Abstract
One of the characteristics of Islamic banking is using the concept of profit sharing. This characteristic distinguishes the operation of Islamic banking with conventional banking. In applying the concept of profit sharing, most of the activities of Islamic banking especially in the distribution of funds or financing are dominated by the profit sharing agreement. However, financing in the Islamic banking today mostly is dominated by features that use nonprofit-sharing agreement such as murabahah. This paper examines why financing non-profit-sharing still dominates the realization of financing of Islamic banking in Indonesia, and what solutions can do to increase the financing based on profit sharing concept. The paper is consistent with the objectives stated in the blueprint for the development of Islamic banking in Indonesia, which states that the vision will achieve ten years. They are to establish Islamic banking system that is competitive, efficient, which meets the prudential principle, and to support the real sector through profit sharing financing and real transactions in the context of fairness, mutual help, and for betterment to achieve the mutual benefits for the society.
Highlights
Indonesian Islamic banking has been continuously developing in the last two decades
The Banking Act Number 10 Year 1998 has regulated in detail about the legal basis and type of business that can be operated by sharia banking
Some policy and rules from Central Bank of Indonesia endorsed the efforts to improve the knowledge of the society about sharia banking and fatwa from Indonesian Ulama Council (Majelis Ulama Indonesia/M.U.I.) about bank interest has pushed the growth of sharia banking
Summary
Indonesian Islamic banking has been continuously developing in the last two decades. The Banking Act Number 10 Year 1998 has regulated in detail about the legal basis and type of business that can be operated by sharia banking. Sharia bank as intermediary institution plays two main roles as fund collector from the society and fund distributor to the public. Different from conventional bank, sharia bank implements profit loss sharing mechanism. In the activity of fund collection, the principles of profit loss sharing mechanism is implemented in saving product and deposit that used mudharabah agreement (akad). In the activity of financing distribution, the financing implements agreement (akad) of mudharabah and musyarakah
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More From: Airlangga International Journal of Islamic Economics and Finance
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