmu ekonomi dan ilmu manajemen untuk menghasilkan sumber daya yang mempunyai kompetensi dalam mewujudkan sistim ekonomi dan etika usaha Islami tersebut. Menurut hemat kami perbedaan mendasar adalah dalam dasar pemikiran dari sistim ekonomi dan etika usaha, bukan pada metoda pelaksanaan kegiatan ekonomi. Oleh karena itu ada beberapa pendekatan yang dapat diambil, antara lain:

Pendekatan yang melihat bahwa ada perbedaan antara sistim dan teori-teori ekonomi syariah dengan ekonomi konvensional sehingga perlu dibuat Jurusan Ekonomi Syariah dan Jurusan Manajemen Syariah yang terpisah dari Jurusan Ilmu Ekonomi (Studi Pembangunan) dan Jurusan Manajemen.
Pendekatan yang melihat bahwa sistim dan teori-teori ekonomi syariah adalah pengembangan dari sistim dan teori-teori ekonomi konvensional sehingga perlu diadakan mata kuliah pilihan pada Jurusan Ilmu Ekonomi (Studi Pembangunan) dan Jurusan Manajemen dimana untuk Jurusan Manajemen dapat dibuat Konsentrasi Manajemen Perbankan (atau Lembaga Keuangan) Syariah.
Pendekatan yang melihat bahwa teori-teori ekonomi syariah adalah salah satu pemikiran dalam sistim ekonomi sehingga perlu diadakan penyesuaian pada materi (silabus) dari mata kuliah yang telah ada di Jurusan Ilmu Ekonomi (Studi Pembangunan) dan Jurusan Manajemen.

Menurut hemat kami, pada akhirnya penyesuaian pada materi dari mata kuliah yang ada akan menempatkan sistim ekonomi dan etika usaha yang Islami pada posisi yang sejajar dengan sistim dan teori yang ada. Sehingga pembelajaran Ekonomi Syariah tidak terbatas untuk umat Islam saja. Oleh karena itu disarankan agar pada setiap silabus Mata Kuliah Dasar yang terkait ditambahkan materi mengenai sistim ekonomi dan etika usaha yang sesuai dengan Syariah Islam. Mata kuliah ini setidaknya meliputi Pengantar Ekonomi Mikro, Pengantar Ekonomi Makro, Teori Ekonomi, Pengantar Bisnis, Pengantar Manajemen, Pengantar Ekonomi Pembangunan, Pengantar Akuntansi, Hukum Ekonomi, Lembaga Keuangan, Perekonomian Indonesia, Akuntansi Biaya, Manajemen Pemasaran, Manajemen Keuangan.

Disarankan agar dibuat Mata Kuliah Konsentrasi Syariah, baik yang tergolong wajib maupun pilihan, misalnya untuk konsentrasi Ekonomi Moneter dan Ekonomi Pasar Uang & Modal di jurusan Studi Pembangunan, untuk konsentrasi Manajemen Keuangan dan Manajemen Lembaga Keuangan di jurusan Manajemen, dan Akuntasi Perusahaan di jurusan Akuntansi.

Wallahu a’lam


August 22, 2010 Leave a comment

Strategi adalah faktor penting dalam pengorganisasian .yang merupakan sebuah proses dimana manajemen memutuskan tujuan dan cara mencapainya. Ekonomi Islam akan berkembang dengan pesat apabila ada sebuah grand design atau blue print sebagai acuan bagi semua stake holder. Hal tersebut akan berjalan secara sistematis dan komprehensif apabila ada sinergitas diantara semua pihak sehingga tujuan dari ekonmi Islam yang sebenarnya akan tercapai.
key word: Strategi, blue print, sinergitas.
Ekonomi merupakan bagian yang tidak bisa terpisahkan dari kehidupan manusia, karena ini menyangkut perilaku manusia dalam mengaktualisasikan diri untuk mencapai tujuan hidupnya. Islam merupakan fitrah manusia, karena itu ia bersifat holistik (syumul). Dalam Islam, ekonomi dibahas pada bagian tersendiri, fiqh mu’amalah. Jadi jelaslah sudah bahwa islam memilki ‘aturan main’ tersendiri untuk masalah ekonomi.
Kalau kita perhatikan prestasi ekonomi Indonesia sungguh tidaklah menggembirakan. Kemiskinan dibarengi pengangguran yang tertimpa pada Indonesia seolah-olah menjadi sebuah karakteristik yang melekat pada negara-negara berpenduduk muslim. Berikut tabel Pertumbuhan ekonomi dan
Pengangguran Terbuka.

Hal yang pararelpun terjadi pada tingkat internasional, dimana Indonesia mendapatkan peringkat yang jauh dan rendah dibanding negara tetangga. Termasuk studi yang dilakukan oleh IMD Swiss yang menempatkan Indonesia pada nomor 45 dari 47 bangsa di dunia sebelum krisis terjadi. Dan setelah krisis menempatkan kualitas SDM nomor 107 dibawah Vietnam.
Posisi Indonesia di Tingkat Internasional
Kualitas SDM No. 46
Kemampuan IPTEK No. 42
Kemampuan Manajemen No. 44
Keadaan Sarana dan Prasarana No. 46
Lobby & Hubungan Internasional No. 43
Kekuatan Ekonomi Domestik No. 45
Kualitas Pemerintahan No. 36
Akses terhadap Permodalan No. 43

Kemiskinan dan pengangguran serta masalah turunan tersebut perlu sebuah solusi yang tidak hanya bersifat analgetic melalui problem sympton yang
dihadapi, tetapi perlu sebuah alternatif, solusi tepat mengeliminir masalah tersebut.
Kesalahan umat dan bangsa ini tidak mau berpikir, walaupun berpikir, tidak bertindak. Sedikit orang-orang yang berpikir sesuatu tetapi tidak atau lebih sedikit orang yang melakukannya. “you see, in life, lots of people know what to do, but few people actually do what they know”.
Apabila kita lihat dalam piramida penguasaan ekonomi di Indonesia, jumlah umat Muslim terbesar, yakni mencapai 87,9 persen. Namun, umat non-Muslim, khususnya Kristen, yang jumlahnya tak lebih dari 12 persen menguasai mayoritas perekonomian nasional. Sekitar 58 persen ekonomi Indonesia dipegang oleh sekitar 300 group konglomerat besar, yang mayoritas merupakan non-Muslim. Sebanyak 24 persen dikuasai oleh 201 BUMN, sisanya dipegang oleh koperasi dan UKM.
¨ Sebagaian besar bangsa ini menilai bahwa Islam sebatas sebuah addien, sebuah kepercayaan dan keyakinan yang hanya dijalankan melalui ritual-ritual an sich. Padahal pada addien inilah yang dapat menuntun kehidupan manusia kepada kebahagian dunia dan akhirat. Islam dipandang sebagai ritual bukan sebagai solusi. Dan inilah yang terjadi, ketika di depan mata kemiskinan, kriminalitas dan hidup yang sempit malah banyak meninggalkan ajaran addien.
Ekonomi Islam salah satu jawaban dari permasalahaan ekonomi Indonesia ketika pasca krisis moneter terjadi bank syariah malah menjadi jamur yang tidak terbendung. Belum lagi sektor lainnya seperti keuangan publik ( Zakat, Infak Shadaqah ), sektor riil Syariah ( Hotel Syariah, Baju Islami dll ) mulai merayap menghiasi peradaban bangsa ini. Namun sayang konsep ekonomi Islam yang sebenarnya banyak yang tidak tahu, sehingga kadang menjadi salah kaprah bahkan menjadi bumerang bagi umat islam itu sendiri. Oleh sebab itu diperlukan staretegi jitu yang sistematis dan menyeluruh dalam sosialisasi dan pembumian ekonomi islam di negeri tercinta ini.
“ Manajemen strategi adalah suatu seni dan ilmu dari pembuatan (formulating), penerapan (implementing), dan evaluasi (evaluating) keputusan-keputusan strategis antar fungsi yang memungkinkan sebuah organisasi mencapai tujuan-tujuan masa datang “
Dari definisi di atas terdapat dua hal penting yang dapat disimpulkan, yaitu bahwa:
1. manajemen strategik terdiri dari tiga proses:
a. pembuatan strategi (formulating)
b. penerapan strategi (implementing)
c. evaluasi/control strategi (controling)
2. manajemen strategik, memfokuskan pada penyatuan atau penggabungan aspek-aspek sosialisasi, riset dan pengembangan, keuangan dan opersional dari sebuah bisnis/organisasi.
Definisi pembumian sendiri, dapat diartikan sebagai suatu tindakan dan proses penanaman, pengakaran dan pengkafahan yang dapat ditempuh dengan sosialisasi sehingga ekonomi Islam tertanam pada jiwa “masyarakat” dan dapat direalisasikan dalam kehidupan perekonomian sehari-hari.

