INDONESIA - ARTICLES - Utilization of Zakat as a Fiscal Component in Islamic Economic System

Maksimalisasi Zakat Sebagai Salah Satu Komponen Fiskal Dalam Sistem Ekonomi Islam (Utilization of Zakat as a Fiscal Component in Islamic Economic System)

Azharsyah Ibrahim

State University of Ar-Raniry - Faculty of Law - Ar-Raniry State Institute of Islamic Studies

May 22, 2012

JURISPRUDENSI Jurnal Syari'ah, Januari-Juni 2011

Abstract:     

In economics, fiscal policy is defined as the use of government expenditure and revenue collection (taxation) to influence the economy. Governments use fiscal policy to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth. Fiscal policy in an Islamic state should have an ideological orientation. This means that fiscal policy in an Islamic economy has to be evolved in the ideological framework of Islam and cannot be value-neutral. This paper aims to comprehensively study the potency of zakah in Indonesia and its potential use as a stabilization device in Islamic economic system. Data for this research are gathered through related-literatures including books, journal articles, internet sites and other related resources. The research found that the potency of zakah in Indonesia is increasing year of year. The Indonesia Magnificience of Zakah calculated that Indonesia has IDR 27,2 trillion in 2010 while Asian Development Bank estimated up to IDR 100 trillion. Thus, Indonesia has very big potency to use zakah as a fiscal component because some part of zakah proceeds could be withheld in an inflationary situation and these funds could be released to increase purchasing power in a period of depressed economic activity.

Note: Downloadable document is in Indonesian.- source SSRN

WORLD - REPORTS - Ernst Young World Competitiveness Report 2011

Announcing the Exclusive Launch of the Ernst & Young World Islamic Banking Competitiveness Report 2012/13 at the 19th Annual World Islamic Banking Conference (WIBC 2012) Islamic Finance: Adapting to the New Dynamics of Global Finance 1200+ Industry Leaders. 50+ Countries. 1 Global Gathering: WIBC 2012 For 19 Years the World's Largest Annual Gathering of Islamic Finance Leaders Dear Banking & Finance Leader, The Ernst & Young World Islamic Banking Competitiveness Report 2011/12, which was launched at the 18th Annual World Islamic Banking Conference (WIBC 2011) last year, noted that Islamic banking assets with commercial banks globally will reach US$1.1 trillion in 2012, a significant jump of 33% from their 2010 level of US$826 billion. The report also highlighted that Islamic banking assets in the Middle East and North Africa (MENA) region increased to US$416 billion in 2010, representing a five year CAGR of 20% compared to less than 9% for conventional banks. The report also indicated that as new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to US$990 billion by 2015. The World Islamic Banking Competitiveness Report 2011 identified two key themes that were starting to emerge. The first was the need for excellence in banking operations and the second was to improve product innovation. The report indicated that the combined MENA Islamic banking profit pool could rise to US$15 - 19 billion in 2015 from the 2010 levels of US$5 - 6 billion, primarily by  combining operational transformation with a more robust risk infrastructure. The Report also said that potential growth opportunities for regional Islamic banks include the emerging Islamic geographies, growing affluence among retail customers, better alignment with real economy and rising SME banking. Abid Shakeel, Executive Manager, Ernst & Young discussing the findings of the Report 2011/12 at WIBC 2011 The Exclusive On-site Launch of the Ernst & Young World Islamic Banking Competitiveness Report 2012/13 at the 19th Annual World Islamic Banking Conference The WIBC Competitiveness Report is a ground-breaking initiative designed to not only identify but also to raise the bar of competitive excellence, strategic leadership and performance improvement in the industry. The Competitiveness Report has rapidly evolved into an indispensable reference resource for the key decision-makers in the global Islamic banking & finance industry. Developed in collaboration with Ernst & Young, the 9th edition of the Report, will be launched exclusively at the 19th Annual World Islamic Banking Conference (WIBC 2012), which will be held on the 9th to the 11th of December 2012 in the Kingdom of Bahrain. A recent statement issued by Ernst & Young noted that the 2012/13 edition of the World Islamic Banking Competitiveness Report comes at a time when conventional giants are under unprecedented regulatory scrutiny and several European banks are deleveraging and curtailing operations in emerging markets. With the half yearly results out, 2012 looks to be another difficult year for Islamic banks in terms of profitability. Clearly for Islamic banks, achieving the second trillion dollars is about demonstrating exceptional value to mainstream customers. This demands unconventional leadership, to build a business architecture that will help win in the retail market. The Ernst & Young World Islamic Banking Competitiveness Report 2012/13 will examine Islamic banks' efforts to penetrate the mainstream retail customers. The groundbreaking report also explores the road map being adopted by Islamic banks to make a transition to a double-compliant model, i.e., excellence in banking operations topped up by exceptional Shari'ah proposition.

