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Application of Sharia Principles in Sharia Financial Institutions
Fadia Fitriyanti1, M. Fabian Akbar2, Andi Pramudya Syamsu3,Reksa Fikri Nurhaifa4
1Universitas Muhammadiyah Yogyakarta, Indonesia, E-mail: [email protected]
2Universitas Muhammadiyah Yogyakarta, Indonesia, E-mail: [email protected]
3Universitas Muhammadiyah Yogyakarta, Indonesia, E-mail: [email protected]
4Universitas Muhammadiyah Yogyakarta, Indonesia, E-mail: [email protected]
Submitted: January 06, 2023; Reviewed: March 27, 2023; Accepted: April 03, 2023.
Article Info Abstract
Keywords:
Financial Institutions, Principles, Sharia.
DOI:
10.25041/fiatjustisia.v17no2.2849
This study analyzes related to Islamic Financial Institutions (LKS). Which currently exists and is growing quite rapidly. There have been numerous variations of LKS throughout Indonesia, including Islamic institutions. LKS is a financial institution that operates following Sharia law. LKS, a financial institution with Sharia principles, was originally present as an option and a solution for Muslims who want to avoid the practice of conventional banks or financial institutions. LKS was originally offered as a sharia-compliant financial organization for Muslims who want to escape the practice of banks or traditional financial institutions that use the interest system, but they can also be a choice for non-Muslims.
Therefore, there are problems why the application of Sharia principles by LKS is an urgent problem and what are the conditions for applying Sharia principles by LKS. The research method used is normative legal research with a case approach.
The study results indicate that the LKS organizer is expected to have a vision in which the LKS remains in the principles of Sharia.
ISSN: 1978-5186 | e-ISSN: 2477-6238.
http://jurnal.fh.unila.ac.id/index.php/fiat
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A. Introduction
As a country with the most Muslims in the world, it is a necessity and certainty that many Muslims object to having to transact or deal with banking institutions that implement the usury system. Muslim communities that are frightened of profiteering typically use banking only to move money or other activities that can only be done through banking and releasing funds from the bank as soon as possible after the movement of funds or their requirements are satisfied.
Islamic banking and financial institutions are becoming more active, as evidenced by a "dual banking system" that permits conventional banks to establish Sharia business divisions. The Islamic financial system is not restricted to clients with religious spiritual connections (Muslim communities). Independent of faith, Sharia financial services are available to anyone ready to observe Sharia-compliant business practices. Towns require banking organizations that are powerful, open, equitable, and dedicated to assisting the industry and the enterprises of their clients.1
Law No. 10 of 1998 on the Fulfillment of Law Number 7 of 1992 on Banking is a significant move forward in the growth of banking, particularly Islamic finance. Islamic finance receives the same legal protection as regular banking.2 The enactment of Law Number 10 of 1998 has opened wider opportunities for Islamic banks to develop.
The grandeur and abundance of Islamic banks, financial institutions, and banking that stick to the dual banking system in a sense that conventional banking that establishes Sharia units on its own needs extensive and cautious oversight in various parts of its operations. Islamic banking and financial institutions (LKS) were established with the main principle of adhering to Islamic Sharia: not to develop Ribawi Products to accommodate Muslims who are hesitant to deal with usury or members of the general public who wish to transact with the Sharia system in general. Islamic banking was not established for the sole purpose of attracting public funds but carried out by conventional financial institution practices. This is the essence of supervision so that Islamic financial institutions continue to operate according to Sharia principles.
The paradigm that must be adhered to in the development of Islamic financial institution products is that in contrast to those in conventional banks or financial institutions, which use the type of transaction, namely interest-bearing loans (usury), in Islamic financial institutions products must be developed following the characteristics and characteristics of Islamic products that are different each other.
1 Muhammad Soleh, Zulfatah Yasin, Helmi Yusuf, 2022, “Penerapan Kepatuhan Syariah dan Peraturan Jabatan Notaris pada Lembaga Keuangan Syariah di Indonesia”, Jurnal Hukum dan Pengkajian Islam, Vol. 2, No. 1, p. 16.
2 Arief Budiono, 2017, “Penerapan Prinsip Syariah Pada Lembaga Keuangan Syariah”, Jurnal Law and Justice, Vol. 2 No. 1, p. 55.
