Faculty of Law

BBOOSTING OOSTING SUSTAINABLE DEVELOPMENT OF SUSTAINABLE DEVELOPMENT OF

ISLAMIC ISLAMIC BANKINGBANKING(A Comparative Overview (A Comparative Overview

Towards Malaysia, Indonesia And Towards Malaysia, Indonesia And SingaporeSingapore From Legal From Legal

PerspectivePerspective))

Agus Triyanta

Faculty of Law, Universitas Islam Indonesiatriyantaagus@yahoo.com & agustiyanta@uii.ac.id

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Islamic Banking: a Global Islamic Banking: a Global PhenomenonPhenomenon

Tremendous development of the industry of Islamic Banking (IB) & Finance.

Islamic banking currently operates in more than 75 countries, not only in Muslim countries but spread over Europe, America and the Far East.

today Islamic finance is estimated to manage funds for US$1.8 trillion in 2013 worldwide.

This could be substantially higher. aggregating the retail and wholesale sectors.

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AchievementsAchievements

Three Biggest Home for Islamic Finance:Saudi Arabia: with asset amounted US$ 207 billion.Malaysia: with asset amounted US$ 106 billion.Uni Arab Emirate: with asset amounted US$ 75 billion. (Enrst & Young-2013)

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Current DevelopmentCurrent Development

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Current DevelopmentCurrent Development

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Current DevelopmentCurrent Development

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MalaysiaMalaysiaThe first bank: The Chartered Merchant

Bank of India, London and China in 1859After Independence (1957), Bank

Negara Malaysia (BNM) was established in1959

Only by the end of 1970, domestic banks reached equal position with the foreign ones

In 1983, first Islamic Bank, Bank Islam Malaysia Berhad (BIMB) was incorporated, in coincidence with the worsening trend of the financial industry in Malaysia.

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Regulation Islamic Bank Conventional BankCompanies Act 1965 Incorporation IncorporationCentral Bank Act (CBA) 1958 Establishment of the

Shariah Advisory Council (SAC)

Establishment of the Shariah Advisory Council (SAC)

Islamic Banking Act (IBA) 1983 Licensing Supervision Management Establishment of the shariah

advisory board.Banking and Financial Institutions Act (BAFIA) 1989

Licensing Supervision Management

Guidelines on Skim Perbankan Tanpa Faedah (SPTF) 1993

Products of Islamic Banking Business

Requirements and Procedures establishment of IBU (Islamic Banking Unit)

Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions (BNM/GPS1) 2004

Duties and Responsibilities of Shariah Committee

Duties and Responsibilities of the Shariah Committee members

Shariah Governance Framework 2010 Shariah Governance Shariah Governance

Legal Framework of Islamic Banking in Malaysia

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IndonesiaIndonesia

De Javasche Bank established by Dutch colonial in 1827.

Independence in 1945. In 1946, Bank Negara Indonesia then was established as a central bank of Indonesia. In 1949, de Javasche Bank became central bank.

1992: First Islamic Bank; Bank Muamalat Indonesia (BMI).

1998: Economic crisis gave impetus for the rise of IB.

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Regulation Islamic Bank Conventional Bank Offering Islamic Banking Business

Undang-Und Act No. 21 of 2008 on Shariah Banking

Licensing Prudential Supervision Management Conversion of Conventio-nal into

Islamic bank Sanction & Penalty Various aspects not regulated in

other previous provisions. Establishment of the Shariah

Supervisory Board

Licensing Prudential Supervision Management Conversion of Conventio-nal into

Islamic bank Sanction & Penalty Various aspects not regulated in

other previous provisions. Establishment of the Shariah

Supervisory BoardAct no. 23 of 1999 on Bank Indonesia

The Central Bank has to give necessary support for Islamic banking business

The Central Bank has to give necessary support for Islamic banking business

Act Number 7 of 1992 on Banking as amended by Act Number 10 of 1998

Licensing Prudential Supervision Management

Licensing Prudential Supervision Management

No. 8/19/DPBS Circular Letter to All Commercial Banks Conducting Business Based on Shariah Principles in Indonesia

Duties & Responsibilities of Shariah Supervisor Board members and Shariah Supervisory Activities

Duties & Responsibilities of Shariah Supervisory Board members and Shariah Supervisory Activities

Bank Indonesia Regulation 11/33/2009

Shariah board membership Shariah board membership

Legal Framework of Islamic Banking in Indonesia

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Regulation Islamic Bank and Conventional Bank Offering Islamic Banking Business

