The Regulation of Syariah Principles in the Syariah Banking in Indonesia

Abstract

This paper results from a research conducted to analyze critically the syariah principles within the syariah banking law in Indonesia, namely Law No. 21/2008 on Syariah Banking. This research is focused on analyzing the law, which prescribes a collateral for mudharabah financing and the inconsistencies of norms within laws on syariah banking in Indonesia.The results show that in the syariah banking operation, mudharabah financing cannot be implemented purely as its definition based on syariah principles. This is because mudharabah financing contains high risks. To moderate the risks, adequate collateral is absolutely required as a warranty for settling the repayment of the financing when the mudharib is unable to settle his/her debt. On the other hand, collateral in the mudharabah financing is definitely required for maslahah of public, namely it is intended to secure the depositors. Contradiction in the norms were found because substantively there is different formulations (in prescribing the collateral) between the fatwa of National Syariah Council (DSN) No. 7/DSN-MUI/IV/2000 on Mudharabah Financing (Qiradh) and the Article 23 (2) of Law No. 21/2008 on Syariah Banking. As a consequence, the interpretation of the Article 19 (point c) is not in line with Article 23 (2). This could result in law uncertainty.

Keywords: Syariah principles, mudharabah, syariah banking.