ISLAMIC ECONOMIC an overview

ISLAMIC ECONOMIC an overview Savoy Homann Bidakara Hotel Bandung, 15 Februari 2013 Dr.Muhammad Syafii Antonio,MEc Member of National Economic Council...
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ISLAMIC ECONOMIC an overview Savoy Homann Bidakara Hotel Bandung, 15 Februari 2013

Dr.Muhammad Syafii Antonio,MEc Member of National Economic Council Rector of Tazkia University College, Chairman of Tazkia Group ,Global Shariah Advisor in Dubai and Kuala Lumpur.

Muhammad Syafii Antonio (Nio Gwan Chung) Personal and Educational background • Born in Sukabumi Indonesia, May 12 1967 • Converted to Islam in the end of 1980s • Graduated from Faculty of Shariah University of Jordan (1990), • Islamic Studies Program Al-Azhar University Cairo (1990), • Master of Economics International Islamic University, Malaysia (1992), • Doctorate in Micro Finance University of Melbourne,Australia (2004) Responsibilities • Board of Islamic Banking Expert, Central Bank of Indonesia • Board of Commissioner Bank Syariah Mega Indonesia • Board of Shariah Bank Syariah Mandiri • Advisor to Board of Director Bank Muamalat Indonesia • Board of Shariah Takaful Islamic Insurance • Board of Shariah PNM Holding (state-owned company) • Deputy Chairman Masyarakat Ekonomi Syariah • Chairman of BATASA TAZKIA Consulting

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Publication (9 books) • Bank Syariah dari Teori ke Praktek (Islamic bank from theory to practice) • Bank Syariah Wacana Ulama dan Cendekiawan (Islamic bank: a discourse of scholars & jurists) • Bank Syariah bagi bankir dan Praktisi (Islamic banks for banker and financial practitioners) • Bank Syariah untuk Umum (Islamic bank for public) • Wawasan Ekonomi Islam (Horizon of Islamic economics) • Arbitrase Islam di Indonesia (Islamic arbitration in Indonesia) • Zakat Kaum Berdasi (Zakat of Muslim professionals) • Apa dan Bagaimana Bank Islam (What and How Islamic Bank is) • Sistem Operasional Bank Islam (Operational System of Islamic bank)

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WHY SHARIAH SHARIAH IS AN INTEGRAL PART OF ISLAM

REMINDER: PART OF THE WHOLE  Islamic

Bank is not Islamic Finance  Islamic finance is not Islamic Economics  Islamic Economics is not Islamic Economy

Isamic

Economy is not ISLAM

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REMINDER

Those are only part of ISLAM as a Comprehensive Way of Life

Muhammad Syafii Antonio

ISLAM A COMPREHENSIVE WAY OF LIFE ISLAM

SYARIAH

AQIDAH MUAMALAH

IBADAH

SPECIAL RIGHTS

CRIMINAL LAWS

AKHLAQ

PUBLIC RIGHTS

CIVIL LAWS

INTERIOR AFFAIRS

EXTERIOR AFFAIRS

INTERNATIONAL RELATION ADMINISTRATIVE

ECONOMY

CONSTITUENCY

FINANCE

LEASING

INSURANCE

BANKING

MUTUAL FUND

Source Az-Zarqa’ (1959), al-Fiqh al-’Am; al-Fiqh al-Islami fi Tsaubi al-Jadid. (edited)

VENTURE CAP

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4

COMMERCIAL CONTRACTS UNDER MUAMALAH Contracts

mubadalah

akind

wadiah

different

amanah

guarantee

Wadiah

Yad Amanah Money

Shirkah

W

W

money

comdty

Sharf

Barter

Comdty w comdty

mortgag e

Debt transfer

Rahn

Hiwalah

Yad Dhamanah

Comdty

sulh

izdn

- Tahkim - Sulhu - I’qalah - Qismah

Muhafadhah ala al hukuk

•- Ta’addi, Ghasb, Ihtikar - Hajr, Taflis - Isa - Luqtah

Kafalah - Wakalah Jualah Musaqah, Muzarah Mugharasah Istisna

Dhamanah

Commo dity with money

(Joint Venture) Musharakah

(Trust Financing) Mudharabah

Shirkah

- Mutlaqah - Muqayyadah

sale (Buyu)

Leasing (Ijarah)

- Murabahah

-Ijarah

- B. Salam

- Ijarah wa Iqtina

- B. Istishna

-S. Mufawadhah -S. inan -S. Wujuh -S. Abdan/A’mal Musharakah Mutanaqisah

- B. tawarruq

General Scheme of Islamic Banking Financial Market Treasury Deposit

Current & Saving Deposit

Bonus

Trade based Financing

Margin/Mark-Up

Sale

Pool of Fund

Investor

Fee Based

Entrepreneurs

Real Econ omy

Investment

Investment

Time Deposit Islamic Bank

Sharing

Investment based Financing

Sharing

Social Fund

Poor People

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WHY SHARIAH SHARIAH IS FULFILLING OUR FAITH OBLIGATION

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Exodus

22:25 (New International Version)"If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest.

