Sharia economy ‘a hope’ amid crisis, BI governor says

By Erwida Maulia , The Jakarta Post

Sharia-based banking and economy pose “no risk” of financial crisis if implemented correctly, because unlike the conventional system, they reject speculative practices without underline transactions, Bank Indonesia said Wednesday.

Speaking during the opening of the 2nd Sharia Economy Festival, BI Governor Boediono said what could be learned from the ongoing global economic crisis was that the financial sector could not be based on speculative practices and should be based instead on real business activities.

He added that many financial instruments were now no longer based on underline transactions, which in turn had created a massive bubble.

“Due to its internal dynamics, the bubble gets larger and finally blows; this is when a crisis occurs. But we know this is not the case with sharia banking,” Boediono told the hundreds in attendance at the BI-organized festival at the Jakarta Convention Center.

“Right from the start, it does not allow for speculative transactions and products without the existence of underline assets.

“For that reason, if implemented properly, we can say that sharia economy and banking pose no risk of a crisis. Amid the ongoing global crisis, the presence of sharia banking is actually a hope.”

The festival will run from Feb. 4 to 8, and is aimed at promoting sharia banking and financial products.

Boediono said the conventional banking system should go “back to basics” and follow the principles of Islamic banking by not “playing” with speculative activities.

“A bank’s main function is to facilitate and finance activities related to the provision of goods and services for the community, which are real activities. These are the basics of banking operations that both conventional and sharia banks must cling firmly to,” he said.

President Susilo Bambang Yudhoyono, who officially opened the five-day event, commended the sharia economy for being able to survive amid the global economic meltdown, citing sharia banking’s annual growth of an average of 35 percent over the last few years.

He urged sharia economic players to continue supporting national economic development agendas.

“I hereby ask sharia banking to play a more active role in supporting the development of the real sector through more efficient savings and investments. We want not only Muslims, but also all citizens to enjoy its benefits,” Yudhoyono said.

He added the amount of financing provided by the country’s Islamic banking institutions had grown from a mere Rp 5.53 trillion in 2003 to Rp 27.94 trillion in 2007 and Rp 38.19 trillion in 2008.

The 2008 figure constituted about 3 percent of the total amount of national bank financing.
Yudhoyono said the amount of assets managed by the country’s sharia banks also rose from 1.4 percent of the country’s national bank assets in 2005, to 1.6 percent in 2006, 1.8 percent in 2007 and 1.8 percent, or about Rp 50 trillion in 2008.

The central bank governor said there were currently 1,470 sharia bank offices across the country, and that they had disbursed Rp 326 billion in loans for micro- and small-scale firms as of the end of 2008.