Learning Islamic Finance in Indonesia

The Al Qalam Institute for Islamic Identities and Dialogue in Southeast Asia is an institute for understanding Islam, the Muslims and peoples of Mindanao that are culturally linked to other Southeast Asian communities. This is part of the Ateneo de Davao University under its research department. As an institute, it actively contributes toward fortification of spirituality thereby strengthening a sense of belongingness to a bigger humanity and co-creating and nurturing a society founded on social justice, gender equity, multiculturalism, religious pluralism and sustainable peace and human development.


Al Qalam Institute in partnership with Peace and Equity Foundation is preparing a project document which aims to create a manual to serve as guidelines for Bangsamoro Shariah Finance.  This program aims to assist the proposed Bangsamoro Entity in Southern Philippines. Al Qalam and its partners are hoping that the Bangsamoro Shariah Finance Manual will help our Muslim brothers and sisters to move forward in the direction of lasting peace and sustainable progress and development in their communities. As part of the preparation, we just concluded a Shariah Finance Study Tour in Indonesia particularly in Yogyakarta and Jakarta last November 10-17, 2013.


There were seventeen delegates who joined us in the study tour. These delegates are coming from different organizations and civil society groups in Mindanao. The names and organizaions of the delegates were the following. From Peace and Equity Foundation: Mr. Roberto Calingo, Executive Director; Mr. Martiniano Magdolot, Board Member; Mr. Alberto Roslinda, Jr., finance officer; and Ms. Wilma Guinto, SDO. From the Azatidz Council of Davao City: Ustadz Janor Balo, Ustadz Abdullah Joe Manan, and Ustadz Nolie Darindigon. From Al Qalam we had Atty. Jamil Matalam, Joseph Germin Umadhay, Jr. Mr. Harris Tanjili. From the different organizations: Hadja Bainon Karon, Federation of Bangsamoro Women; Ms. Yolanda Nawal, Katiakap Multipurpose Cooperative; Hessam Ezrael, Al Wataniya Credit Cooperative; and Mr. Errel B. Narida, One Renewable Energy.


The whole trip was a success due to the strong support of the Consular Office of Indonesia in Davao City under Hon. Eko Hartono , Consul General.


Our first stop was to visit the Islamic University of Indonesia (UII). We were welcomed no other than the head of the university, Prof. Dr. Drs. Edy Suandi Hamid, M.Ec. Then it was followed by a series of presentations given to us by experts on Islamic Finance.


Before we proceed further, lets discuss first the background of this project. Why do we need to study Islamic Finance?


In a policy document presented by Mindanao Deveopment Authority, it stated a new paradigm of looking at the problem in Mindanao. It clearly made mentioned of the issue on “Perceived Suppression of Islamic Practices, Traditional Customs and Indigenous Institutions”  as one of the main causes of problems in Mindanao. To quote the MINDA 2020 output:


Numerous analyses and prescriptions have been put forward to reconcile these extremes. In the 1990s, it was a popular notion that poverty lies at the root of the Mindanao peace and development challenge, prompting interventions that were dominantly economic in nature. Without underestimating the destructive impact of poverty, historical injustice is now commonly regarded as the underlying root of the Mindanao challenge. This injustice has come in various forms: social, political, economic, cultural and environmental. Thus, attainment of lasting peace and development in Mindanao must hinge on addressing and redressing these various forms of injustice.


Last October 7, 2012, President Benigno Simeon “Noynoy” C. Aquino III, presented the Framework for the Bangsamoro Agreement. This framework aims to lay down the road map for the signing of the final peace agreement between the Moro Islamic Liberation Front (MILF) and the Government of the Philippines. Al Qalam Institute of the Ateneo de Davao University sees this milestone as “An enduring peace agreement between the Government of the Philippines (GPH) and the Moro Islamic Liberation Front (MILF) has been the long-held clamour of the people in the region. The decades-long conflict has taken a dizzying, ruthless and despondent toll on both fronts: more than a thousand people’s lives wasted, properties and entire communities destroyed, with a multitude of people displaced. With this framework agreement, the people of ARMM hope that it will lead to a Final Peace Agreement that will ensure reforms on its political structure and bring true and lasting peace in ARMM.”