Ekonomi Islam
Secara sederahana Sistem ekonomi Islam merupakan penerapan aktivitas ekonomi yang berdasarkan syariah untuk mewujudkan suatu kemakmuran yang berkeadilan. .Oleh karena itu sistem ekonomi Islam dalam penerapannya harus berdasarkan nash-nash Al-Quran (bagian-bagian yang tetap), dan ijtihad hasil karya para mujtahid (bagian-bagian yang berubah-ubah) dan ulil amri.
Persepsi sebagian orang tentang ekonomi Islam yang terlalu ideal mengakibatkan terhambatnya perkembangan ekonomi syariah itu sendiri. Teori Ibnu Kholdun atau yang dinamakan siklus chapra dapat menjawab pertanyaan mengenai ekonomi Islam yang sebenarnya.Siklus tersebut dapat digambarkan seperti di bawah ini:

Menurut M. Syakir Sula, perkembangan misi Ekonomi Islam menghadapi tantangan-tantangan sebagai berikut :
– Tantangan Internal :
– Bagaimana meningkatkan silaturahmi dan kerjasama konkrit antar praktisi, LKS dan akademisi.
– Begitu besar potensi masing-masing yang belum disinergikan
– Diperlukan ketulusan hati, kebersihan qalbu dan kelurusan niat
– Empat kebiasaan buruk yang merusak hubungan : su’udzan, ghibah, tajassus (memata-matai), namimah (mengadu-domba).
Khusus tentang Perbankan Syari’ah, Karnaen Perwataatmaja merumuskan tantangan internal atau kelemahan kita adalah :
• Masih terdapat berbagai kontroversi terhadap keberadaan dan sistem operasional bank syariah.
• Rendahnya pemahaman masyarakat
• Masih terbatasnya jaringan pelayanan
• Moral hazard
• Tantangan Eksternal
• Pihak-pihak yang tidak senang dengan berkembangnya ekonomi syari’ah bersatu untuk menghambat perkembangannya : menghambat UU, PP, sosialisasi dan implementasi di masyarakat
• Ekonomi Islam dikait-kaitkan dengan fanatisme agama
• Kompetisi teknologi, pelayanan dan perkembangan produk dari sistem keuangan konvensional (sekuler).
Menurut sumber lain, ada beberapa tantangan yang perlu mendapatkan perhatian umat Islam. Pertama, dampak globalisasi, misalnya pesaing dari LKS asing. Kedua, persaingan di bidang layanan (servis), termasuk di bidang teknologi informasi (TI). Ketiga, dukungan setengah hati dari pemerintah. Keempat, masih terbatasnya SDM yang andal. Kelima, pemahaman masyarakat tentang LKS dan bunga bank haram. Masih ada masyarakat yang masih kurang peduli terhadap hal tersebut.
Tantangan terbesar umat Islam adalah bagaimana mewujudkan umat Islam itu kuat, progressif, dinamis, dan maju. Untuk itu, perlu tiga hal, yakni iman yang kuat, ilmu dan teknologi yang mantap, serta ekonomi yang kokoh,
‘Semakin lemah umat Islam dari segi ekonomi, maka semakin lemah pula dakwah, pendidikan maupun hal-hal lainnya yang seharusnya merupakan pilar penyokong kekuatan dan wibawa umat,. Agama lain melakukan pemurtadan dengan menyerang dari empat sisi kelemahan umat Islam, yakni lemah ekonomi, lemah pendidikan, lemah di bidang kesehatan, dan lemah di bidang tauhid

Umat Islam harus menjadikan berbagai tantangan di bidang ekonomi menjadi peluang. ”Dengan jumlah penduduk Muslim mencapai sekitar 88 persen, idealnya pangsa pasar bank syariah di Indonesia mencapai sekitar 80 persen, dan bank konvensional 20 persen. Minimal, 50 banding 50.
Salah seorang praktisi ekonomi syariah, menyebutkan ekonomi syariah di Indonesia memiliki prospek sangat bagus untuk dikembangkan. Namun, upaya untuk mengembangkan ekonomi syariah masih menemui berbagai kendala dan tantangan. Meskipun demikian, umat Muslim tidak boleh gampang menyerah. ”Justru kita harus menjadikan tantangan dan kendala sebagai peluang. Masa-masa menjadikan isu ekonomi syariah sebagai wacana sudah lewat. Yang harus dilakukan sekarang adalah gerak nyata. Juga ditanamkan kemauan keras untuk mewujudkan ekonomi syariah dalam kehidupan sehari-hari,
Bicara mengenai prospek ekonomi syariah di Indonesia, ada lima faktor yang mendukung. Pertama, fatwa bunga bank riba dan haram. Kedua, tren kesadaran masyarakat Muslim, Ketiga, sistem ekonomi syariah berhasil menunjukkan keunggulannya, khususnya saat terjadi krisis ekonomi. Ketika bank-bank konvensional tumbang dan butuh suntikan dana pemerintah hingga ratusan triliun, Bank Muamalat, sebagai bank syariah pertama di Indonesia, mampu melewati krisis dengan selamat tanpa bantuan dana pemerintah sepeserpun. Keempat, UU Perbankan Syariah yang kini terus digodok, dan akan menjadi payung hukum bagi perbankan syariah di Indonesia. Kelima, tuntutan integrasi Lembaga Keuangan Syariah (LKS). Bank syariah harus menggunakan asuransi syariah untuk menutup pembiayaan terhadap nasabahnya. Sebaliknya, asuransi syariah harus menyimpan dananya di bank syariah, pasar modal syariah, maupun reksadana syariah.
Prospek ekonomi syaiah makin menjanjikan, seiring dengan eksistensi Dewan Syariah Nasional (DSN) yang makin bergigi. Lembaga pendidikan ekonomi syariah juga makin banyak.
Tantangan sekaligus dapat menjadi peluang bagi yang mampu memanfaatkan dan menggerakkannya. Umat Islam memerlukan orang-orang Muslim yang menguasai Fiqih Muamalat dan ilmu-ilmu umum sekaligus. Menurut data Bank Indonesia, diperkirakan bahwa dalam jangka waktu sepuluh tahun kedepan, dibutuhkan tidak kurang dari 10 ribu SDM yang memiliki basis skill ekonomi syariah yang memadai. Ini merupakan peluang yang sangat prospektif, sekaligus merupakan tantangan bagi kalangan akademisi dan dunia pendidikan kita. Tingginya kebutuhan SDM ini menunjukkan bahwa sistem ekonomi syariah semakin dapat diterima oleh masyarakat. Walaupun harus diakui bahwa ketika berbagai pemikiran dan konsep ekonomi syariah ini pertama kali diperkenalkan, kemudian diimplementasikan dalam berbagai institusi ekonomi, sebagian dari kaum muslimin banyak yang ragu dan tidak percaya.
Munculnya sikap semacam ini sebagai refleksi dari pemahaman bahwa ajaran agama Islam hanya mengatur pola hubungan yang bersifat individual antara manusia dengan Tuhannya saja, dan tidak mengatur aspek-aspek lain yang berkaitan dengan mu`amalah yang berhubungan dengan interaksi dan pola kehidupan antar sesama manusia. Padahal ajaran Islam adalah ajaran yang bersifat komprehensif dan universal, dimana tidak ada satu bidang pun yang luput dari perhatian Islam, termasuk bidang ekonomi tentunya.