Leviticus 25:36 (New International Version) Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you.

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Income from loaning money, usually called usury in the scriptures, generally signifying unlawful or unjust rates.

        

Exodus.22:25 Leviticus.25:36-37 Deuteronomy.23:19-20 Nehemieh.5:1-13 Psalm.15:15 Prov.28:8 Isaiah.24:2 Ezekiel.18:8,9,13,17 Ezekiel.22:12

WHY SHARIAH SHARIAH IS GROWING RAPIDLY

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DEVELOPMENT OF THE ISLAMIC FINANCE INDUSTRY & ISLAMIC CAPITAL MARKETS 

Islamic finance has followed in the wake of innovations in the global financial services industry



A natural progression of the Islamic finance industry   

competitive retail offerings sophisticated corporate banking products innovative project finance solutions 2000’s 1990’s 1980’s

1970’s  commercial banking

 commercial banking  project finance & syndications

 commercial banking  project finance & syndications  equity  Ijarah

 commercial banking  project finance & syndications  Equity & Funds  Ijarah  sukuk  structured alternative assets

2005 on ward  commercial banking  project finance & syndications  Equity & Funds  Ijarah  sukuk  structured alternative assets  liquidity management tools

Source: IIFM

Wide Variety of Products Infrastructure investments

Equity

Venture Capital/ private equity

Leasing Sukuk Property Commodity Morabahas

Trade Finance

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THE GLOBAL ISLAMIC FINANCIAL INFRASTRUCTURE Infrastructure Bodies: AAOIFI – Accounting and Auditing Organization for Islamic Financial Institutions IFSB – International Financial Services Board

To establish, develop and promote Islamic Financial Market

IIFM*

IFSB*

Governance IIFM – International Regulatory Islamic Financial Standards Market IRTI – Islamic Research and Training Institute

AAOIFI*

IIRA Rating IFI & Islamic Finance Instruments

GCIBFI

LMC Market Maker for Islamic secondary market instruments

Accounting Arbitration Centre – and AuditingUnder Formation Standards Other NBFI:

IRTI*

To promote Islamic research and training`

Arbitration Centre* Dispute Settlement

To enhance market understanding of Islamic finance

GCIBFI – General Council for Islamic Banks and Financial Institutions IIRA – International Islamic Rating Agency LMC – Liquidity Management Centre Regulators – Central Banks, Monetary Agencies, Securities Commissions etc.,

Source:Modified from Ijlal (2006)

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ISLAMIC ASSET MANAGEMENT The

Islamic Asset Management Market is currently $52 billion vs. $22 trillion invested in the conventional Asset Management market (Source: Ernst and Young) 21

MARKET POTENTIAL AHEAD Moody’s

Investors Service (2010) predicts that the Islamic Finance Industry can reach $5 trillion by 2015 A

great opportunity for Investors, Governments and Financial Institutions

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Sukuk issuance in Europe Europe

France

Germany

Italy

Turkey

UK

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2

5

Number of active Institutions offering Sharia’a Finance *

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3

1



2

12

Corporate Sukuk issued *

P

P





P

P

Government Sukuk issued *

P



P



P



-

$22,561 m

$18,950 m

-

26%

-2%

Number of Islamic Banks *

Total Sharia’a compliant Assets – Islamic Financial Institutions* Growth of Islamic Financial Institutions from 2009 to 2010 *

$42,779 Unknown Unknown m

10%

Unknown Unknown

ENGLAND 

Five Islamic banks, one Takaful company, more than 15 conventional financial institutions offering Islamic financial products.

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FRANCE: 

Discussion at the highest level of the state on the strategy and the necessary steps to introduce Islamic finance. Talks about the licensing of an Islamic bank.

ITALY 

Conference organized by the Osservatorio Del Mediterraneo focusing on the opportunities for Italy.

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GERMANY 

€100 million Sukuk issued by the State of Saxony-Anhalt rated «AA-» and matured on Aug. 13, 2009.

SWITZERLAND 

Several Swiss banks offering private banking and Sharia compliant wealth management (local banks and affiliates of Gulf banks).

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A significant number of European banks are active in the structuring of Sharia compliant transactions In the Gulf Cooperation Council countries and Asia.

AUSTRALIA, MUSLIM COMMUNITY COOPERATIVE AUSTRALIA (MCCA) 



MCCA is among the first and largest Islamic financial service provider. MCCA has a huge lending potential, with long waiting list customers, but lacks of source of funding.