The Framework Agreement (2012) outlines the general features of the political settlement between the Government of the Philippine (GPH) and the Moro Islamic Liberation Front (MILF).  Crafted by the panels of the GPH and MILF, the FAB defines the structure and powers of the Bangsamoro autonomous political entity that will replace the Autonomous Region in Muslim Mindanao (ARMM).  It also sets the principles, processes, and mechanisms for the transition until the regular election for the new Bangsamoro entity in 2016.  It is hope that the FAB paves the way for the just resolution of the historical divide between the government and the Bangsamoro.


Al Qalam and PEF, together with their partners, believe that Islam has many things to offer in the people of Mindanao. Instead of focusing on inter-religious dialogue, Islam can give us an wholistic view of finance, economics, and human development.


Going back to our Indonesia trip, we can learn a lot from our Indonesian neighbours how they live the principles of Islam in their economics, finance, and business. But this was made possible because of the contributions of their young Muslim scholars. These scholars started their personal advocacy as early as 1900s.


Brief history about UII. In 1945, a general assembly meeting of the Masjoemi (Majelis Sjoero Moeslimin Indonesia ) was held. The meeting was attended by some of the leading political figures of the day including Dr. Muhammad Hatta (the first Vice President of Indonesia), Mohammad Natsir, Mohammad Roem, and Wachid Hasyim. One of the decisions of this meeting was the establishment of Sekolah Tinggi Islam ( STI-Islamic Higher School ) by those leading figures, who became the institution’s founders. STI began operating on July 28, 1945 and developed into a university called Universitas Islam Indonesia (UII) on November 3, 1947 to respond to the growing demand for a higher education that integrates general knowledge with spiritual teachings.


Many students and staff members joined the Indonesian military force to repel the Dutch invasion. In the early 1950s, shortly after the war, UII had to move its classes from place to place around the city of Yogyakarta , even using part of the Sultan’s Palace and some of the faculty members’ houses as classrooms.


We also visited the Muhammadiyah univeristy. This has a very fruitful history. Wikipedia tells us that “Muhammadiyah  is an Islamic organization in Indonesia. The organization was founded in 1912 by Ahmad Dahlan in the city of Yogyakarta as a reformist socioreligious movement, advocating ijtihad – individual interpretation of Qur’an and sunnah, as opposed to taqlid – the acceptance of the traditional interpretations propounded by the ulama. At the moment, Muhammadiyah is the second largest Islamic organization in Indonesia with 29 million members.[1] Although Muhammadiyah leaders and members are often actively involved in shaping the politics in Indonesia, Muhammadiyah is not a political party. It has devoted itself to social and educational activities.”


Looking at our own context, we can indeed learn a lot from the Indonesians which we share common historical roots dating as far as the Mahajapit Empire and the influence of Hinduism and Islam. We also share some common words in our languages.


In the local setting, Al Qalam Institute aims to open up a new arena of what Islam can offer in today’s economic concerns and community empowerment. We can have continuous dialogue about our religions, but Islam, as a way of life, has different economic perspective that is not the usual value of capitalism and commercialism. It was under these circumstances that we pursued the study on Islamic finance and establishing economic pratices that would comply with Islamic law, or Shariah, within Mindanao and the proposed Bangsamoro Political Entity.


Studies on Islamic Finance conducted in Malaysia have shown that:


“One early experiment with Shariah-compliant economic practices was the Mit Ghamr Savings Bank. Established in 1963 in the small town of Mit Ghamr in Egypt, the bank primarily accepted savings and deposits, which were invested in local businesses with profits channelled back to depositors. Interestingly, during its life the endeavour was merely called interest-free banking as the government of the day was wary of ‘Islamic fundamentalism’ and overt mention of Islamic tenets was carefully avoided.”


Today there is an Islamic alternative for most conventional financial instruments, whether simple or sophisticated. Where there is not, it is usually due to a Shariah prohibition. However, proponents believe that far from being handicapped by Shariah, its rules serve to put Islamic finance in good stead and have largely shielded Islamic finance from the worst economic crisis since the Great Depression. 


