BANKING - Indonesia Shariah Banking and Commodity Murabaha

Indonesia’s central bank is speeding up the approval process for new Islamic banking products by forming a 10-member joint committee with the nation’s board of Shariah scholars.

Under the existing system, products have to be first reviewed for compliance with Shariah law by the panel of scholars and then Bank Indonesia. The new group will start work in January and will have representatives from Bank Indonesia, Majelis Ulama Indonesia, which is the Shariah board, and the Indonesian Association of Accountants, Mulya Siregar, the central bank’s director in charge of Islamic banking, said in an interview Dec. 30.


Indonesia is stepping up measures to catch up with Malaysia, Asia’s financial hub for Islamic finance. Assets that comply with religious law in the world’s most populous Muslim nation reached 93 trillion rupiah ($10.3 billion) this year, Mulya said. New products that will allow investors to protect themselves against fluctuations in commodity prices are also under review, he said.

Commodity Murabahah contracts, where the buyer and seller agree on a price and profit rate for items such as metals or palm oil, will be introduced next year, Mulya said. Banks will also set up accounts that will use excess profits from so-called Mudharabah investment accounts, whereby one party provides capital and the other labor, to top up differences in expected returns. Under Shariah law, the payment of interest is prohibited.
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Source : http://www.bloomberg.com/news/2011-01-03/indonesia-banking-tarmac-rules-epa-compliance-update1-.html - Jan 4, 2011.