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Risk and duration are the second factor after character and nature are placed. For example, the character of a Murabaha product is the buying and selling of goods. Islamic financial institutions act as sellers and customers as buyers. Islamic financial institutions may ask for additional guarantees other than the goods purchased. When this product is applied to construction financing, it is inappropriate because goods must be traded, not projects whose form is not real. If it is matched with buying and selling construction materials such as stone, sand, cement, and others, the bank will have difficulty detailing the goods.
If forced, there is something that cannot be traded, such as labor and must use another product, namely Ijarah (rent). This means that Murabaha is not suitable for construction financing. Some are more suitable, for example Istisna, another Sharia product for buying and selling, where the bank acts as the buyer of the goods to be built/ manufactured. Islamic financial institutions pay in stages to the contractor and after completion, the bank sells it to the debtor.
Supervision of the implementation of Sharia principles in Islamic financial institutions is very urgent and important to implement, which is the core of the operations of Islamic financial institutions. Supervision is also needed to find fraudulent practices or fraud committed by corrupt Islamic financial institutions for profit and to protect customers or parties who transact or make transactions with Islamic financial institutions.
Islamic Financial Institutions (LKS) are not only required to be responsible for the quantity of calculating the profit figure because apart from profit but there is also the belief that one day he will be responsible to Allah in running the LKS. LKS must be consistent in carrying out responsibilities toward the application of Sharia principles. LKS is a Sharia platform practitioner who resides in the middle of civilization. It becomes necessary for LKS to live and develop, most importantly by Sharia.
Otherwise, Mulya E. Siregar admitted that Islamic Banking had not implemented the Islamic system. According to Mulya, no true Sharia Islamic banks, not even the IDB.3
Therefore, this research is presented to discuss the following topics: Why is applying Sharia principles by LKS an urgent problem? What are the conditions for the application of Sharia principles by LKS?
This research was conducted according to normative law following legal issues related to applying Sharia principles in Islamic financial institutions.
This study analyzes ideas, legal principles, and regulations. Information is obtained from books, legal journals, newspapers, and other sources.
Furthermore, the legal documents are examined and categorized based on discussion and interpretation related to important ideas on the problems that
3 Ahmad Fahmil Ulumi,2020, “Implementasi Hukum Ekonomi Islam Pada Lembaga Keuangan Islam”, Al-Intifa': Jurnal Ilmiah Ilmu Syariah, Vol 2,No 1,p 30-42
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are emphasized and described qualitatively in a deductive-inductive way to find solutions to problems. Furthermore, this research uses a case study approach.
The novelty of this research is to reflect the application of Sharia principles in Sharia Financial Institutions (LKS) and Islamic banking through the establishment of a supervisory structure based on the intermediary function guided by the fatwa of the National Sharia Council, of course the application is seen from the Indonesian Sharia Financial Development Report (LPKSI) at a certain period of time.
B. Discussion
1. The Urgency of Implementing Sharia Principles by LKS is an Urgent Problem
LKS with Sharia principles is a positive alternative for some people because religious or belief principles are not willing to use the services of conventional banks or institutions with the principle of an interesting system which is considered a violation of Islamic Sharia. After all, it is not following the Islamic concept, namely agreements/contracts that do not contain gharar (uncertainty), maisir (gambling), and usury (interest money).
However, is the application of Sharia principles in LKS by Sharia?
LKS in carrying out muamalah transactions is built on the principle of benefit. Islamic law does not prohibit any form of the transaction unless there is an element of injustice in it, such as usury, hoarding, fraud, or it is indicated that the transaction can cause disputes or hostility between humans, such as the existence of gharar or speculation. The main problem in muamalah is the element of benefit. If there is a problem, then the transaction may be allowed. Like the permissibility of the istishna contract, even though it is a sale and purchase/ bai' al-ma'dûm (the object does not exist at the time of the contract), because of the need and maslahah that will be obtained, does not cause disputes and has become a habit of the community.4
As an LKS, the treated system must follow Sharia. Financial transactions and practices in LKS/Islamic banks should not be intended as tricks to justify the practice of usury, maisir, and ghurur. The purpose of an LKS should not only have the intent and purpose of getting cash as profit, even though the arrival of customers to LKS/Islamic banks is actually to get cash for their needs.5
4 Neni Sri Imaniyati, 2011, “Pengaruh Perbankan Syariah Terhadap Hukum Perbankan Nasional”, Fakultas Hukum Universitas Islam Bandung, Syiar Madani , Vo.4, No.
