Bulaksumur Legal Discussion was once again held on Thursday, 28 April 2016. The theme presented in the fifth BLD was “The Dynamics of the Development of Islamic Banking Institutions in Indonesia,” delivered by Khotibul Umam, S.H., LL.M., a lecturer in the Department of Islamic Law at the Faculty of Law of Universitas Gadjah Mada, with Dr. Yulkarnain Harahab, S.H., M.Si. serving as moderator.
The discussion began by providing an overview of Islamic Banks and Sharia Business Units (Unit Usaha Syariah/UUS), which perform the functions of collecting and distributing public funds similar to banks in general. It was further explained that Islamic Banks and UUS may also carry out social functions in the form of baitul mal, namely receiving funds originating from zakat, infaq, alms, grants, or other social funds and distributing them to zakat management organizations. Social funds originating from cash waqf are distributed to waqf managers (nazhir) in accordance with the intentions of the waqf donor (wakif), as stipulated under Article 4 of Law No. 21 of 2008.
In accordance with statutory regulations, Islamic banking institutions in Indonesia are divided into three forms. First, Islamic Commercial Banks (Bank Umum Syariah), namely Islamic banks that provide payment traffic services in their operations. Second, Sharia Business Units (UUS), which function as working units of the head office of Conventional Commercial Banks serving as the parent office for branches or units conducting business activities based on Sharia Principles, or as working units within branches of foreign-based banks operating conventionally that function as parent offices for sharia sub-branches and/or sharia units. Third, Islamic Rural Financing Banks (Bank Pembiayaan Rakyat Syariah), namely Islamic banks that do not provide payment traffic services in their business activities.
Currently, a trend toward the establishment of Islamic banks has developed following the enactment of Law No. 21 of 2008. This development can be seen through several arrangements, such as conventional commercial banks with existing Sharia Business Units acquiring relatively small banks, converting them into sharia banks, and subsequently merging their UUS into the newly converted banks. Conventional commercial banks without UUS have also acquired relatively small banks and converted them into sharia banks. Additionally, there has been the implementation of spin-offs of UUS into independent Islamic Commercial Banks.
Statistics from the Financial Services Authority (Otoritas Jasa Keuangan/OJK) as of December 2015 showed that the Islamic banking network in Indonesia consisted of 12 Islamic Commercial Banks, 22 Sharia Business Units, and 162 Islamic Rural Financing Banks. The Islamic Commercial Banks included Bank Muamalat Indonesia, Bank Syariah Mandiri, Bank Syariah Mega Indonesia, Bank Syariah BRI, Bank Syariah Bukopin, Bank Panin Syariah, Bank Victoria Syariah, BCA Syariah, Bank Jabar dan Banten, Bank Syariah BNI, Maybank Indonesia Syariah, and Bank Tabungan Pensiunan Nasional Syariah. Except for Bank Muamalat Indonesia, the establishment of these Islamic commercial banks was carried out through acquisition and conversion mechanisms and/or spin-offs.
In general, Islamic banking practices in Indonesia have not yet fully implemented sharia principles, both in terms of compliance with fatwas and with the Qur’an and Sunnah. At the institutional level, sharia compliance has not yet become the guiding principle consistently upheld by Islamic business actors, including in the development of products within Islamic banking institutions that should fundamentally embody sharia values.
Banking business activities in Indonesia can be divided into several periods. The first was the era of Law No. 7 of 1992 concerning Banking, which represented the introductory stage of banking business activities to society under legal protection. During this introductory period, banking operations based not only on interest but also on profit-sharing mechanisms were introduced, including the establishment of institutions specifically operating under such principles. Bank Muamalat Indonesia emerged as the first Islamic bank in 1988. The next phase developed under Law No. 8 of 1998 concerning Banking, which marked the era of recognition. During this period, Indonesia experienced an economic crisis that led to the liquidation of many banks. The event that strengthened recognition of Islamic banking was that one bank, Bank Muamalat, was still declared financially healthy. An important point in this amended banking law was the opportunity granted to conventional banks to provide sharia services within a specified period. By 2023, conventional banking operations and Islamic banking operations were required to be separated to achieve the purification of banking activities based on sharia principles. It is therefore important to conduct in-depth analysis and study regarding the urgency of spinning off Sharia Business Units from Conventional Commercial Banks (Bank Umum Konvensional/BUK) from juridical, sociological, and philosophical perspectives. This analysis is necessary not only based on statutory regulations but also by considering legal (sharia) theories and social theories to examine Islamic banking activities from sociological and philosophical viewpoints. On a macro scale, it is also important to analyze national legal politics related to Islamic banking institutions. Furthermore, assessment of sharia compliance in the conversion of acquired conventional commercial banks into Islamic Commercial Banks is necessary to evaluate the sincerity of implementing authentic Islamic banking principles. Such compliance includes adherence to statutory regulations as a manifestation of obedience to legitimate authority (ulil amri), compliance with sharia principles contained in fatwas issued by the National Sharia Council of the Indonesian Ulema Council (DSN-MUI), as well as those not yet incorporated into DSN-MUI fatwas, and compliance with international standard setters issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), particularly Standard No. 6 concerning “Bank Conversion to an Islamic Bank.” Empirically, various AAOIFI standards have become references for DSN-MUI and regulators such as Bank Indonesia and the Financial Services Authority in regulating Islamic banking entities. Further analysis also concerns the values of independence and dependency as consequences of spin-offs conducted through the Acquisition Model. In addition, the discussion also refers to theories concerning Group Companies, considering the parent-subsidiary relationship between Conventional Commercial Banks and the Islamic Commercial Banks resulting from the spin-off of Sharia Business Units. (Febri-Eka/PPM-FHUGM)