Meskipun perkembangan ekonomi islam khususnya BPRS, BMT dan lembaga-lembaga keuangan Islam lainnya cukup mengesankan dari segi kuantitas, namun ekonomi ummat “ belum ada” tanda-tanda terangkat dari bawah oleh perangkat-perangkat kasar ini. Masih diperlukan perjalanan panjang untuk meningkatkan kualitas perekonomian umat. Penyebab keterbelakangan umat terutama di bidang ekonomi ini sebenarnya memiliki banyak faktor. Dengan kata lain fenomena keterbelakngan ini memiliki faktor multidimensional. Karena itu untuk mengatasinya diperlukan pendekatan multidimensional juga. Namun dengan perkembangan lembaga keuangan syariah yang ada seharusnya dapat dimanfatkan secara optimal untuk mengurangi keterbelakangan itu.
Sinergitas dari semua kalangan masyarakat baik itu regulasi, akademisi maupun praktisi harus terwujud agar tidak ada ketimpangan di dalam membumikan ekonomi Islam di Indonesia. Peran aktif dari masyarakat umum merupakan faktor penting dalam pembumian ekonomi Islam.
Peran Akademisi dalam Perkembangan Ekonomi Syariah
1. Mengupayakan adanya ‘paradigm shift’, menjadikan nilai-nilai universal yang berlandaskan Al Quran dan Sunnah sebagai ‘world view’ melalui pendekatan riset, pengembangan konsep-konsep.
2. Mengembangkan filsafat ilmu berdasarkan Al Qur’an dan Sunnah.
3. .Mengembangkan Metodologi Ilmiah berdasarkan Al Qur’an dan Sunnah.
4. Bagaimana ‘menangkap’ pengalaman-pengalaman praktisi di lapangan ke dalam kajian teoritis/akademis.
5. Di sisi lain, bagaimana ‘mendaratkan’ teori-teori yang ada di ‘awan’ ke tingkat implementasi di lapangan.
6. Teoretisasi dan positivisasi fatwa-fatwa baik lokal/regional maupun global sekaligus secara berkala melakukan purifikasi
7. Advokasi kebijakan : merumuskan kebijakan-kebijakan ekonomi dan pembangunan yang mengandung nilai-nilai universal berdasarkan Al Qur’an dan Sunnah.
8. Mengembangkan strategi pengajaran Ekonomi Islam di semua tingkat pendidikan (SD, MI, SMP, MTs, SMA, MA, PT, pesantren)
9. Menyiapkan dan mempertinggi kualitas SDI untuk terjun di kancah ekonomi secara Islami
10. Go Global :
i. Sertifikasi keahlian/profesi : Islamic Financial Analyst, Insurance Specialist, Insurance Agent, Community Development Specialist, Zakat/Waqf Specialist, Islamic Financial Planner.
ii. Menyusun buku-buku teks/modul-modul
iii. Menulis artikel-artikel ilmiah
Peran Regulator
Ekonomi islam dalam pembumiannya tidak dapat berjalan tanpa adanya regulasi-regulasi sebagai payung hukum praktik ekonomi syariah di Indonesia. Jelas sekali peran regulator yang bersinergi dengan masyarakat, akademisi, maupun praktisi, contoh lahirnya fatwa MUI 16 Desember 2003 yang mengharamkan bunga bank konvensional, dampaknya cukup besar terbukti antara lain sejumlah bank syariah mengalami kelebihan likuiditas. Dana masuk sangat cepat, sementara poses pembiayaan tak secepat penerimaan dana.
Peran negara dalam ekonomi selalu penting dalam pemikiran politik muslim sejak dulu hingga sekarang, yamg telah di bahas dalam sejumlah subjek, termasuk dia ntaranya adalah: al-ahkam as-sulthaniyyah’ regulasi pemerintah’, maqasid asy-syari’ah,as-siyasah as-syariah ‘ kebijakan syariah’ dan al-hisbah.
Namun, peran negara dalam ekonomi islam todak seperti “intervensi” pemerintah yang tetap komitmen kepada kapitalisme laissez paire. Ia juga tidak seperti kolektivitasi dan regimen tasi yang mencekik kebebasan dan iniiatif in dividu serta keinginan berusaha. Ia juga tidak seperti negra kesejahteraan yang sekularis yang karena penghindarannya dari penilaiaan, makin memperkuat klaim-klaim pada sumber daya dan menimbulkan ketidakseimbangan ekonomi. Ia adalah sebuah peran positif suatu kewajiban moral untuk membantu mewujudkan kesejahteraan semua orang dengan menjamin keseimbangan antara kepentingan privat dan sosial, memelihara roda perekonomian pada rel yang benar, dan men cegah pengalihan arahnya leh kelompok berkuasa yang berkepentingan. Makin besar motivasi orang utuk menerapkan nilai-nilai Islam, makin efektif lembaga-lembaga sosio ekonomi dalam menciptakan keseimbangan yag adil antara sumber-sumber daya dan klaim-klaim, juga dalam meralisasikan maqasid syariah , makin kecil peran negara dalam perekonomian. Namun apapun peran pemerintah, ia tidak boleh dimainkan secara acak, ia harus dimainkan dalam batas-batas syariah dan melalui saluran demokratis serta “konsultasi” (syura).

Peran Praktisi
para praktisi memegang peranan penting dalam pembumian ekonomi Islam karena di sektor inilah aplikasi riil ekonomi islam benar-benar terjadi. Baik buruknya ekonomi Islam barometer atau tolok ukurnya adalah praktisi sehingga kesalahan sekecil apapun “praktek” ekonomi syariah akan menjadi image ekonomi syariah itu sendiri secara menyeluruh. Oleh karena itu, para praktisi diharapkan sangat berhati-hati juga tetap melakukan introspeksi dan komunikasi dengan pihak lain dalam mengaplikasikan “produk-produk” ekonomi syariah.
Apalagi kondisi sebagian besar masyarakat Indonesia yang terlalu ideal pandangannya terhadap ekonomi syariah, misalnya praktek sebuah BMT yang diklaim tidak Islami menjadi kesimpulan umum atau generalisasi bahwa ekonomi syariah itu tidak baik.
Peran Masyarakat
Masyarakat diharapkan bisa ikut andil dalam proses pembentukan sistem ekonomi Islam . seperti melakukan transaksi di Institusi-Institusi Ekonomi Syariah dengan melakukan proses controlling terhadap praktek dan intitusi syariah sehingga terciptanya dinamika sistem ekonomi Islam yang kondusif.
Sinergitas merupakan salah satu kata kunci dari pembumian ekonmi Islam disamping kita menyiapkan konsep,sosialisasi , regulasi dan advokasi bagi masyarakat Kemajuan ekonomi Islam akan lebih efektif dan efisien ketika semua bekerja sama dengan koordinasi yang sistematis sehingga menjadi kekuatan yang luar biasa. Tahapan-tahapan perkembangan ekonomi Islam akan sistematis ketika ada master plan atau grand design dalam pencapaian target dan tujuan dari ekonomi Islam itu sendiri . Maka diperlukan sebuah Blue Print yang dijadikan
semacam panduan atau guidance bagi pertumbuhan dan perkembangan perekonomian syariah di Indonesia.
Agustinus Sri wahyudi, manajemen strategi, Binarupa Aksara, 1996 Jakarta
Aris Mufti ekonomi Islam sebagai solusi permasalahan ekonomi di Indonesia, makalah yang disampaikan pada MUNAS III FoSSEI 2003 Kalimantan Selatan
Aries Mufti, Repleksi dan Proyeksi Ekonomi Islam, Munas IV FoSSEI 2004: UNPAD Bandung
Bey Utama Sapta, Peran Akademisi dalam Pengembangan Ekonomi Syariah, makalah yang disampaikan pada Seminar Nasional dan Rakernas FOSSEI Pesantren TAZKIA, 2004 Bogor
Ekonomi Syariah Butuh Gerak Nyata, , Senin, 02 Mei 2005
Umer Chapra. islam dan tantangan ekonom, Gema Insani Press, 2000 Jakarta