INDONESIA - ARTICLE - The Shari’ah Service in Indonesia’s Conventional Banking System

www.businessislamica.com - Tony Hidayat - In Indonesia’s banking industry the size of Islamic banking is still small. In January 2012, the assets of Indonesia’s banking industry reached Rp 3,598 Trillion, while the assets of Islamic banking at the same period only reached Rp 144 Trillion, or a share of only 4%.
One of the reasons behind this is the limited existence of an Islamic banking office network. An office network—which consists of a branch office, sub-branch offices and cash offices— is the center of banking transactions and the proximity of the bank becomes the customer’s dominant factor for using its banking services. In January 2012, the office network of national banking was up to 14,820 branches, while that of the Islamic banking only reached 1,943 branches. (source)

INDONESIA - IMF - Detailed Assessment of Observance of IMF Code of Good Practices on Transparency in Monetary and Financial Policies

Date:	July 18, 2012
Electronic Access:	Free Full text (PDF file size is 932KB). Use the free Adobe Acrobat Reader to view this PDF file
Series:	Country Report No. 12/188
Subject(s):	Indonesia

INDONESIA - IMF - Indonesia: CPSS-IOSCO Recommendations for Securities Settlement Systems - The Equity and Corporate Bonds Securities Settlement Systems

Date:	July 18, 2012
Electronic Access:	Free Full text (PDF file size is 520KB). Use the free Adobe Acrobat Reader to view this PDF file
Series:	Country Report No. 12/186
Subject(s):	Indonesia

INDONESIA - IMF - Country report - Implementation of the IOSCO Objectives and Principles of Securities Regulation

Date:	July 18, 2012
Electronic Access:	Free Full text (PDF file size is 721KB). Use the free Adobe Acrobat Reader to view this PDF file
Series:	Country Report No. 12/189
Subject(s):	Indonesia

INDONESIA - TAKAFUL - A.M. Best Special Report: Economy Boosts Indonesia's Insurers; Capital, Regulatory Challenges Loom

www.marketwatch.com - HONG KONG, Jun 28, 2012 (BUSINESS WIRE) -- Indonesia's solid economy is fueling growth for a developing non-life insurance market, well supported by domestic consumption and investment offsetting a weaker international environment, according to a new report from A.M. Best Co.

Stable growth of 5% to 6% in gross domestic product over the past five years; a young and large population; rising spending on personal property; and expanding government outlays have primed the non-life insurance sector for further growth. The industry has generally exhibited stable operating performance, and gross premium for nonlife insurance increased 19.5% to IDR 34.4 trillion (USD 3.8 billion) in 2011, according to the General Insurance Association of Indonesia. (report)  - (source)

WORLD - REPORTS - Deloit : Empowering Risk Intelligence in Islamic Finance Managing risk in uncertain times

www.bi-me.com - SAUDI ARABIA. A Deloitte Middle East Islamic Finance Knowledge Center (IFKC) report, entitled ‘Empowering Risk Intelligence in Islamic Finance’, addresses and investigates the important issues in practice and regulation in Islamic Finance in the current market challenges.
The report also assesses the impact of Islamic Financial Institutions in different countries, highlighting that Saudi Arabia is one of the main contributors to the Islamic Finance industry, with an estimated US$ 94 billion in Islamic Finance Assets.

