The Editorial in the July copy of the magazine published by the British Chamber of Commerce in Indonesia (Up.Date) expressed concern that the increasingly widespread adoption of Shariah Law in Indonesia might represent a backward step and could be perceived in its worst case as a regression towards medieval barbarianism. This concern reflected decisions to adopt aspects of shariah law in some local authorities. In the same month BritCham sponsored a workshop on Jakarta promoting the extension of Shariah Banking as part of the modernization of Indonesia. A similar second workshop was held in Surabaya a week later. The argument over local authorities reflects political agendas where there is as much concern over motives and manners of enforcement as upon what Shariah law is supposed to say. The issues over Shariah Banking turn out to be somewhat different.
The conclusions from these two workshops on Shariah Banking were that it can help finance economic and social progress, it does not have to be part of a creeping political Islamist agenda, and that Western banks, financial institutions and fund managers have already decided to work with it. Indonesian leaders are already pushing for a modern co-operative and non-exclusive approach to Shariah banking, so that the economic and social problems that create a favourable environment for extremism can be tackled.
Following the recent International Conference of Islamic Scholars (ICIS) in Jakarta in June 2006, opened by President Yudhoyono, ICIS made recommendations on the promotion of Islamic Banking systems as well as improved networking between Small & Medium Enterprises in countries with Muslim populations (which obviously included many multi cultural countries with pluralist systems and multiple religious faiths).
Minister of Defence Juwono Sudarsono said (Jakarta Post June 20th) that debates on inter-faith values needed to be followed up in a more tangible way. He suggested forums on inter-faith employment funded jointly by Islamic and Western agencies. He saw this as part of a wider strategy of non military defence, so as to tackle economic and social problems, especially unemployment, so that young people would have income and a future instead of being easily exposed to extremists. He clearly understood that the army and the police cannot do the job of society, economists and social workers, although at times the army can help with important social functions, like emergency relief. He sent a message of support to the Jakarta Workshop through a Ministry of Defence spokesman and his Ministry helped sponsor this non profit event.
The workshops were organized by a coalition of NGOs, banks, business organizations and foundations working together, including the British Chamber of Commerce, B2B - a new EU-Indonesia SME support network, Co-operation for Development (NGO) , the University of Surabaya, and a cluster of Shariah Banking institutions including Pusat Komunikasi Ekonomi Syriah (PKES), Dompet Dhuafa Republika (DD), Masyarakat Ekonomi Syariah (MES), and Bank Tabungan Negara (BTN) and Asosiasi Bank Syariah Indonesia Jawa Timur (ASBISINDO JATIM).
The workshops covered the history of shariah banking in Indonesia, the prospects for expansion of the market and capital base, the possibilities for financing of social infrastructure such as New & Renewable Energy, piped water supply and housing and the spread of Islamic Finance in support of Small and Medium Enterprises (SMEs) and Micro-enterprises. The organizers distributed recent articles about the international progress of Islamic Finance Institutions (IFIs) by academics and practitioners. This showed there are lively discussions within Islamic Banking on the terms and conditions of lending with some observers arguing for improved conditionality and more focus on variable rate profit and loss sharing to meet more social objectives.
The workshops showed up that Shariah Banking has greatly expanded since the 1970s and that its capital portfolio of about $300 billions takes the form of fixed and variable rate instruments, lending, leasing and profit and loss sharing instruments covering a whole range of traditional and non traditional hybrid instruments and new products, including securitization and bonds. Of the Islamic Finance Institutions (IFIs) in the world almost one third are registered in Western Counties, half are registered in six key low population upper income countries (and 10% of these represent western banks), whilst only 11% are registered in six high population low income countries where most of the worlds Muslims live. That shariah finance is institutionally stronger in richer and Western countries may seem paradoxical. Even more striking is the major involvement of Western banks working with Islamic banks and that more than half of Islamic Equity Funds are run by Western management companies, whilst one third of them are promoted for Western banks. What does all this tell us ? That there is no evidence that Shariah Banking is somehow an enemy of the West. On the contrary at the global level it is very interdependent with Western banks and financial institutions.
Finally there is enormous room for improvement in public education, social targeting and expanded marketing of Shariah Banking in Indonesia which covers less than 2% of the capital base. Surveys indicate that most Shariah Banking customers in Indonesia support it because of the service it provides and its general appeal to Muslims whilst more than half of them do not yet understand the arguments about interest being harram. About 5% of Shariah Banking customers in Indonesia are not Muslims and everybody in a pluralistic society benefits from Shariah Finance investments in infrastructure. Most of the future expansion of shariah banking in Indonesia will be via Shariah windows in ordinary banks in the same way that Westerners can access ethical funds via mainstream banks and brokers. Just as the Minister of Defence hoped there is a potential convergence of interest between the positive social targeting of Shariah Banking alongside Western ethical funds, environmental funds and international aid.
The recent history of shariah banking shows that people with different faiths and cultures can co-operate to make shariah compliant finance work to wider benefit. There will always be discussions on matters like calculation of shariah banking charges. The finer points of shariah compliance have been internationalized and adapted to global needs by recognised religious and academic centres of Islamic jurisprudence. The contemporary issues in Shariah Banking are about how to educate people about it and expand it globally , as well as to who benefits more from it - the rich or the poor ?