1, p. 205
5 Dudi Badruzaman, 2019, “ Implementasi Hukum Ekonomi Syari‟ah Pada Lembaga Keuangan Syariah”, Jurnal Ekonomi Syariah dan Bisnis, Vol. 2, No. 2, p. 82.
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Meanwhile, the LKS/Islamic bank does not buy goods but only gives cash with a contract as if the money will be bought according to the goods proposed by the debtor. Once the money is submitted, there is no control over whether it has been purchased according to the application. This means that LKS does not want to sell it to customers but instead performs Hilah or phishing as if it follows Sharia, even though it contains usury. It can be interpreted that LKS/Islamic banks do not apply Sharia principles, which should be their operational guidelines.
From the outset, LKS was designed as an intermediary between fund owners and those needing funds to create mutually beneficial interactions and economic synergies. Therefore, the profit and loss sharing (PLS) system is the best tool to bridge the interests of both parties, of course, while still basing it on the values of empathy and humanism. However, when it was carried out in the form of LKS institutional financing, this PLS system had several obstacles, which caused LKS to be reluctant to place most of its asset portfolio in this PLS financing.
On the other hand, it is not yet possible for LKS to fully develop an agreement system that facilitates equity partnerships between LKS and customers while still monitoring costs adequately and eliminating the moral hazard problem arising when asymmetric information arises between them LKS and customers regarding operating profits. The existence of intensive supervision of LKS to its partners has led to the opinion that the moral standards developed and adhered to in the Muslim community do not give freedom to use profit sharing as an investment mechanism. Intensive supervision should not be understood as a rein. But as assistance from the LKS for its debtors in developing their business because, after all, with this PLS system, if the debtor goes bankrupt or loses, the LKS will also feel the loss. The role of LKS is to provide facilities by seeking instruments that follow Sharia principles and provisions. These efforts are also constrained by the prevailing banking regulations that do not fully accommodate LKS operations, given that there are differences in the operational implementation of LKS and conventional financial institutions.6
2. Conditions of Application of Sharia Principles by Islamic Financial Institutions (LKS)
The Indonesian Sharia Financial Development Report (LPKSI) is a manifestation of the Financial Services Authority's commitment to continue to encourage the development of the Islamic finance industry through the preparation of complete and comprehensive information on the development of the Islamic finance industry and the factors that influence it throughout the year.
6 Zainuddin Ali, Hukum Ekonomi Syariah, (Jakarta: Sinar Grafika, 2003).
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Through this report, we present various information regarding the implementation of OJK's duties in 3 (three) Islamic finance sectors, namely Islamic banking, Islamic non-bank finance (IKNB), and Islamic capital market covering industry performance, policy development, and achievement of the Islamic finance roadmap. In addition, we also convey the steps taken by the OJK to increase literacy in the Sharia financial services sector to all elements of society and information about the existence of Indonesia, which is actively involved in Sharia financial activities at the international level. At the end of this report, we present the prospects and strategic policy plans of OJK for each Islamic finance sector.7
To date, LPKSI is the only report that contains comprehensive information on the development of Indonesian Islamic finance. LPKSI contributors are internal to the OJK and from institutions related to Islamic finance, such as the Department of Economics and Sharia Finance (DEKS) of Bank Indonesia and the Directorate General of Financing and Risk Management (DJPPR) of the Ministry of Finance.8
Islamic banking in Indonesia, one of the Islamic financial institutions, is still not fully implementing Islamic principles. On the other hand, the banking sector adheres to the principle of a capitalist economy competing to earn big profits. Islamic banking has not provided benefits or prospered its customers as stipulated in Islamic economic principles but instead pursues its profits and even practices usury.
Banking, including foreign banks are busy establishing or opening Sharia branches because the bank is very likely to get bigger profits. "In order not to damage or embarrass the principles of Islamic economics, all related parties, starting from scholars, economists, and banks, should sit down to discuss Islamic banking issues.9 One of the rules in implementing the Sharia aspect is gradualness (tadarruj). Based on this rule, there are two conditions:
First, in a condition where the Sharia aspect can be applied simultaneously without being in stages, it must be applied simultaneously. However, where the Sharia aspect cannot be applied simultaneously, this great Islamic law allows for gradual implementation.
