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

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)

SINGAPORE - ARTICLE - Is There Room for Singapore to be an Islamic Finance Hub?

www.businessislamica.com -  Islamic finance was marked with exponential developments globally over the three last decades, spurring enormous demand for Shari’ah-compliant schemes. Although relatively new, Islamic finance has, ever since inception in the late 1960s (Halabi. et.al. 2004), proven to be one of the fastest growing elements of the global financial system. According to the Global Islamic Finance Report 2011, the Islamic finance industry reached $1.14 trillion in total value of assets and has been consistently growing at an average rate of 10%. In addition, there are over 300 Islamic financial institutions that are operating in about 75 countries across the globe, comprising of banking, takaful and capital market sectors.
Interestingly, the attention for Islamic finance is not only coming from Muslim countries but also from non-Muslim ones as well. Indeed, some non-Muslim countries are aiming at becoming the hub for Islamic finance. Hongkong for example aspires to be an Islamic finance gateway to China, while the UK aims to entrench London as a global gateway for Islamic finance. Last but not least, Singapore also aspires to be the main center for Islamic finance in Asia. This article tries to further analyze on the future development of Islamic finance in Singapore. (source)

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)

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)

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)

MALAYSIA - PUBLICATIONS - Islamic Finance News : THE GUIDE 2012

Country Reports

Australia: The wait continues
Brunei Darussalam: Islamic banking and finance
China: The dragon stirs
Hong Kong: The gatekeeper
Indonesia: Playing catch-up
Japan: Reviewing priorities
Korea: Government intervention crucial
Malaysia: Cautiously optimistic
Singapore: High expectations
Thailand: Focusing on capital markets

The Full Guide 2012

WORLD - ARTICLES - Sustainable Growth and Inclusive Economic Development from an Islamic Perspective

The Role of Islamic Finance
in Enhancing Financial Inclusion in OIC Countries

Mahmoud Mohieldin, Zamir Iqbal, Ahmed Rostom and Xiaochen Fu

8th International Conference on Islamic Economics and Finance

Sustainable Growth and Inclusive Economic Development from an Islamic Perspective

Doha – Qatar

18th – 20th December 2011

Source:: http://conference.qfis.edu.qa  also here  (abstract hereunder)

INDONESIA - ARTICLES - Can the obligation of zakat be enforced in a non-Islamic state like Indonesia ?

Can the Obligation of Zakat Be Enforced in a Non-Islamic State Like Indonesia?

Alfitri

Faculty of Islamic Law, STAIN Samarinda

September 30, 2011

Abstract:
The question of the justification of the state’s intervention for the running of a religious doctrine has always become relevant since Indonesia opted for Pancasila instead of Islam as the state ideology. By analyzing Indonesian Constitutional Court’s decisions on the matters of religious freedom and social and economic rights, this article argues that zakat obligation can be enforced in Indonesia. The state intervention for the running of zakat administration in Indonesia is deemed to be necessary because the voluntary system of zakat obligation has marginalized the role of zakat in income redistribution. In addition, the complete incorporation of zakat into the fiscal system would help Indonesia to achieve their objective of social justice. However, the state must allocate the burdens and benefits of tax and other levies justly in order to avoid discrimination among the citizens of Indonesia.(source)

INDONESIA - ARTICLE - Indonesia Islamic Banking Market Assessment Q2-2011 (Case Study: Islamic Commercial Bank and Islamic Business Unit)

I. GENERAL OVERVIEW
The global economic recovery was getting stronger at the end of 2009, it has shown the optimism condition for the economic development of Indonesia in 2010. Although Greece faced an economic crisis in second quarter of 2010, Indonesia, with inflation rate reached 6.96 in 2010, the GDP Growth has returned to 6.10, from 4.58 in 2009. Then, this situation did not significantly influence the condition of Indonesia islamic banking. (source)

INDONESIA - ARTICLES - Bankruptcy Resolution and Investor Protection in Sukuk Markets

Bankruptcy Resolution and Investor Protection in Sukuk Markets

 by Kamal Abdelkarim Hassan and Muhamad Kholid

Introduction

According to the Kuala Lumpur-based Islamic Financial Services Board, a standards body for the Islamic finance industry, the Islamic finance industry is a roughly US$1 trillion asset that may almost triple to US$2.8 trillion by 2015. Arguably, sukuk is the catalyst that has put the Islamic finance industry on the global capital market map. Despite being the flagship product of the burgeoning Islamic finance industry, the sukuk market has not been immune to the economic downturn. Marketed often as a safer alternative than conventional bonds, the subsequent near and actual sukuk defaults have raised questions about sukuk-holders’ rights, how they will be treated, and what sukuk entails. A closer examination is required of the structural deficiencies of some sukuk structures that may result in nullifying the recourse of investors and the enforceability of sukuk contracts. Based on the above, we discuss bankruptcy resolution and investor protection in sukuk markets. (source)

MALAYSIA - BANKING - Mahathir urges countries to achieve 50% market share for Islamic banking

