bullionstreet.com - JAKARTA(BullionStreet) : Indonesia, where the world's largest muslim population lives said it will soon introduce a regulation preventing Islamic banks from funding gold specualtors.
According to country's central bank, Bank of Indonesia's sharia banking director Mulya Siregar, a regulation to limit the pawning of gold at sharia banks will be required as most of bank customers tend to use the service for speculation. (source)
He added that it is against the sharia laws and added that customers traditionally pawned their gold at sharia banks in the hope of securing necessary short-term financing.
But offlate, many sharia lenders are making profits from customers pawning gold as an investment to seek higher returns, a practice that is a radical departure from the spirit of sharia financing, which is supposed to fund people's immediate needs or the real economy.
He said the regulation would be issued later this month in the form of a circular letter to sharia banks and business units that provided gold-pawning services.
The financing-to-value (FTV) ratio would be set at a maximum of 80 percent, meaning customers would have to provide gold worth 20 percent of the amount of funds they borrowed, while the value of transaction for financing would be limited to Rp 100 million per customer, he said.
BI has recently urged the four sharia banks and four sharia units to limit their gold-pawning services to those standards. Of the total 11 sharia banks and 24 sharia business units, only eight of them engage in gold-pawning.
Three sharia banks—Bank Syariah Mandiri, Bank Rakyat Indonesia Syariah and Bank Negara Indonesia Syariah—have decided to end their gold-pawning services following the central bank's move, being aware of the risks pawning gold carries.
The central bank's new regulations will affect 137,272 customers who hold sharia pawning accounts. The value of Indonesia's sharia banks' gold-pawning grew 45.1 percent, or Rp 3.7 trillion, in the July-September period to Rp 6.1 trillion, while sharia bank financing increased to Rp 92.8 trillion in September from Rp 84.6 trillion in July.
Indonesia gold prices eased Thursday as cost of one gram of gold was dropped by 61,000 Indonesian rupee, lost 12.3 percent.
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