August 22, 2010 Leave a comment




Islamic Economic Studies
December 1996
Vol. 4 No. 1

Managed money is a new phenomenon which has gained prominence after the collapse of the Bretton Woods system in August 1971. There is no possibility of finding a precedence for it in the days of the Prophet (pbuh) or in early Islamic history. A number of questions. are, therefore, continually raised about the monetary system that a Muslim country may adopt. Is it necessary to go back to the then prevailing system or is it justifiable to continue the managed money standard that now prevails almost in every country around the world, including the Muslim countries? If so, what constraints may have to be placed upon this system to enable it to help realize the maqasid al-shari’ah (goals of Islamic teachings, referred hereafter as the maqasid), and what policy instruments may be used to realize these goals? This paper tries to answer these and some other related questions.
The monetary system that prevails in the world now has-come-into-existence-after passing.through several-stages-of evolution. The monetary system that prevailed during the Prophet’s (pbuh) days was essentially a bimetallic standard with gold and silver coins (dinars and dirhams) circulating simultaneously. The ratio that prevailed between the two coins at that time was 1:10. This ratio seems to have remained generally stable throughout the period of the first four caliphs. Such stability did not, however, persist continually. The two metals faced different supply and demand conditions which tended to destabilize their relative prices. For example, in the second half of the Umayyad period (41/662-132/750) the ratio reached 1:12, while in the Abbasid period (132/750-656/1258), it reached 1:15 or less. In addition to this continued long-term decline in the ratio, the rate of exchange between the dinar and the dirham fluctuated widely at different times and in different parts of the then Muslim world. The ratio at times declined to as low as 1:35, and even 1:50. According to both al-Maqrizi (d. 845/1442) and his contemporary al-Asadi (d. after 854/1450), this instability enabled bad coins to drive good coins out of circulation, a phenomenon which became referred to in the 16th century as Gresham’s Law.
When the United States adopted bimetallism in 1792, the gold-silver price ratio was 1:15. However, the fluctuating prices of both metals led the US to demonetize silver in 1873. Experience of several other countries suggests that bimetallism was a fragile standard. There was no dependable way to tie together full-bodied gold and silver coins at fixed rates. This was the main cause of its universal demise
Monometallism hence took its place. In the beginning, silver and gold both competed, but silver continued to lose ground and the gold standard became prevalent around the world. It emerged as a true international standard by 1880 following the switch by a majority of countries from bimetallism and silver monometallism to gold as the basis of their currencies. Under this standard, the value of a country’s currency is legally defined as a fixed weight of gold, and the monetary authority is under an obligation to convert the domestic currency on demand into gold at the legally prescribed rate. Historically there have been three variants of the gold standard: the gold coin standard, when gold coins were in active circulation; the gold bullion standard, when gold coins were not in circulation but the monetary authority undertook to sell gold bullion against the local currency at the official rate; and the gold exchange standard (or the Bretton Woods system), when the monetary authority was required to exchange domestic currency for US dollars which could be converted into gold at a fixed parity.
The UK was on a gold coin standard until 1914 and then a gold bullion standard from 1925 to 1932. The rules of the gold standard required deficit countries to deflate and the surplus countries to reflate their economies. This seemed unrealistic during the Great Depression when the deficit countries had no alternative but to reflate their economies to reduce unemployment. The United States and France, the two major surplus countries, also did not find it practical to follow the rules of the game. Instead of reflating their economies, they persistently sterilized their balance of payments surpluses, thus accentuating the deflationary pressure on the deficit countries. Such policies undermined the effective operation of the gold standard and it was abandoned after the Great Depression.
The financial needs of the Second World War and of post-War reconstruction made the return to the gold standard even more difficult and the Bretton Woods system became universally adopted after the Second World War. The US Dollar became the corner-stone of this system because at the end of the Second World War the US held around two-thirds of the world’s monetary gold. By the late 1950s, the growth of the world’s monetary gold stock was insufficient to finance the growth of world output and trade. The dollars supplied by the US deficit helped provide the needed liquidity. This could not, however, be a permanent solution. The persistent US deficits led to continuous decline in its gold holdings and undermined its ability to maintain the dollar’s convertibility into gold. Ultimately the US was forced to demonetize gold in August 1971. This led. to the end of the Bretton Wood’s system and ushered in a new era of fully-fledged managed money standard having absolutely no link with gold. Exchange rates are now generally floating with no official par values. This system, which at first became adopted by the force of circumstances, acquired an official character after the ratification of the Second Amendment to the IMF Articles of Agreement in April 1978.

Thus the international gold standard lasted for almost a century, while the Bretton Woods system was able to endure for only about 25 years (in reality even less). This is because the classical gold standard had some intrinsic strengths. It ensured an intrinsic value for the currency. Even the paper money in circulation was representative money and could be converted into gold coins or bullion on demand. This subjected the monetary authorities to a discipline. It was not possible for them to resort to excessive monetary expansion. In contrast with this, the now-universally-prevalent managed money system does not subject the monetary authorities to a built-in discipline, thus making it possible for the governments to incur large budgetary deficits.
Since the inception of the managed money standard the world has witnessed two undesirable phenomena, which may not necessarily be due to it. These are high rates of inflation and excessive instability in exchange rates.
During the period 1971-1990, consumer prices of industrial countries rose by more than three-and-a-half times while those of the world as a whole rose by more than fourteen times. This is so in spite of a substantial decline in the rates of inflation since the early 1980s. One of the major causes, though not the only cause, of these high rates of inflation is the rapid expansion in money supply during the 1971-90 period – more than five times in industrial countries and nearly twelve times in the world at large . In sharp contrast with this, the rates of inflation were much smaller in earlier periods. Over a period of more than two centuries, from the beginning of the eighteenth century until the eve of World War II, the overall price increase in the UK was only about 33 percent. During the 1940s, prices nearly doubled as a result of the War. Between 1951-1970, consumer prices of industrial countries rose by about two-thirds while those of the world as a whole more than doubled.
Fortunately the rate of inflation has declined significantly around the world in the 1990s, reaching a historical low of 2.3 percent in 1994 in the industrial countries. Even though there is a fear that the phenomenon of high rates of inflation may tend to gain momentum once again, there is also an air of confidence that it may be possible to control it in spite of -the managed money standard.
The world has also been plagued by a high degree of exchange rate volatility after the adoption of floating exchange rates in March 1973. The European attempts to stabilize exchange rates through the Exchange Rate Mechanism (ERM) have not proved to be successful as the ERM crises of 1992 and 1993 as well as the steep Dollar decline in June-July 1994 have demonstrated. Persistent exchange rate volatility injects an additional dimension of risk and uncertainty into the markets and deprives policy makers of an effective anchor. It makes it difficult for businessmen and investors to make reliable projections for the future and thereby contributes to misallocation of resources both domestically and internationally. It is, however, generally acknowledged that it may be possible to stabilize exchange rates even in a system of floating exchange rates if a certain discipline is observed by all countries, and particularly the reserve currency countries, in the pursuit of both fiscal and monetary policies. One of the primary factors behind the lack of such discipline will be addressed later on in this paper.
In view of the high rates of inflation and the excessive exchange rate volatility, some Muslim scholars have felt nostalgic about a monetary standard based on precious metals. However, since both bimetallism and the gold standard have not been free from serious problems, it seems that Muslim countries may not possibly have any alternative to the managed money system that now prevails internationally. The question is whether this system is acceptable from the point of view of the shari‘ah and, if so, is it possible to make the system perform better in an Islamic environment.
There is no specific text in the Qur’an or the sunnah that would make it incumbent upon the Muslim ummah to use continually the bimetallic standard prevailing during the Prophet’s (pbuh) time and early Islamic history or even the full-bodied monometallic standard that came to prevail later on. This is clearly demonstrated by the fact that Umar, the Second Caliph (d. 23/644), once thought of introducing camel-skin coins. These would have been in the nature of fiduciary money, the then equivalent of the now-prevailing paper money. However, the problem that may have perplexed him most might probably have been the control of its issue. When he was advised by experts that the virtual impossibility of controlling the issue might not only lead to an excessive creation of money but also to the disappearance of camels through their excessive slaughter, he abandoned the idea.
This did not, however, bring to an end the idea of the issue of fiduciary currency. It persisted, as is reflected in the writings of a number of prominent jurists throughout Muslim history. For example, Ahmad ibn Hanbal (d. 241/855) observed that there was no harm in adopting as currency anything that is generally accepted by the people. Ibn Hazm (d. 456/1064) also did not find any reason for the Muslims to confine their currency to gold or silver. Ibn Taymiyyah (d. 505/1328) felt that the dirhams and the dinars were not desired for their own sake but rather because of their ability to serve as media of exchange. Hence, there were no natural or juristic specifications for them. Their acceptance depends on custom and usage. In modern times also, the jurists have almost unanimously recognized fiduciary money. This recognition acquired. the character of near ijma‘ (consensus) when it became formalized by the juristic verdicts of the internationally constituted filth committees of the Rabitah al-‘Alam al-Islami in 1982 and the Organization of the Islamic Conference in October 1986.