Based on analysis provided by Deloitte Middle East Islamic Finance Knowledge Center, the total of the Saudi Arabia Islamic Finance Assets, valued at US$ 94 billion, represent 26% out of total GCC Islamic Finance assets and 8.2% out of total Global Islamic Finance assets. (source -  access deloit)

MALAYSIA - PUBLICATIONS - IMF Working Paper 12-151 - What's in it for me ?

www.inf.org

What’s in It for Me? A Primer on Differences between Islamic and Conventional Finance in Malaysia

Krasicka, Olga ; Nowak, Sylwia 

IMF Working Papers - June 2012 - 12/151

 

Summary: What attracts conventional investors to Islamic financial instruments? We answer this question by comparing Malaysian Islamic and conventional security prices and their response to macrofinancial factors. Our analysis suggests that Islamic and conventional bond and equity prices are driven by common factors. Likewise, especially in recent years, Islamic banks have responded to economic and financial shocks in the same way as conventional banks, suggesting that the gap between Islamic and conventional financial practices is shrinking. (source)

WORLD - PUBLICATIONS - Sesric : Islamic Finance in OIC Member Countries

www.sesric.org - Islamic finance is emerging as an alternative source of finance in addressing the major development challenges faced by many Organization of Islamic Cooperation (OIC) countries. The global market for Islamic financial services, as measured by the total volume of Shariah compliant assets, is estimated to have reached US$ 1.1 trillion at end-2011. OIC countries, with a collective share of 98% in these assets, continue to be the main actors in the industry’s impressive growth story.
Recently, the global financial and economic crisis of 2008-09 has brought to the forefront a wide range of issues concerning the stability and soundness of the conventional financial system. This has prompted an extensive global re-examination by the international community on the adequacy of the existing international economic and financial architecture and the search for a more enduring solution. In the search for a new architecture, there was a general consensus on the need to restore the financial transactions to their basic function – to provide services that add value to the real economy. This, in fact, represents the very essence of Islamic finance, which can be traced back to the Shariah principles. However, concerns remain regarding the compatibility of Islamic financial principles with the conventional performance metrics. Whether socioeconomic goals like sustainability and poverty alleviation can be reconciled with the goals of profitability and market share is strongly challenged. Although certain Islamic products and practices have been lauded for their potential to advance socioeconomic development in OIC member countries, many still argue that the impact of Islamic finance on the development process has primarily been modest. Particularly the development of Islamic financial products has generally been limited to the re-engineering of the conventional products to meet Shariah requirements. All these factors have contributed to Islamic finance’s missing the opportunity during the recent financial turmoil to promote itself as a sound alternative to the conventional system, which was then on the brink of collapse. Moreover, the recent crisis has highlighted that the Islamic finance industry remains vulnerable to the similar systemic risks as its conventional counterpart, and its quest for achieving authenticity is still a challenging task.
In the light of these observations, the present report examines the contemporary trends in the Islamic finance industry in the OIC member countries and its inherent potential for developing into a mainstream financing alternative to the conventional interest-based system.
Online Electronic Version
Islamic Finance in OIC Member Countries (English)

INDONESIA - ARTICLES - Deposit behaviour in Indonesia Islamic banking : do crisis and fatwa matter?

Deposit behaviour in Indonesia Islamic banking : 

do crisis and fatwa matter?
In: Indonesia Islamic Banking Research Forum 2011, 16-17 December, 2011, Padjajaran University, Bandung.
Abduh, Muhamad and Sukmana, Raditya (2011)

Abstract -This paper attempts to examine factors that influence deposit behaviour of bank depositors in Indonesia Islamic banking. Several explanatory variables are tested namely interest rate, Islamic deposit rate, inflation, income as well as financial crisis. Cointegration test and impulse response functions are utilized to examine the long run and short run relationship among the variables. The period of analysis is from December 2000 to January 2011 (122 number of observation-monthly data). The results show that crisis has no significant impact on the volatility of Islamic banks deposits. This suggests that the Islamic banks’ expansion towards the real economic activities by partnership contracts is one of the best practices. It depicts also that depositors have a strong believe towards the resilience of Islamic banks against financial crisis and thus, they did not withdraw their money excessively during the crisis. However, it is also found that interest rate and income are still dominating the people’s decision to deposit their funds in Islamic banks which in turns, indicating the effectiveness of the anti-riba campaign in Indonesia is still low and thus, the strategy of educating the people need to be redesigned.  (source)