Even in retirement he remains the most popular politician to the Muslim "man-and-woman-in-the-street". Now as an elder statesman, Mahathir Mohamed, the former Malaysian prime minister, continues to give advice whether on the global financial crisis, on the future of the Islamic banking industry, on the Islamic gold dinar, on the future of US dollar as an international trading currency, and on his celebrated spat with arch speculator and fund manager, George Soros, in the aftermath of the Asian financial crisis in 1998.  (source)

JAPAN - REGULATONS - Islamic Finance - Japanese law reforms

A recent amendment to the Japanese laws will facilitate Shari'a-compliant financing structures within Japan. Historically, it had been difficult to structure Shari'a-compliant financing structures in Japan due to a number of factors, including the tax treatment of the distribution of profits to overseas Islamic investors. However, a recent amendment to the Japanese Asset Securitisation Law together with certain tax reforms have made investing in Japan in a Shari'a-compliant manner more attractive and have helped to level the playing field between conventional financing and Islamic financing for such investments in Japan. These amendments came into effect on 24 November 2011.

This client briefing re-visits the basics of the sukuk and sukuk-al-ijara and discusses the consequences of the latest legislative amendments for the development of Islamic finance in Japan.

Access the report : Japanese Law Reforms

INDONESIA - ARTICLES - Banking: According to Islamic Sharia Concepts and Its Performance in Indonesia

 Banking: According to Islamic Sharia Concepts and Its Performance in Indonesia
Hariandy Hasbi and Tendi Haruman

International Review of Business Research Papers
Vol. 7. No. 1. January 2011. Pp. 60 - 76

This study investigates empirically Islamic Sharia Banking concepts and to determine the performance of its based on Bank Indonesia Act No.9/1/PBI/2007 on assesment system for performance level to Commercial Banks based on Islamic Principles which consists of the aspects: capital, assets, management, earning, and likuidity which called CAMEL. The all of aspects use financial ratios as follow CAR, ROA, NPF, OEOI, FDR and Depositor Funds as a comparison as a reflect level of public trust on Islamic banking. Samples were taken from Bank Indonesia as a central bank period of 2007-2009 with 31 sample of Islamic Bank (BUS, UUS, BPRS) which was chosen based on a purposive sampling method. Using descriptive method and multiple regression analysis, the results of this study indicate that the Islamic banking have a good performance reflected CAMEL on Depositor Funds. (source)

INDONESIA - ARTICLES - Corporate Governance Disclosure in the Annual Report: An Exploratory Study on Indonesian Islamic Banks

Corporate Governance Disclosure in the Annual Report: An Exploratory Study on Indonesian Islamic Banks

Salim Darmadi 

Indonesian Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) 

Abstract: Due to their different characteristics, banks are expected to report the features of their corporate governance in the corporate report. This paper is aimed to explore disclosure on corporate governance mechanisms in annual reports of Islamic commercial banks in Indonesia. Corporate governance mechanisms addressed in this study include the Shariah Supervisory Board, the Board of Commissioners, the Board of Directors, board committees, internal control and external audit, and risk management. Employing a sample comprising seven Islamic commercial banks in Indonesia, the present study constructs the so-called Corporate Governance Disclosure Index (CGDI) to score the banks’ disclosure level. It is revealed that Bank Muamalat and Bank Syariah Mandiri, the county’s two largest and oldest Islamic commercial banks, score higher than their peers. Disclosure of the sample banks on some dimensions, such as board members and risk management, is found to be strong. On the other hand, disclosure on internal control and board committees tends to be weak. The result of this study may have some important implications for the enhancement of corporate governance disclosure of Islamic banks, thereby wider acceptance and enhanced reputation could be gained. (source)

WORLD - PUBLICATIONS - Managing Global Growth Risks and Commodity Price Shocks - Vulnerabilities and Policy Challenges for Low-Income Countries

Managing Global Growth Risks and Commodity Price Shocks - Vulnerabilities and Policy Challenges for Low-Income Countries

Summary: As part of its work to help low-income countries (LICs) manage volatility, the IMF has recently developed an analytical framework to assess vulnerabilities and emerging risks that arise from changes in the external environment (see IMF, 2011a). This report draws on the results of the first Vulnerability Exercise for LICs (VE-LIC) conducted by IMF staff using this new framework.

The report focuses on the risks of a downturn in global growth and of further global commodity price shocks, and discusses related policy challenges. The report is organized as follows: Chapter I reviews recent macroeconomic developments, including the spike in global commodity prices earlier this year. Chapter II assesses current risks and vulnerabilities, including how a sharp downturn in global growth and further commodity price shocks would affect LICs. Chapter III discusses policy challenges in the face of these risks and vulnerabilities. (download)

WORLD - PUBLICATIONS - A Theory of Domestic and International Trade Finance

A Theory of Domestic and International Trade Finance 

Author/Editor: Ahn, JaeBin 

Authorized for Distribution: November 01, 2011 

Summary: This paper provides a theory model of trade finance to explain the "great trade collapse." The model shows that, first, the riskiness of international transactions rises relative to domestic transactions during economic downturns, and second, the exclusive use of a letter of credit in international transactions exacerbates a collapse in trade during a financial crisis. The basic model considers banks' optimal screening decisions in the presence of counterparty default risks. In equilibrium, banks will maintain a higher precision screening test for domestic firms and a lower precision screening test for foreign firms, which constitutes the main mechanism of the model.