This does not, of course, mean that anyone can issue currency in any amount. The jurists have almost unanimously emphasized that the currency must be issued by the ruling authority and must have a stable value, to enable it to perform efficiently its functions as a measure of value, a medium of exchange, and a store of purchasing power. This emphasis of the jurists on stability in the internal and external value of money is rightly deserved because of the unequivocal stress of the Qur’an on honesty and fairness in all measures of value (6:152, 7: 85, 11:84-85,17:35 and 26:181). This obligation to be honest and fair does not apply only to individuals but also to the society and the state. Moreover, it. need not be confined to merely conventional weights and measures, but should rather encompass all measures of value. Money is also an important measure of value and any continuous and significant erosion in its real value is bound to have an adverse effect on the realization of socio-economic justice and general well-being. Stability in the value of money should hence receive priority in the field of monetary management. However, price stability is only one of the socially-desired goals. It is now commonly realized that it also helps in the realization of other goals, some of the most important of which in the field of economics are general need-fulfillment, equitable distribution of income and wealth, optimum real rate of economic growth, full employment, and economic stability.
Even though the importance of all these goals is recognized, no country around the world, irrespective of whether it is rich or poor, Muslim or non-Muslim, seems to have been able to realize them simultaneously in the present-day world. There may be a number of reasons for this failure. One of the most important of these may perhaps be the lack of an enabling strategy. The discussion of a comprehensive strategy for realizing the desired socio-economic goals would be beyond the scope of this paper. It would be naive to assume that a single state policy could help realize all these goals. It may rather be necessary for all government policies to converge in the direction of their realization. Monetary management cannot be an exception. It

must also make a positive contribution toward the realization of all these goals, even though priority may be given to the goal of price stability.
Since monetary management is influenced by both monetary and fiscal policies, it would be ideal to discuss both of them. This would, however, make the paper too long. I shall, therefore, confine myself primarily to a discussion of why the effort to manage money through the manipulation of the rate of interest frustrates the realization of socially-desired goals and why a different mechanism for monetary management in an Islamic economy would be more conducive to their realization. Fiscal policy would be referred to only to the extent to which it affects successful monetary management.
The discussion of monetary management generally revolves around the determinants of money demand and money supply. Since both of these are extremely important, it may not be desirable to assume anyone of these as exogenous. It is rather necessary to discuss both and to show how they could be brought into equilibrium in a way that would be conducive to the realization of the desired goals.
Discussion of the demand for money has become quite complex and sophisticated. It takes into account a number of variables, including the rate of interest, total transactions, total output, nominal income, permanent income, wealth, wages, inflationary expectations, institutional changes, and financial innovations. While all of these are important, it is not our intention to take into account all of these. Our objective is limited, to see the impact of interest-based financial intermediation on the demand for money and the realization of socially-desired goals. We will, therefore, use the simple Keynesian model as our base and consider all other variables as exogenous.
Within the framework of the Keynesian model, money is demanded for three purposes. It is needed, firstly, as a medium of exchange to finance the transactions of households, firms and government for their day-to-day purchases of all goods and services (Y) related to consumption, investment, imports and exports; the capacity of any economy to supply these is relatively limited in the short-run. Secondly, it is needed by way of precaution to satisfy unforeseen needs, which is not possible for anyone to predict precisely. Thirdly, it is also needed for exploiting opportunities available for earning through speculation in the commodity, stock, foreign exchange and financial markets. However, not every household, firm or government agency has enough money for all these purposes. Some have a deficit while others have a surplus. The interaction of the deficit and the surplus sectors with the money supply determines the rate of interest. This, in turn, influences the demand for money for all three purposes.
Thus the demand for real money balances (Md/P) is said to be determined by total real output (Y) as well as the rate of interest (r), as reflected in the following generally used Keynesian approach:
Md/P = f(Y, r)
Ma/P varies directly with Y and inversely with the rate of interest. Aggregate output and the rate of interest thus occupy a central place in the discussion of real money demand in Keynesian economics. However, hardly any attention is given in this entire discussion to the different impact of the rate of interest on the various constituents of money demand (see the chart), particularly need-fulfillment and productive investment, even though the realization of socially-desired goals is significantly dependent on these.
Given a specific money supply, the greater the demand for precautionary and speculative purposes, the less money would be available for transactions purposes. Moreover, the entire transactions demand may not necessarily be for need-related consumption and productive investment, it may also be for conspicuous consumption and unproductive investment. Hence it may be stated that the greater the ability of an economy to reduce the money demand for precautionary and speculative purposes as well as for conspicuous consumption and unproductive investment, the greater may be its ability to satisfy the money demand for need fulfillment and productive investment in a non-inflationary way and to realize its socially-desired goals. If the money demand rises for all purposes, there may be macroeconomic imbalances, higher real rates of interest, and inflationary pressures. In such an economy, savings and investment may both tend to be low. This would lead to low growth rates and higher unemployment, there being clear limits to the extent to which external saving may be a substitute for domestic saving. Money demand that is conducive to the realization of all socially-desired goals may be considered to be ‘efficient’ and ‘equitable’, and money demand that does not contribute to, or frustrates, goal realization may be considered to be ‘inessential’, and ‘unproductive’. The greater the tendency of an economy to promote inessential and unproductive demand for money, the lower may be its ability to realize its goals in a non-inflationary manner. The best strategy for monetary management may thus be one that does not only help make money demand efficient and equitable but also brings it into equilibrium with a non-inflationary level of money supply. Since money supply tends to be demand driven in a managed money system, the greater challenge lies in managing money demand in an efficient and equitable manner.




Y = C + 1 + X – M
C = Consumption of both the public and the private sectors
I = Investment by both the public and the private sectors
X = Exports
M = Imports
The different impact of interest on the constituents of C, I, X and M are generally not discussed specifically in mainstream economics.