WORLD - HALAL - The Economist Report : The Sharia-Conscious Consumer

  Download at www.Halalfocus.net

WORLD - REPORTS - A.T. Kearney analysis suggests it's time for Islamic banks to tackle slowing growth rates and eroding profitability

www.ameinfo.com - Traditionally, Islamic banks have outperformed their conventional peers in most markets. However, a closer look suggests the market dynamics are changing, demonstrating a new trend. Two key indicators are cause for reflection: slowing growth rates and eroding profitability, according to A.T. Kearney, a global management consultancy. Declining growth rates are occurring in key geographies including KSA, Bahrain and the UAE, where growth rates have dropped to between 3% and 8% from double-digit figures. In parallel cost income ratios are increasing in most markets, putting pressure on profitability.

Up until now, Islamic banks have typically emulated the conventional bank offer, but the eroding profitability trend suggests it is now time for a new approach. A.T. Kearney says to sustain profitable growth a more sophisticated leveraging of the Islamic Banking potential is required.  (source)

WORLD - REPORTS - A.T.Kearney : the future of Islamic banking

www.atkearney.com - The Future of Islamic Banking

Declining growth rates and eroding profitability suggest it is time to better leverage the Islamic banking potential. In order to do this, Islamic banks should revisit their strategic positioning and improve their operational efficiency.
For years, many Islamic banks have witnessed double-digit growth rates, surpassing their conventional peers. At first glance, all seems well for the Islamic banking industry. There is ample room for growth as Islamic banking rarely exceeds a third of total market share, even in the Gulf Cooperation Council (GCC) countries and Malaysia. Several potential markets with large Muslim populations remain largely untapped, such as India and the Commonwealth of Independent States countries, made up of the former Soviet republics. In addition, overall banking penetration in many of the industry's core markets is still low. For example, GCC countries have not yet achieved the banking penetration levels of countries such as France or the United Kingdom. At the same time, several new markets have opened up for Islamic banking, with even more on the horizon (see sidebar: A Market Overview). (download link report here) (source)

WORLD - PUBLICATIONS - Empowering Risk Intelligence in Islamic Finance

Empowering Risk Intelligence in Islamic Finance Managing risk in uncertain times

www.deloitte.com - The Islamic Finance Risk Intelligence survey, published by IFKC at Deloitte Middle East, assesses the status quo of risk management practice in the Islamic Finance industry. The report is based on a survey and group of case studies developed during the second half of 2011 encompassing 20 Islamic Financial institutions from the Middle East and South East Asia, with aggregate assets of more than $50 billion, and representing a range of Islamic Financial institutions.

In summary, the following key challenges warrant the attention of Islamic Finance industry leaders and stakeholders: (source and download link report)

JAPAN - CAPITAL MARKETS - Financial Services Agency : Q and Q on Taxation of J-Sukuk

April 16, 2012
Financial Services Agency

Publication of “Taxation of J-Sukuk Q&A”

The 2011 tax reform introduced a tax break leveling the playing field between a quasi-bond beneficial interest which can be used as a J-Sukuk and a conventional bond for tax purposes. In addition, following the introduction of this tax break, Japan Securities Depository Center, Inc. commenced the handling of J-Sukuk on April 1, 2012.

Following the completion of the J-Sukuk market, FSA now publishes “Taxation of J-Sukuk Q&A” in order to make it widely known. FSA expects that this Q&A will support the development of the J-Sukuk market in Japan.

Taxation of J-Sukuk Q&A (PDF:68KB)

Contact

Financial Services Agency
Tel: 03-3506-6000 (main number)
Office of Financial Taxation, Policy and Legal Division, Planning and Coordination Bureau
(extensions: 2770, 3182)

AUSTRALIA - ARTICLES - Accommodating Islamic Banking and Finance in Australia

Accommodating Islamic Banking and Finance in Australia

Salim Farrar

University of Sydney - Faculty of Law

University of New South Wales Law Journal, Vol. 34, No. 1, pp. 413-442, 2011

Sydney Law School Research Paper No. 12/15

Abstract:
Islamic banking and finance is still at the embryonic stage in Australia. There have been uncertainties as to how and to what extent the systems of governance at State and Federal levels should adapt in light of the difficulties faced by both local Islamic finance service providers and potential Islamic investors from overseas looking to invest their petrodollars in Australia. This paper takes a contextual and critical look at the current regulatory framework with special focus on taxation and prudential standards, and explores the need and possibilities for reform. (download link)

