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Islamic Finance in the Era of
Finacial Service Authority (OJK)
Abdul Qoyum, SEI, M.Sc.Fin
Presented in Seminar Nasional
Convention Hall UIN Sunan Kalijaga Yogyakarta
08 February 2014
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Outline
1. Islamic Finance?
2. statistics of world Islamic finance
3. Islamic finance in Indonesia (Islamic banking,sukuk, islamic equity, islamic unit trust, etc)
4. Problem of Islamic finance development inIndonesia
5. Some Policy of OJK in developping Islamic finance.
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Islamic FinanceIslamic finance or shariah finance?............
1. Financial system which is developped based on an islamicworldview
2. Financial system based on Islamic value
3. Islamic finance objective is to realize maslahah (manfaat andberkah) and realize maqosid syariah. Dharuriyyat (religion,self, mind, progeny and wealth), hajiyyat and tahsiniyyat.
4. Basic principle of islamic finance: no riba, no gharar, nomaysir and halal activities.
5. Islamic finance is finance which is based on Iman, Islam andIhsan.
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Islamic Finance...1. Islamic finance should support economic activities,
optimal level of economic growth, low and stableinflation, low unemployement, Alleviate poverty, Support
international Trade.2. Islamic finance is Equity base Financial system, not debt-
base.
3. Islamic finance is Real-sector base finacial system
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Competitiveness in Islamic Finance
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Indikator Keuangan Islam Dunia
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Statistics
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Islamic Finance Assets
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Islamic Banking
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Sukuk Market
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Knowledge Indicator
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Governance
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Shariah Governance
d d
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CSR Fund and Awarness
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October 2013, the annual growth of Islamic banking (Islamic Banks / BUS/ UUS)was recorded 32% with total assets of Rp229, 5 billion, total financing Rp179, 3billion and total deposits of Rp174 trillion. The number of Islamic banks listed 11banks, UUS is 23 units and BPRS has reached the number of 160, bank offices is2932, increase of 269 compared 2012.
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Sukuk
0
20,000
40,000
60,000
80,000
100,000
120,000
Jan-0
9
Mar-09
May-0
9
Jul-09
Sep-0
9
Nov-0
9
Jan-1
0
Mar-10
May-1
0
Jul-10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-11
May-1
1
Jul-11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-12
May-1
2
Jul-12
Sep-1
2
Nov-1
2
Jan-1
3
Mar-13
InB
illionR
upiah
Sovereign Sukuk (SBSN) issuance
SUKUK (SBSN)*
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the number of companies issuing sukuk in Indonesia is very few.
According to www.asiamoney.com, currently Indonesia
companies ranks as fifth in term of geographic ranking forcorporate sukuk issuance accounted for 1.7% with total value
USD373 million after corporates from Malaysia, Saudi Arabia,
Singapore, and United Arab Emirates.
Table 1.1. Global Corporate Islamic Bond Ranking by Deal Nationality
Full Year 2012
Rank Deal Nationality Deal Value (USD
million)
No. of issuance % share
1 Malaysia 15,245 73 68.72 United Arab Emirates 3,065 7 13.8
3 Saudi Arabia 2,683 4 12.1
4 Singapore 529 2 2.4
5 Indonesia 373 4 1.7
6 Hongkong 196 2 0.9
7 Japan 91 2 0.4Total 22,182 94 100.0
Sources: www.asiamoney.com
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Sukuk Issued by company is very few. It indicates some points: first, company still under-
estimate with the quality of sukuk in supporting company growth. Second, company still
prefer for using another source of fund to finance their investment activities. Third, very
few study that address some issue how sukuk can contribute significantly to the value ofcompany (capital structure theory)
Figure 4.1. Total SukukOutstanding as April 2013
Sources: International Islamic Financial Statistic (IFIS).Author calculation
Government
/Sovereign
sukuk,7100.61
BUMN
Sukuk,
204.05
Corporate
Sukuk,323.58
Total Sukuk Outstanding (Rp Billion)
ISSUE TYPE SECTOR NO ISSUERTYPE OFSUKUK
AMOUNT (IDRMILLION) %
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ISSUE TYPE SECTOR NO ISSUER SUKUK MILLION) %
Sovereign
Sukuk Government 1 Ministry of Finance
Short Term
Ijara 167.46
Government 2
Perusahaan Penerbit
SBSN Indonesia Al Ijarah 6933.15
TOTAL 7100.61
93.08
%
GovernmentRelated
Entities
(BUM N) Banking/Financial 1 Bank Muamalat Syariah M udharabah 105.95
Telecommunication 2 PT Indosat Al Ijarah 98.1
TOTAL 204.05 2.67%
Corporate Banking/Financial 1 BPD Sulawesi Selatan Mudharabah 11.62
Banking/Financial 2Bank Nagari Sumatera