The Banking Act limit property-related exposures observe large exposure limits

MAS Notice 640 the need to maintain eligible assetsMAS Notice 613 maintain sufficient liquidity buffersMAS Notice 612 keep ample provisions MAS Notice 626 put in place strict anti-money laundering controls MAS Notice 637 comply with minimum regulatory capital

requirements Regulation 23 Prescribed Purchase and Sale BusinessRegulation 4A Prescribed DepositRegulation 22 Prescribed Alternative Financing BusinessRegulation 23A Prescribed inter-bank purchase and sale businessRegulation 23B Prescribed leasing businessRegulation 23C (with effect from 7 May 2009)

Prescribed joint purchase and periodic sale business

Regulation 23D(with effect from 7 May 2009)

Prescribed purchase and sale business at spot price

Legal Framework of Islamic Banking in Singapore

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Faculty of Law

Constitutional BasisConstitutional Basis

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Aspect Malaysia Indonesia Singapore

State Model Islamic State

Muslim Country

Secular State

Islamic Position

Formal Religion

No special provision on Islam

All religions are equal

Constitutional Basis

Federal Constitution(section 3.a)

Pancasila, point 1

The Constitution (chapter 15.1)

Muslim Population(estimation)

40 millions 210 millions 720 thousands 12agustriyanta2013

Malaysia’s Legal ResposeMalaysia’s Legal ResposeYear Legal Matters Effect to Banking

1983 Ilsamic Bank Act passed

Establishment of Bank Islam Malaysia

1993 Interest Free Bank Scheme (SPTF)

Dramatical rise in Islamic banking:9 commercial banks, 6 finance companies and 2 merchant banks.

1994 Interbank Money Market

2005 Amendment of Stamp Act

2006 Real Property Gains Tax

Guidelines on the Shariah Committee (GPS1) 2004

2010 Shariah Governance Framework 2010

Leverage in Public confidence

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Indonesia’s Legal Indonesia’s Legal ResponseResponseYear Legal Matters Effect to Banking

1991 Bank Muamalat Indonesia (BMI) is ready to operate

1992 Amendment of Banking Act

BMI started operation

1998 Amendment of Banking Act and issuance relevant regulations: allowance of shariah wiondow

Two conventional banks opened shariah services.

2006 Amendment of Shariah Court Act

Dispute settlement is fall under shariah court

2008 Islamic Banking Act Dispute sttlement in the courts started

2009 Amendment of Tax Act; double taxation abolished

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Singapore’s Legal Singapore’s Legal ResponseResponseYear Legal Matters Effect to Banking

2001 Maybank offered Islamic services

2005 Double taxation abolished

HSBC introduced takaful

2006 Income Tax and Service tax abolished

OCBC introduced islamic service

2007 Islamic Bank of Asia was established

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Analysis 1: Analysis 1: Both countries experienced similar

economic intervention by colonials, but with different impact in banking development.

In both, the banking crisis has given impetus for the rise of IB.

the emergence of Islamic bank in Malaysia was in 1983, almost a decade earlier compared to the establishment of Islamic bank in Indonesia

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Analysis 2:Analysis 2:Today, IB business in Malaysia, in

terms of asset, reaches 24.2% of the entire banking asset nationally, in Indonesia it is still 4.3%.

legal framework of Islamic banking in Malaysia has been robust since the very beginning, but Indonesia, is still suffering from the lack of legal basis in some aspects.

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Analisis 3:Analisis 3:

The performance, of the both is in the very positive and promising trend, but the support of the respective government are different.

Lastly, apart from the speedy growth of the Islamic banking business in both countries, the issue with regards to the Shariah Compliance is also taking place.

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Conclusions 1:Conclusions 1: Legal adjustment could leverage

the public confidence of Islamic banking significantly

Differences in the legal adjustment has clearly affected to the growth and development of Islamic banking.

Malaysia, has shown its steady rapid progress compared to their two counterparts in the region.

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Conclusions 2:Conclusions 2:

Considering the late birth of Islamic banking Singapore, it is clear that what this state achieved is promising.

Whereas Indonesia, the development of the asset achieved by Islamic banking needs more leverage through governmental initiatives, and more importantly higher legal adjustment

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RecommendationsRecommendations

The rest legal matters need to be resolved:

Malaysia: Dispute resolutions.Indonesia: Harmonisation

between Islamic contract within civil law (in case for dispute)

Singapore: Shariah governance aspects

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Thank You- Wassalamualaikum

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