Why Indonesia?


Our group decided to tap the Indonesian universities in studying Islamic finance based on the cultural and religious similarities between us.


We know that “long before the Spaniards came to the Philippines, Mindanao, particularly Sulu and Maguindanao, had a distinguished history of contact with other sovereign kingdoms of Indians, Chinese and Arabs. Toward the second century after the advent of Christ, the Pallava Kingdom rose into prominence and spread its influence from Southeastern India to Cambodia, Java, Sumatra, the Malay Peninsula and what is now the Philippines”. Thus, people in Mindanao had strong historical and cultural similarities with our Indonesian neighbours.


Three Main Points


The eight days educational trip at Jogjakarta and Jakarta had taught us the following important learnings. First, the move to introduce Islamic finance in Indonesia was started by their young Muslim intellectuals, especially those whose field of expertise were economics and business. These young Muslim intellectuals started their advocacy to look at the good things that Islam can offer to Muslims and non-Muslims in the field of economics. They also defined the parameters of how to introduce Shariah compliant micro finance whose main objective is to help people start up their economic life without the fear of incurring more debts due to “riba” or usurious interests.


These young intellectuals were also part of the religious leaders in their communities. Thus, they have a holistic view about Islam from economic, religious, and socio-political landscape of their society.


The second point that we learned focus on the institutions that these young Muslim intellectuals organized and set up. The first institution that was organized was the Baitul Maal wa tamwil (BMT). “The existence of the Baitul Maal wa tamwil (BMT) as one of the pioneers of financial institutions with Islamic principles in Indonesia, starting from the idea of the activists Salman ITB Bandung, which established the Cooperative Services Expertise Teknosa in 1980.” BMT was more like a cooperative and this has business and social responsibility all in one. “The initial concept of the thesis Syar’iyah BMT begins, “Can the concept Maal and Tamwil combined into one?”. The question that they raised at first was that, “can maal and tamwil compliment each other?


Maal taken from ZIS used as security for the financing of 8 groups are eligible to receive zakat (ashnaf). In short, zakat is used as a productive fund. While Tamwil, pure business calculation and where obligations and rights, which are used purely business are applied.


Moreover, the Islamic Economics Society (IES) defines further BMT as, “Baitul Maal Tamwil is an institution / Islamic financial institutions that effort substantially collects funds from a third party (member storage) and channel financing to businesses productive and profitable. Baitul Tamwil source of funds comes from public deposits (deposits) which includes savings , time deposits, capital and other similar deposits and not contrary to the provisions of the applicable regulations and legislation.”


Still from IES, “basically an investment of obligation of every Muslim (especially) to worship solely to obtain the blessing of Allah SWT included in activities in the field of finance and trade. This is a manifestation of the belief in Allah ban on usury prohibition as contained in the letter of Sura Al-Baqarah 275-279. In some cases, the Financial Institutions conventional and sharia have in common, especially on the technical side of the receipt / deposit of money, services and technologies. However, there are many fundamental differences between the two. The difference concerns the legal aspects, organizational structure, distribution of funds, the work environment and the mechanism of calculating gain or for the results.”


Third point, we visited the office of the Ministry of Religious Affairs (MORA) in Jakarta. We learned that the government only comes in when there is already a need to regulate and set up laws and policies to govern the Islamic finance. Thus, the Islamic finance in Indonesia started at the grassroots level. It was moulded by young Muslim intellectuals and ustadzes and aleems who are not only experts in theological and dawah of Islam, but also experts in Islamic economics and different fields of knowledge.


Looking at our local context, we are still far behind in terms of looking at Islam in a holistic view of different fields of education and knowledge. We need Muslim intellectuals and ustadzes that are well versed in science, philosophy, economics, engineering, politics, and sociology. Because our society evolves. Yes, the Holy Quran is complete, but mankind (or manu’sya) are fallible and has its own limitations.


Inshaallah (God willing!), we can generate more Muslim intellectuals in our country today. These intellectuals are Muslims who see all human beings as creations of Allah (SWT) and has a role to be a mover for change, a seeker of knowledge, and an advocate of peace and development.


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