INDONESIA - ARTICLES - Islamic Banking Service Quality and Withdrawal Risk: The Indonesian Experience

Islamic Banking Service Quality and Withdrawal Risk: 

The Indonesian Experience

Muhamad Abduh

International Islamic University of Malaysia (IIUM)

International Journal of Excellence in Islamic Banking and Finance, Vol. 1, No. 2, pp. 1-15, 2011

Abstract:
This paper aims first to evaluate the service quality of Islamic banking and second to explore the withdrawal behavior of Islamic banking depositors based on their evaluation towards its service quality in the context of Indonesia. A total of 276 Islamic banking customers in Jakarta, Indonesia, were involved through a direct survey. Factor analysis was carried out to uncover the key dimensions of Indonesian Islamic banking service quality. Next, we use central tendency measurement to extract the information of depositors’ withdrawal behavior towards those dimensions. Afterwards, the importance and performance analysis (IPA) was employed to evaluate the level of Indonesian Islamic banking service quality. The exploratory factor analysis uncovered five key dimensions of Indonesian Islamic banking service quality, including reliability, bank-customer relationship, tangibles, Shari`ah issues, and rates and charges. Shari`ah and tangible are the first and second most influence factors for depositors to withdraw their funds from Islamic bank. However, despite their high level of importance, Shari`ah and tangible were always perceived poor in performance while others were largely modest. Within this kind of situation, withdrawal risk is, therefore, should be the most potential risk to be anticipated. (download link)

WORLD - PUBLICATIONS - Operative Principles of Islamic Derivatives - Towards a Coherent Theory

Operative Principles of Islamic Derivatives - Towards a Coherent Theory

IMF Working Paper Series

Andreas Jobst and Juan Sole

March 1, 2012

Summary: Derivatives are few and far between in countries where the compatibility of financial transactions with Islamic law requires the development of shari’ah-compliant structures. Islamic finance is governed by the shari’ah, which bans speculation and gambling, and stipulates that income must be derived as profits from the shared generation of goods and services between counterparties rather than interest or a guaranteed return. The paper explains the fundamental legal principles underpinning Islamic finance with a view towards developing a cohesive theory of derivatives subject to shari’ahprinciples. After critically reviewing accepted contracts and the scholastic debate surrounding existing financial innovation in this area, the paper offers an axiomatic perspective on a principle-based permissibility of derivatives under Islamic law. (source)

WORLD - FUNDAMENTAL DEBATE - Goldman Sachs : genuine or Ribawi Sukuk in the making?

A) The deal on paper : a plain vanilla Murabaha Facility

The above inserted graphic reflects the most used practice of the Murabaha-to-the-Purchase-Order.  The reader will be familiar with this.

The Base Prospectus stipulates repeatedly: " whereby  the Trustee  will, at the request of GSI,  use the proceeds of the issuance of the Series to purchase certain commodities  from a third party Seller on immediate delivery and immediate payment terms and  will  immediately sell such commodities  to the GSI on immediate delivery terms but with payment on a deferred basis." And  further Mr. Asim Khan - MD and head of structuring for Dar Al Istithmar -  stated that the paperwork "clearly shows  that Trustee, as seller, sells the commodity to GSI, as purchaser. Thats it...."    and further that:  "Once  the commodity is sold to GSI, its then at GSIs discretion to do what it wants  to with the commodity".  This looks like a plain, even boring Murabaha Facility. Yawn

Mr. Khan further states that: "the legal documents  ... have been reviewed and approved by leading scholars in the Islamic finance industry ..." and suggests that Mr. Mohammed Khnifer   did not fully read or grasp the contents of the available documentation.   It is however clear that Mr. Khnifer did read the documentation sufficiently and that he did grasp the implications thereof very well.  Actually, Mr. Khnifer voices a concern of a not unimportant part of the industry.

Simple review of legal documentation is hardly convincing.  One must go have a look at the intentions of the parties concerned and their factual behavior.  It was this look that originated the 'Tawarruq-debate' in the first place.
(Source) or (rest of story hereunder) (softcopy available on demand)