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WHY SHARIAH SHARIAH IS A COMPREHENSIVE LIFE STYLE

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ROLE OF ISLAMIC BANKING

Economic Growth

Islamic Bond Islamic Insurance Islamic Mutual Fund Islamic Banking Islamic Capital Market Islamic Finance Company Islamic Social Funds (ZISWaf)

Real Economic Activities

Poverty Alleviation

Reducing Unemployment

Financial System Stability

WHY SHARIAH SHARIAH MEANS HALAL

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Muhammad Syafii Antonio

HALAL - HARAM Alcohol Pig Dead meat

DZAT

EARNING

HARAM

HUKM

corruption Manipulation Gambling

SPENDING

Mubadzir

TRANSACTION

Riba Gharar Maysir

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MISCONCEPTION OF HALAL Halal dzat

Halal hukm

The Real halal

WHY SHARIAH HALAL FINANCE IS CRISIS RESILIENT

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ISLAMIC BANKING AND GLOBAL CRISES 

.

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While the conventional financial system is relying under the pressure of global financial crisis, the Sharia banking industry is benefitting from it and expects to continue its fast-paced growth in the years to come.

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21



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ISLAMIC BANKING AND ASIAN FINANCIAL CRISIS 43

Normal Condition

SAVER

BUSINESS

Bank 8%

15 %

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Economic Crisis

SAVER

BUSINESS

Bank

20-70 %

20 %

Negative spread of -50 percent

Who shall pay the loss  Bank,

if profit remains

 Bank’s

paid up capital

 Go

to the Government as Lender of Last Resort

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BAIL OUT 1997 S/D 2000 

1998

177 Trillion (USD 17 billion)



1999 – 2000





Budget 1998/1999 : 263,8 Trillion ( USD 26 billion) 1999/2000 :

±

650 Trillion (USD 65 billion)

218,2 Trillion (USD 21 billion)

WHY SHARIAH SHARIAH IS PRO-SMALL N MICRO BUSINESS

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Global Poverty Eradication through Micro Finance, Micro Trust Fund and Micro Insurance

5

Risk Protection/ Social Security

Menabung/Sa Saving ving

Commercial Pembiayaan/ Pembiayaan/ Financing Financing Financing

Risk Protection/ Social Security

Saving

Commercial Financing

Micro Credit

Shadaqah/ Charity

BAYTUT TA’MIN

BAYTUL MAAL

Micro Pinjam/Credit Pinjam/Credit Pinjam/Credit Credit

Shadaqah/Charity

Islamic Financial Institution for the SME Empowerment

Economic Wellbeing of SMEs

BAYTUT-TAMWIL LKM, BMT, BPRS

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ISLAMIC MICRO FINANCIAL INSTITUTIONS (IN INDONESIA) No .

Institutions

Islamic

Conventional

1.

Islamic Rural Bank (BPRS)

152

Over 20,000

2.

Islamic Cooperative (BMT)

3000

Over 20.000

Over 50

Almost in every suburb of major cities

Micro Finance 3. initiatives (LKMK)

Lingkages of Islamic Small and Micro Finances Case of Indonesia Public Depositors : Individual and Institution

Comercial fund

BPRS

BMT BPRS

BPRS

ICB

BMT

BMT BMT

BPRS Subsidized fund PNM

Various Dept

Dept Of Finance

BI

Dept Of Coop

BEPPENAS

LOCAL NGOs

INT’L NGOs

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SHARIAH FOR U.S. SOCIETY

ISLAMIC FINANCE PROVIDERS IN TH U.S

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Islamic Windows  Islamic Mutual Fund 

 Zaad

fund  Amanah fund  Islamic Dow Jones

Islamic Chamber of Commerce  Credit Unions 

U.S. TREASURY EFFORTS IN ISLAMIC FINANCE Conducted a collaboration with harvard Islamic finance forum.  Appointed scholar-in resident to advice strategies and matters on Islamic finance at national level. 

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BIG OPPORTUNITY IN ISLAMIC INSURANCE Wide market  Almost needed by every body  Home and during travel  Kind,teens,adult and pensiuns  Car  Health  House 

 Investment

opportunity in Shariah Mutual Funds Shariah

compliant Socially responsible investment More safe Higher return

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WHY SHARIAH SHARIAH COULD PROMOTE A BALANCE OF SUCCESS

WHAT KIND OF SUCCESS DO YOU WANT ?

Short Term VS. Long Term

Duniawi VS. Ukhrawi

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Spiritual

Intellectual

Financial

Balance of success Physical

Emotional

Social

Wassalamuallaikum Warahmatullahi Wabarokatuh

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