Barat Mudharabah 10.94
Energy 3 Aneka Gas Industri, PT Al Ijarah 48.23
Retail Manufacturing 4 Matahari Putra Prima Tbk Al Ijarah 12.04
Food Manufacturing 5 Mayora Indah Tbk Mudharabah 48.7
IT 6 Metrodata Electronics Tbk Al Ijarah 9.74
Retail Manufacturing 7 Mitra Adi Perkasa (MAPI) Al Ijarah 4.1
Construction/Property 8
PT Adhi Karya
(PERSERO) Mudharabah 25.93
Car rental/leasing 9
PT Adira Dinamika Multi
Finance Mudharabah 9.58
transportation 10 PT Berlian Laju Tanker Al Ijarah 4.29
Chemical
Manufacturing 11 PT Pupuk Kaltim Timur Al Ijarah 13.88
Water Power
(Utilities) 12 PT Sumberdaya Sewatama Al Ijarah 20.58
Food Manufacturing 13
PT Tiga Pilar Sejahtera
Food Al Ijarah 30.69
Chemical
Manufacturing 14
PT Titan Petrokimia
Nusantara Al Ijarah 22
Food Manufacturing 15 Salim Ivomas Pratama Al Ijarah 29.66
Construction/Property 16 Summarecon Agung, PT Al Ijarah 21.6
TOTAL 323.58 4.24%
GRAND TOTAL 7628.24 100%
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Albeit AAOIFI has issued standards for 14 different types of sukukstructure, namely 1)
Istisnasukuk, 2) Murabahah sukuk, 3) Musharakah sukuk, 4) Mudarabah sukuk, 5)
Wakalahsukuk, 6) Muzaraahsukuk, 7) Musaqahsukuk, 8) Mugharasahsukuk, 9) Salam
sukuk, 10) Sukukof existing services; 11) Sukukof future service, 12) Sukukif existingowned assets, 13) Sukukof existing leased assets, and 14) Sukukof future assets on lease
contract, the common sukukstructure in Indonesia are either ijarahor mudharabah.
Figure 4.4.Corporate SukukStructure
Sources: International Islamic Financial Statistic (IFIS). Author calculation
Al Ijarah
67%
Mudarabah
33%
Corporate Sukuk in Indonesia
by Akad (No. of issuance)
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Requisite of the good Islamic
financial systemGood
Islamic Financial System
Strong Risk
Mana ement
Effective Regulation
Sound Corporate and
Shariah Governance
Supportive legal
frameworkk
Robust Accounting
Disclosure and
Good Educational
System
Active Research in Islamic
Finance
Society awareness
Shariah Advisory
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Problems of Islamic finance
development in Indonesia Human resources Gap
Academicians and Practitioners Gap
Low level of Research and product development in all areas
of Islamic finance (islamic banking, islamic money market,islamic capital market, islamic bond/sukuk, islamic unittrust, takaful, zakat institution, etc.)
Awareness is very critical.
Slow development paradigm. 2014 Challange (General election, OJK as full regulator,
Bank BUMN Syariah, Dana Haji, Bank Wakaf, The fedpolicy etc)
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OJK as RegulatorArgument for regulation
Chapra-Khan theory
Systemic objectives, the protection of depositors, compliancewith syariah, integration of islamic finance in the international
financial systems. DragesTheory
Instability of financial systems, Bank failure.
LlewellynsTheory
Potential systemic problem, the correction of other marketimperfections and failures, the need for monitoring of financialfirm, the need for consumers confidence, potential moralhazard.
Th P li b OJK
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The Policy by OJK Provide a legal, regulatory and supervisory infrastructure.
Islamic financial system
OJK-Shariah advisory council as the highest authority Indonesia international islamic financial centre
Strengthening synergies between financial system
OJK should responsible for increasing the integration of Islamic finance into theinternational finacial system. This is more important due to the AEC 2015.
Human capital development
Establish a research center for shariah and islamic finance which is under OJK. It isvery important to support the rule of OJK to regulate and supervise the financialinstitution especially related to many issue that arises in islamic finance. Inaddition, this institution will develop new product in Islamic finance that mayberelevant and workable in islamic financial institution.
Coordinate with all university which are provide islamic finance education, trainingetc. The role of OJK is to provide the standard curriculum which is relevant theindustries
Establish university in Islamic finance which provide a scholarship.
International body in Islamic Finance (AAOIFI, IFSB, IILM, IIFM)
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OJKDeclare as Islamic Financial Hub
Issue a islamic finance master plan (cover Indonesiatimur)
Coordinationwith all ministry in supporting islamicfinance
Human resource Gap
Product development (bottom-up approach and top-
down approach) and (Fast Line and SAC Line) (goodfor corporate and also for SMEs)
Islamic economic civilization
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Islamic Money Market Instrument Mudharabah interbank investment, Commodity
Murabahah (bursa sukussila)Government InvestmentIssue, Malaysian Islamic Treasury Bills, BNM Notes,
Sukuk BNM, Islamic Negotiable Intrument (BBMakad),Negotiable Islamic Debt Certficate (BBA),Islamic Accepted Bills, Sell and buyback agreement,Cagamas Sukuk.