3.1 Frustration of Goal Realization
If there had been confidence that the demand for money in the world economy was being managed efficiently and equitably, there would perhaps be no need to discuss the mechanics of monetary management through a mechanism which is different from what now prevails around the world. However, Enzler, Conrad and Johnson have found compelling evidence to conclude that in the United States “the existing capital stock is misallocated – probably seriously – among sectors of the economy and types of capital”. The situation may perhaps not be different in other countries.
There may be a number of reasons for this misallocation. This paper is concerned with only one of these, which is the rate of interest. The fact that most major religions, including Hinduism, Judaism, Christianity and Islam have prohibited interest, leads one to the hypothesis that the use of interest as a mechanism for allocation of money supply among the various constituents of money demand may perhaps be one of the major reasons for this misallocation. It is the contention of this paper that the nature of this misallocation is such that it frustrates the realization of the humanitarian goals of need fulfillment, optimum rate of economic growth, full employment, equitable distribution, and economic stability. Let us see how.
3.1.1 Need fulfillment
The criteria for satisfying the money demand of deficit sectors through the extension of credit in an interest-based economy are the ability of borrowers to provide acceptable collateral to guarantee the repayment of principal, and sufficient cash flow to service the debt. End-use of financial resources does receive attention, but does not normally constitute the main criterion. Hence, financial resources tend to go mainly to the rich, who fulfill both these criteria, and also to governments who, it is assumed, will not default. However, the rich borrow not only for productive investment but also for conspicuous consumption and speculation, while the governments borrow not only for development and public well-being, but also for excessive defense buildup and unprofitable public sector enterprises. This contributes to a rapid expansion in the demand for money for unproductive and wasteful spending and, besides accentuating macroeconomic and external imbalances, squeezes the resources available for need fulfillment and development. Raising of the rates of interest may not necessarily affect only unproductive and wasteful spending. It may also affect need consumption, which would tend to hurt the poor disproportionately. This may help explain at least partly why even the richest countries in the world like the United States have been unable to fulfill the essential needs of all their people in spite of abundant resources at their disposal.
3.1.2 Optimum growth and full employment
One of the major problems that the world economy is now facing is a significant slowdown in savings when the need for increased investment has become greater. The positive effect of saving on growth is now well-established. It raises capital formation, which in turn raises output and employment. High-saving countries have generally grown faster than low-saving countries. In the OECD countries, gross savings as a percentage of GDP have declined over the last two decades from 25.2 percent in 1973 to 21.2 percent in 1993. Even in developing countries, which need higher savings for accelerated development, savings have declined from 26 percent to 23.5 percent over this period. While there may be a number of reasons for this decline in savings, one of the major reasons may perhaps be the rise in consumption promoted by the easy availability of credit in a collateral-linked, interest-based financial system.
This shortfall in savings has probably been one of the major factors responsible for the persistently high levels of real interest rates and low rates of rise in investment, economic growth, and employment Unemployment stood at 8.1 percent in the OECD countries in 1994, close to three times its level of 2.9 percent in 1971-73. If ‘discouraged workers’ (those who have dropped out of the labor force because of the poor job prospects) and workers in involuntary part-time employment are also included, the overall rate of unemployment may be much higher Even more worrying is youth unemployment of around 25 percent, excluding the ‘discouraged’ youth. This hurts their pride, dampens their faith in the future, increases their hostility towards society, and damages their personal capacities and potential contribution.
Given the budgetary constraints and the ever-looming threat of inflation, the prospect of attaining the high growth rates needed for full employment may not be very bright in the foreseeable future in the Western world. A decline in government deficits and private sector wasteful spending along with a rise in savings and productive investment could be very helpful, but this may not be possible when the value system encourages both the public and the private sectors to live beyond their means, and the interest-based financial intermediation makes this possible by making credit available relatively easily without sufficient regard to its end use.
3.1.3 Equitable distribution
The inequitable allocation of financial resources in the conventional interest-based financial system is now widely recognized. According to Arne Bigsten, “the distribution of capital is even more unequal than that of land” and “the banking system tends to reinforce the unequal distribution of capital” The reason, as already indicated, is that interest-based financial intermediation relies heavily on collateral, giving inadequate consideration to the strength of the project or the ultimate use of financing. Hence, while deposits come from a cross-section of society, their benefit goes mainly to the rich.
As Mishan has rightly pointed out: “Given that differences in wealth are substantial, it would be irrational for the lender to be willing to lend as much to the impecunious as to the richer members of society, or to lend the same amounts on the same terms to each.” The established practice of banks is to lend mainly to those individuals and firms who have the necessary collateral to offer and who have, as Lester Thurow has observed, “large internal savings, regardless of whether they are earning above average rates of return on their investment”. The result is that “the winners are, as in a lottery, lucky rather than smart or meritocratic” Even Morgan Guarantee Trust Company, sixth largest bank in the US, has admitted that the banking system has failed to “finance either maturing smaller companies or venture capitalists”, and “though awash with funds, is not encouraged to deliver competitively priced funding to any but the largest, most cash-rich companies” Such behavior of interest-based financial institutions tends to accentuate, rather than reduce, inequalities of income and wealth.
3.1.4 Economic stability
The rate of interest has become one of the most important destabilizing factors in the present-day world economy. Milton Friedman, attributed the unprecedentedly erratic behavior of the US economy to the erratic behavior of interest rates. The high degree of interest rate volatility injects great uncertainty into the financial market and makes it difficult to take long-term investment decisions with confidence. This uncertainty drives borrowers and lenders alike into the shorter end of the market, makes short-term speculative investments more attractive, and generates a great deal of heat in the commodity, stock, and foreign exchange markets. This heat has been one of the important sources of instability in the world economy. According to a survey conducted by the Bank for International Settlements (BIS), the total turnover in traditional foreign exchange markets, after allowing for double-counting, amounted to $1,230 billion per business day in April 1995, compared with $620 billion and $880 billion in April 1989 and April 1992 respectively. A preponderant part of this turnover is related to derivatives contracts (futures and options), which are highly leveraged and, in the case of some money centre banks, several times their capital and reserves. The notional value of total outstanding over-the-counter derivatives contracts was estimated to be around $40,700 billion on 31 March 1995. The daily volume of these contracts amounted to $839 billion. This was 45 times the daily average of world merchandise imports and exports of $26.3 billion in the first quarter of 1995. If the assertion normally made by bankers that they give due consideration to the end use of funds had been correct, such a high degree of leveraged credit extension for financing speculative transactions may perhaps not have taken place.
The dramatic growth in financial transactions over the past two decades, of which derivatives are only the latest manifestation, has resulted in an enormous expansion in the payments system. Such a large value of transactions implies that if problems were to arise, they could quickly spread throughout the financial system exerting a dominoes effect on financial institutions. Accordingly, Mr. Crockett, the General Manager of the Bank for International Settlements, has been led to acknowledge that “our economies have thus become increasingly vulnerable to a possible breakdown in the payments system”. The large value has also other adverse effects. It has been one of the major factors contributing to the continued high real rates of interest which have tended to discourage productive investment. It has also tended to inject excessive instability into the foreign exchange markets. The effort by central banks to overcome this instability through small changes in interest rates or the intervention of a few hundred million dollars a day has generally proved to be ineffective.
3.2 Concluding Remarks on Monetary Management in Mainstream Economics
Thus it may be seen that the effort to regulate the various components of money demand through the interest rate mechanism tends to squeeze the money demand for need-fulfillment and productive investment rather than for unproductive and speculative uses, thus frustrating goal realization. Moreover, since the demand for money related to conspicuous consumption and speculation tends to be relatively more unstable than that for need-fulfillment and productive investment, a high degree of instability gets injected into the whole economy. No wonder, recent empirical studies have revealed great instability in the aggregate money demand function as well as its major components.
4.1 Money Demand
Islam does not find interest to be an appropriate mechanism for the management of money demand in an efficient or equitable manner. Consequently, it tries to regulate money demand by a strategy that relies on a number of instruments, three of which are particularly important.
Firstly, since values and institutions play a crucial role in practically all aspects of human life, Islam does not have an anathema to value judgments. It is rather positively oriented towards them and tries to create an enabling environment for making them effective in actualizing an allocation and distribution of resources that is in conformity with its maqasid. It declares all resources to be a trust from God and makes their efficient and equitable use a major subject of human accountability on the Day of Judgment. While these values and institutions sanction money demand for need-fulfillment and productive investment, they do not sanction it for unnecessary and unproductive spending. This, Islam tries to do even before the demand gets expressed in the market place.
Secondly, since values may be disregarded, it tries to reinforce them by a number of social, economic and political institutions. One of these is the price mechanism, which it upholds for greater efficiency in the use of resources. While the price mechanism may by itself not be able to bring about an allocation of resources that is in conformity with goal realization, it can undoubtedly make a positive contribution when reinforced by the value system.
Thirdly, since interest-based financial intermediation has the tendency to give an edge to conspicuous consumption, speculation, and unproductive investment, Islam prohibits interest and reorganizes financial intermediation on the basis of profit-and-loss sharing. The linking of the return to the ultimate outcome of the business financed would help ensure that financing does not become available to satisfy money demand for any purpose just because the borrower has an acceptable collateral to offer and sufficient cash flow to service the debt. It would rather be available if the money demand is for a worthwhile project and is accompanied by the necessary ability to manage the project efficiently. Even a poor but competent entrepreneur may, thus, qualify if he has a worthwhile project. This may not only help minimize demand for money for wasteful and unproductive purposes but also enable the society to harness the pool of entrepreneurial ability from among the poor and to tap the rich contribution that such entrepreneurs can make to output, employment and need-fulfillment.
If the demand for money, even from the public sector were subjected to the test of project performance, the lender may be compelled to take a greater interest in the nature of the project and its satisfactory management. Financing may not, then, be undertaken on the assumption that a sovereign debtor does not go bankrupt; it may rather be available mainly for projects about the productivity of which the financier is confident. Governments may not be able to get financing for excessive defense build-up and unprofitable public sector enterprises. The application of such a test before satisfying the demand for money may tend to create difficulties in the short-run. In the long-run, however, it may prove to be a blessing because, by reducing budgetary and macroeconomic imbalances in an efficient and equitable manner, a healthy dimension may be injected into the economy, which a rise in interest rates may not necessarily be able to accomplish.
In addition to reducing the money demand for unproductive and speculative purposes, Islam tries to minimize the holding of idle cash balances by the levy of zakah. This would tend to induce savers to get into productive investments to save their net wealth from being eroded by zakah.
Since need-based consumption and productive investment tend to be more stable than conspicuous consumption and speculative investment, the demand for money may tend to be more stable in an Islamic economy. What may further reinforce this is that the profit-sharing ratio between the entrepreneur and the financier may also not fluctuate from day to day or even month to month like the rate of interest, because it would tend to be determined by custom and considerations of justice, and remain contractually stable throughout the duration of the financing agreement. Since the ultimate outcome of business depends on a number of factors which do not change erratically, expectations about the rates of profit would also not fluctuate erratically.