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Sukuk Sales based (BBA, Murabahah, Salam, Istishna)
Lease-Based (Ijarah, Ijarah Muntahiya bittamlik)
Partnership (Mudharabah and Musyarakah)
Agency based (Wakalah bil istismar)
Issue:
Sukuk Debt or Equity?
Sukuk trading Sukuk pricing
Sukuk Default
Sukuk Rating
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Derivative Product Forward Wad-I Product
Islamic Forex Swap
Islamic Cross Currency Swap Islamic Profit Rate Swap
Islamic Option
Islamic Structured Product
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OJK and Islamic Economics
OJK has an important agenda in realizing Islamic economiccivilization. 3 Pillar in Islamic Economic CiviliztionA. Welfare1. QS Quraisy : 1-4 (indicator: Islamic value system, economic
power in the real sector (industry and trade), basic needsfulfillment and distribution systems, as well as security and
social order.)2. QS Thaha : 124 (Welfare is Shariah based)
3. QS Al-Hasyr : 7 (Distribution of assets)
B. Economic Independence
optimization of the local potential, the quality of human
resources, and Shariah based business culture.C. Sovereignty and Economic Governance (maslahah andmaqosid syariah base)
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Wassalamu Alaikum
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Appendix
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Islamic Money Market Instrument Mudharabah interbank investment, Commodity
Murabahah (bursa sukussila)Government InvestmentIssue, Malaysian Islamic Treasury Bills, BNM Notes,
Sukuk BNM, Islamic Negotiable Intrument (BBMakad),Negotiable Islamic Debt Certficate (BBA),Islamic Accepted Bills, Sell and buyback agreement,Cagamas Sukuk.
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Sukuk Sales based (BBA, Murabahah, Salam, Istishna)
Lease-Based (Ijarah, Ijarah Muntahiya bittamlik)
Partnership (Mudharabah and Musyarakah)
Agency based (Wakalah bil istismar)
Issue:
Sukuk Debt or Equity?
Sukuk trading Sukuk pricing
Sukuk Default
Sukuk Rating
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Derivative Product Forward Wad-I Product
Islamic Forex Swap
Islamic Cross Currency Swap Islamic Profit Rate Swap
Islamic Option
Islamic Structured Product
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Product Development
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Step One : Activity, Industry, & Products Screening
DJIM MSCI Islamic Index S&P Shariah Index FTSE Islamic IndexNon-PermissibleActivities: Negative Screen Excludes:
Non-PermissibleActivities:
Pork Production Alcohol Pork Production Pork Production
Tobacco Tobacco Cloning( Non-Halal
Food Products)Non-Halal Food Products
Alcohol Pork-related
productsAlcohol Beverages Alcohol Beverages
Gaming ConventionalFinancial services
Gambling Gambling
Conventional
Financial ServicesDefense/weapons
Interest based
Financial Institution
Interest based Financial
Institution
Entertainment Gambling PornographyEntertainment(
casinos)
Defense, Weapons Music Arms, Defense Arms, Defense
NonHalal food Hotels Tobacco Tobacco
Activities Contrary
to Islam Cinema
Gold & silver trading as
cash on deferred basis
Activities Contrary to
Islam
Adult
Entertainment
Activities Contrary to
Islam
Step One : Activity, Industry, & Products Screening
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Meezan islamic index Jakarta Shariah index SAC ( S C ) AAOIFI
Non-Permissible
Activities:
Negative Screen Excludes: Non-Permissible Activities:
Interest related Gambling and games
considered as gambling.Financial sevices based on riba
Not to engage in prohibited
business
Gambling
Trading that is
prohibited according to
Shariah
Gambling/Gaming
Alcohol Beverages
Conventional financial
institutions Manufacture and/or sale ofnon halal products
Arms Manufacturing
* Transactions that
contain elements ofbribery (risywah )
tobacco
Insurance both life and
general
products or services that
can deprave ones morals
and are harmful
Conventional
insurance
DefaulterCompanyEntertainment
Non Halal Food
MutualFunds both
open-ended and close
ended
Stockbroking or share tradingin Shariahnon-compliantsecurities
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Step Two : Financial Screening
DJIM MSCI Islamic Index S&P Shariah Index
Liquidity
*Acc Rec/24 Mth Average
Market Cap < 33%
Total Cash + Account
Receivables / Total Assets
< 33.33%
*Acc Rec/ Market value of
equity ( 36 Mth average)
< 49%
*Cash + Int Bearing Sec/24
Mth Average Market Cap.
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