Therefore, equity-based financial intermediation is likely to be more conducive to economic stability than loan-based intermediation. This has been recognized by a number of prominent Western economists, including Henry Simons, Hyman Minsky and Joan Robinson.
Thus, the various elements of the Islamic economic system may not only help minimize the instability in the aggregate demand for money but also influence the different components of money demand in a way that would promote greater efficiency and equity in the use of money. The relatively greater stability in the demand for money in an Islamic economy may also introduce greater stability in the velocity of circulation of money.
The demand for money in an Islamic economy may thus be represented by the following equation:
Md = f(YS, S, ), where
YS = goods and services that are related to need fulfillment and productive investment and are in conformity with the values of Islam;
S = all those moral and social values and institutions (including zakah) that influence the allocation and distribution of resources and that can help minimize Md not only for conspicuous consumption and unproductive investment but also for precautionary and speculative purposes; and
 = the rate of profit or loss in a system which does not permit the use of the rate of interest for financial intermediation.
It may, however, be charged that even in Muslim countries, Y incorporates conspicuous consumption and unproductive investment. Hence, the characterization of Ys above is normative, not reflecting the existing reality. It may also be argued that ‘S’ stands for a complex of values and institutions which may not necessarily be quantifiable and which may not even be visibly practiced. While both these objections seem to be valid, the important point is to realize that if the actualization of goals is important, then Y needs to be cleansed of all elements that frustrate this objective. It is also important to realize that when there are a number of values and institutions that influence goal realization, then there seems to be no logic behind concentrating only on r, which, as shown above, has proved to be ineffective in influencing money demand in a way that would help goal realization. This realization may induce economists to identify at least the major values and institutions that affect resource allocation and to develop techniques of measuring, to the extent feasible, their effect on resource allocation. This may also lead to the identification of non-coercive ways of actualizing these values and institutions and making them more effective in curbing the inessential and unproductive part of Md. Economists would not then be concerned with just an explanation of what exists but also with what needs to be done to realize the maqasid.
4.2 Money Supply
Once money demand has been stabilized and related to the needs of general well-being and development, there arise the questions of, firstly, how to bring aggregate money supply into equilibrium with such money demand, and secondly, how to bring the allocation of this money supply in conformity with the needs of goal realization without using coercion. The first question acquires further significance because two of the most important instruments of monetary management in the capitalist economy, discount rate and open market operations in interest-bearing government securities, would not be available in an Islamic economy.
4.2.1 Monetary targets
To create an equilibrium between money demand and money supply, the most practical approach may be to estimate the demand for money that is consistent with the realization of desired socio-economic goals within the framework of price stability, and then to establish a target range for money supply growth that would help satisfy this demand adequately. Evidence from approximately twenty countries suggests that the rate of inflation is lower in countries that make announcements about monetary targets and even lower in those whose announcements turn out to be more precise. The German experience with monetary targeting has been quite successful, leading Prof. Helmut Schlesinger, Ex-Chancellor of the Deutsche Bundesbank, to state: “Both our own experiences and scientific findings have underlined- our conviction that monetary targeting geared to the growth of the overall economic production potential, such as that which the Bundesbank has now pursued for almost 20 years, can be of benefit to the future European monetary policy, not least also in terms of its credibility.”
The targeted growth in money need not, however, be followed rigidly and mechanically. This is because monetary targeting presumes that the income velocity of money is reasonably predictable over relevant periods. While, as indicated earlier, this may be expected to be truer in an Islamic economy, it may, nevertheless, be affected by domestic and external economic shocks. The targets should, therefore, be reviewed quarterly, or as often as necessary, and changed whenever this is warranted.
It may also be possible to consider the simpler Friedman rule of adopting a fixed annual rate of growth in M, in keeping with the secular growth in output and change in velocity, to avoid the frequent ‘tinkering’ which is otherwise necessary. However, if such a formula is adopted, it should be because of the ease it offers, and stripped of Friedman’s excessive free-market commitment. The positive role of the state and of fiscal policy cannot be dispensed with in an Islamic economy.

4.2.2 Attaining the targeted growth in M
This takes us to the instruments that may be used by the central bank to create harmony between the targeted and the actual growth in money supply (M), which. is the sum of currency in circulation plus commercial bank deposits. Since deposits constitute a substantial part of money supply, it may not be possible to regulate money supply without regulating total deposits. Deposits may also, for the sake of analysis, be divided into two parts: ‘primary deposits’, which provide the banking system with a substantial part of Mo, or high-powered money, and ‘derivative deposits’ which, in a proportional reserve system, represent money created by banks in the process of credit extension. Mo, consists of the currency held by the public plus commercial bank cash- in-vault and deposits with the central bank. The higher the savings, the greater may be the share of primary deposits in total deposits and the lower may be the need for expansion of derivative deposits. Since the growth in derivative deposits is generally recognized to be closely related to the growth in Mo, or high-powered money, the central bank has no option but to regulate closely the growth in Mo.
There are three important sources of high-powered money: government borrowings from the central bank, central bank credit to the commercial banks, and balance of payments surplus. The first of these has probably been the largest source after the Second World War, because of the unduly large government budgetary deficits in most countries. Excessive fiscal deficits put the entire burden of monetary stability on the central bank and make the pursuit of healthy monetary policy extremely difficult. It is not possible to control monetary expansion unless this major source of high-powered money is properly regulated. It may hence be unrealistic for Muslim governments to talk of Islamisation of their economies without making a serious effort to regulate their budgetary deficits in accordance with the demands of the maqasid, particularly price stability.
It may always be possible for the central bank to control successfully its own lending to the commercial banks. The abolition of interest and its replacement by profit-and-loss sharing may further reinforce this ability. The central bank lending to commercial banks would take the form of mudarabah advances. This implies that the central bank would be more responsible in its lending to the commercial banks. Simultaneously the commercial banks will also be more cautious in lending to their clients in both the public and the private sectors, particularly for speculative and unproductive purposes. It may thus be possible to check the expansion in derivative deposits without resort to the prohibitive 100 percent reserve requirement which some scholars have suggested. However, if at some stage this is felt necessary, the central bank should not hesitate to resort to it.
There may be a rare Muslim country which enjoys continued balance of payments surplus. However, even if such a surplus is experienced, it may be possible to sterilize it to a reasonable extent by using the instruments of monetary policy available even in an Islamic economy.
4.3 Instruments of Monetary Policy
Even if high-powered money is regulated by controlling government budgetary deficits, there are bound to be short-term fluctuations in its volume as well as its relationship with derivative deposits. The central bank may, therefore, have to use the quantitative instruments at its disposal to even out the impact of these short-term fluctuations on money supply. It may also have to adopt certain non-coercive measures to help ensure an allocation of credit that is conducive to the realization of the maqasid.
4.3.1 Quantitative controls
Some of the instruments that the central bank may be able to use for quantitative control of bank credit are:
a) Statutory reserve requirements
Many central banks have been reducing or eliminating reserve requirements to make banks more competitive. This may not be possible in an Islamic economy where reserve requirements may have to continue as an important instrument of monetary policy because of the non-availability of the instruments of discount rate and open market operations in government securities. Banks may be required to hold a specified proportion of their demand deposits with the central bank as statutory reserve. This would not only serve as an instrument of monetary policy but also as an independent source of income for the central bank. Small variations in this requirement may change commercial banks’ free reserves by a substantial amount and significantly affect their ability to expand derivative deposits.
The rationale behind a statutory reserve requirement only against demand deposits is the equity nature of mudarabah deposits in an Islamic economy. Since other forms of equity are exempt from a reserve requirement, there is no reason to subject mudarabah deposits to such a requirement. This would tend to make them less profitable compared with other forms of equity and thus put the commercial banks at a disadvantage by inducing a shift of mudarabah deposits from commercial banks to other financial institutions. It may also be argued that in practice the distinction between demand and savings or time deposits is hazy. This possibility may be substantially reduced in the Islamic system because of the equity nature of mudarabah deposits and the sharing in risk which this would necessitate.
It may also be argued that the statutory reserve requirement against total deposits does not aim mainly at regulating the quantity of credit. It is also concerned with ensuring the safety of deposits and adequate liquidity of the banking system. These other objectives may, however, be achieved through higher capital requirement and well-conceived and properly enforced regulations, including a suitable liquidity ratio. These measures may be supplemented by an effective bank examination system. The adoption of such an approach may be preferable to the immobilization of a part of mudarabah deposits through a statutory reserve requirement.
b) Credit ceilings
While the statutory reserve requirement may help the central bank in bringing about the desired adjustment in high-powered money, credit expansion may still exceed the desired limit. This is because: firstly, it is not possible to determine accurately the flow of funds to the banking system, other than those provided by the mudarabah advances of the central bank, particularly in an inadequately developed money market like that of Muslim countries; and, secondly, the relationship between commercial bank reserves and credit expansion is not very precise. The behavior of money supply reflects the interaction of a number of various complex internal as well as external factors, and it may be desirable to fix ceilings on commercial bank credit to ensure that total credit creation is consistent with monetary targets.
c) Government deposits
The central bank may be given the power to shift government demand deposits to or from the commercial banks, thus directly influencing their reserves. This instrument has proved to be a useful instrument of monetary policy in Saudi Arabia where it has performed the same function directly that open market operations perform indirectly in other countries in influencing commercial bank reserves.
d) Common pool
The instrument of establishing a ‘common pool’ for the commercial banks at the central bank may also be effectively used in the same way as the rediscounting facility is used by the conventional central banks to solve the liquidity problems of commercial banks. The banks may be required by the central bank to contribute to this pool a certain specified proportion of their deposits by way of a cooperative arrangement between them to overcome their liquidity problems on condition that the net use of this facility by any bank over a given period is zero.
e) Moral suasion
The normally suggested tool of ‘moral suasion’, may also acquire a relatively more important place in Islamic central banking. The central bank, through its personal contacts, consultations and meetings with banks, may be able to keep itself abreast of the strengths and problems of banks and to suggest to them measures that would help overcome difficulties and achieve desired goals.
Some other instruments have also been suggested in the literature on Islamic banking. The merit and effectiveness of two of these for monetary policy purposes are briefly discussed below.

f) Equity-based instruments
One of these is the use of equity-based instruments for open market operations. It may not, however, be desirable to do so for a number of reasons. Firstly, while the central bank’s purchase and sale of the stocks of public sector companies may not raise objections, its purchase and sale of private sector companies may be questionable. Secondly, equity-based instruments may not have the necessary depth that government securities tend to have. Open market operations in such instruments may, therefore, influence their prices significantly unless used to a very limited extent. This may not be adequate for monetary policy purposes. Thirdly, variations in the prices of equity-based instruments brought about by central bank open market operations may unnecessarily benefit or penalize the shareholders of companies whose shares are used for this purpose. This may not be desirable because the primary objective of such operations is to increase or reduce private sector liquidity and not to introduce inequities in the stock market. Fourthly, the possibility of raising the price of stocks through their purchase by the central bank, specially when their fundamentals do not justify such a rise, may induce corruption.
g) Changes in the profit-and-loss-sharing ratio
The Council of Islamic Ideology, Pakistan as well as some scholars have suggested variations in the profit-and-loss sharing ratio for mudarabah advances provided by the central bank to the commercial banks and for prescribing the depositors’ and the entrepreneurs’ share on the mudarabah deposits and the financing provided by the commercial banks. While the indication of a reasonable range of profit sharing ratios between depositors, banks and entrepreneurs may be helpful as a guide, it may not be desirable for the central bank to regulate these ratios, as the Council has suggested. This is because the ratio may be determined by profitability, which depends on a number of factors differing from sector to sector in business and industry and even from firm to firm in the same sector. Hence, prescribing a uniform ratio may not be equitable while prescribing a band may not be meaningful, particularly if it is wide.
Even if, in accordance with the Council’s suggestion, the ratio is regulated by the central bank to “reduce unhealthy competition among the financial institutions”, it may not be desirable to vary this ratio frequently as a monetary policy instrument. The central bank may itself, being a non-profit institution, not mind taking a lower share in the interest of realizing certain nationally cherished goals, but why should the depositors, commercial banks or entrepreneurs be coerced to accept less. than a just and reasonable share of profit? Moreover, if there is a loss, the shari‘ah requires the bearing of losses to be strictly in accordance with the ratios in which financing has been provided, irrespective of whether the financing comes from the central bank or the private sector. While the commercial banks may be happy to get a higher ratio in profit, if such a ratio is prescribed by the central bank, why would the depositors or the businesses being financed be willing to accept a correspondingly lower ratio, if it is out of proportion with their loss-sharing ratio? In addition, once the ratio has been set contractually, which is essential according to the shari‘ah, the ratio cannot be changed before the end of the contract. To change it even for new contracts may also not be desirable because this would introduce inequities.
Hence it may be better to leave the determination of the ratio to the negotiating parties in conformity with their perception of market conditions and profitability. The central bank or the government may, however, intervene when it is necessary to do so to ensure equity or eschew unhealthy competition. Tinkering with the ratio for purposes of monetary policy may not be desirable.

4.3.2 Realizing socio-economic goals
a) Treating the created money as fay’
The creation of Mo by the central bank results from the exercise of its social prerogative and leads to seigniorage (created money minus the cost). Since this leads to command over resources without effort, it may have to be considered in the nature of fay’ and used primarily for financing projects that would help uplift the socio-economic conditions of the poor and reduce inequalities of income and wealth. It would not be proper for the government to use even a part of it for projects whose benefit would go to the rich.
To fulfill this requirement, the central bank may make the total Mo created by it available partly to the government and partly to the commercial banks and the specialized financial institutions. The proportion of Mo diverted by the central bank to each of these three sectors may, like the total size of Mo, be determined by the dictates of monetary policy. The part of Mo made available to the government may be an interest-free loan to enable the government to finance its social welfare projects designed to uplift the socio-economic conditions of the poor through the provision of education and vocational training, housing, medical facilities, and other needed services. The part of MO made available to the commercial banks and the specialized credit institutions may be in the form of mudarabah advances and used mainly for providing self-employment opportunities to the rural and urban poor, who may not be able to obtain adequate funds for this purpose from these institutions.

b) Goal-oriented allocation of credit
Since bank credit comes out of the deposits of all sections of the population, its allocation may be able to satisfy the norm of socio-economic justice in Islam only if its benefit goes to an optimum number of businesses and leads to the production and distribution, of goods and services needed by all sections of the population. This is unfortunately not the case. The appropriate way to achieve this objective may not be an elaborate network of controls. Since the operation of market forces has been recognized by Islam, it may perhaps be better to overcome the reasons for the less than desired contribution of commercial banks for the realization of these objectives.
The reason normally given by the commercial banks for diverting a very small proportion of their funds to small businesses is the greater risk and expense involved in such financing. Hence small firms are either unable to get financing from banks or do so at highly unfavorable terms (in terms of cost and collateral) compared with their larger counterparts. Thus, the growth and survival of small firms is jeopardized even though they carry a great potential for increased employment and output and improved income distribution.
It may, therefore, be desirable to reduce the risk and expense of such financing for banks. The risk may be reduced by introducing a loan guarantee scheme underwritten partly by the government and partly by the commercial banks. In the case of Islamic banks, the guarantee scheme need not guarantee the repayment of loan with interest as is the case in the conventional system. The scheme should, however, be able to relieve the bank of the need to ask for collateral in the case of small businesses whose general credentials have been registered with or certified by the guarantee scheme. The scheme may do this after a proper investigation of the firms concerned. It may also arrange to train the businesses to maintain proper accounts and be prepared even to have these accounts properly audited where necessary. A large number of small businesses may thus be able to get financing from banks without being able to offer the collateral required by the conventional banks. The bank will receive its money back in case of moral failure of the business. The scheme may also be made to include most non-commercial risks desired to be covered for increasing the availability of funds to small businesses. In case of market failure and the resultant loss, the bank will of course share the consequences with the business in proportion to the financing provided by it.
The additional expense incurred by the commercial banks in evaluating and financing small businesses may be partly or wholly offset by the government depending on the nature of the case and the objectives to be served. The cost to the government exchequer arising from the above two schemes may be justifiable in the larger interest of the goals of the Islamic economy. However, it may be possible to offset the cost partly or fully by graduated fees to be collected by the government out of profits earned from such financing by the banks and the small businesses. In addition, the central bank may even accept a relatively lower profit-sharing ratio if this is considered necessary for realizing the objective of distributing commercial bank financing to an optimum number of businesses for the production of the goods and services which are most needed.
There seems to be nothing in the shari‘ah that would stand against the adoption of a managed money standard by the Muslim countries. In fact they do not probably have any alternative to this standard after the demise of bimetallism, which prevailed during a substantial part of Muslim history, the international gold standard, and the Bretton Woods system. What is necessary, however, is to ensure that this standard is operated in a manner that does not only not violate the Islamic imperative of price stability but also helps realize other socio-economic goals.
The prohibition of riba and the reorganization of financial intermediation on the basis of profit-and-loss sharing may in fact help in this task. It would help minimize the inessential, unproductive and speculative elements of aggregate money demand which it does not seem to be possible to realize in an interest-based system. The minimization of these elements of money demand would tend to promote greater efficiency and equity in the use of scarce resources and also help reduce the macroeconomic imbalances that accentuate inflationary pressures and economic instability and vitiate the realization of socio-economic goals. Once money demand has been managed, in a manner that is conducive to goal realization, it may not be very difficult to bring money supply into equilibrium with such money demand. This may be done with the help of some of the well-known instruments of monetary policy that would be available even in an interest-free Islamic financial system.
It would, however, be necessary to regulate the generation of high-powered money at source. Since a preponderant source of high-powered money results from the financing of government budgetary deficits by borrowing from the central bank, it may not be possible to have an effective monetary policy without substantially reducing government borrowing from the central bank. International experience has shown that highly independent central banks such as the Bundesbank and the Swiss National, Bank are able to resist dictates from the government to lend amounts which they consider to be beyond the dictates of price stability. It is perhaps for this reason that the 1992 Maastricht Treaty on European Union requires European Community members to give their central banks independence as part of establishing the European Monetary Union.

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