The rule of gradualness is carried out in the da'wah of the Prophet Muhammad, as in the prohibition of khamr and usury in the Qur'an. And as Umar bin Abdul Aziz's policy conveyed to his son, "O my son! Don't be in a hurry! Verily Allah has removed the prohibition of khamr in the Qur'an
7 Yusman Alim Djasmin Maku, 2017, “Penerapan Prinsip-Prinsip Tentang Perbankan Syariah Hubungannya Dengan Otoritas Jasa Keuangan”, Lex Crimen, Vol. 7, No.
1, p. 40.
8 Muhamad Rifky Fernanda, 2020, “Penerapan Prinsip Syariah di Lembaga Keuangan Syariah”, Aktualitas Jurnal Hukum, Vol. 3, No, 1, p. 85.
9 Maulana, Hafiizh, 2014, “Implikasi Kewenangan Dewan Pengawas Syariah Terhadap Sistem Pengawasan di Bank Aceh Syariah”, SHARE: Jurnal Ekonomi dan Keuangan Islam, Vol. 3, No. 1. p. 11.
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twice until He has forbidden it for the third time and I am afraid if I invite people into it. The truth at once, they will abandon it at once and become slander.10
3. Institutional Problems of Sharia Principles Compliance Supervisor As an institution that carries out the intermediary function, LKS must also be able to carry out these functions to fulfill the objectives of economic activity as rahmatan lil 'alamin. The intermediation function in this case is not only interpreted as bringing together customers or people who have excess funds and customers or people who need funds. More than that, LKS and customers are building a partnership to increase welfare.11 The position of customers who deposit funds and LKS is not necessarily higher than customers who need funds, but rather that the three parties are a chain of cooperation that are interrelated and equal to one another. This is the main principle that distinguishes LKS from conventional financial institutions.
Equality of position between parties manifests the principle of equality (al- musawah).12
Concerning conformity with these Sharia principles, institutional problems, particularly monitoring, appear to have added to the ineffectiveness of compliance. According to the legal framework, every LKS, whether as a Limited Liability Corporation (PT) or a Community, must have at least three Sharia Oversight Committees (DPS). This Department is in charge of supervising all Sharia-compliant activities and transactions carried out by LKS. Article 32 of the Sharia Banking Law, Article 109 of Law Number 40 of 2007 concerning Limited Liability Companies, and Decree Number 16/Per/M.KUM/IX/2015 concerning implementing Savings and Loans Business Activities and Sharia Financing by Cooperatives require DPS to be presented in each LKS.13
In the administration of LKS, the position of DPS is analogous to the title hisbah in traditional or classical Muslim society. The similarities lie in the goals and functions of hisbah and DPS, both attempting to encourage community muamalah activities based on Sharia principles.14 Similarly, the
10 Rahmat Ilyas, 2021, "Peran Dewan Pengawas Syariah Dalam Perbankan Syariah", JPS (Jurnal Perbankan Syariah, Vol. 2, No. 1, p. 46
11 Kasim, Nawal Binti, Shahul Hameed Mohamad Ibrahim dan Maliah Sulaiman, 2009, „Shariah Auditing in Islamic Financial Institutions: Exploring the Gap between the
“Desired” and the “Actual”‟, Global Economy & Finance Journal, Vol. 2 No. 2, p. 130.
12 Bagya Agung Prabowo, Jasri Bin Jamal, 2017, "Peranan Dewan Pengawas Syariah terhadap Praktik Kepatuhan Syariah dalam Perbankan Syariah di Indonesia", Jurnal Hukum Ius Quia Iustum, Vol. 4, No. 1
13 Nelli Fitra, 2015, “Problematika Kiprah Dewan Pengawas Syariah (DPS) di Perbankan Syariah, Jurnal Al-Masharif, Vol. 3, No. 1, p. 85.
14 Irwan Misbach, 2015, “Kedudukan Dan Fungsi Dewan Pengawas Syariah Dalam Mengawasi Transaksi Lembaga Keuangan Syariah Di Indonesia”, Jurnal Minds: Manajemen Ide Dan Inspirasi, Vol.2, No. 1, p. 83.
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position of DPS in modern Muslim society, known as muhtasib, requires DPS or muhtasib to carry out advisory duties and supervise activities to ensure compliance with or conformity with Sharia principles. This shows that DPS is an important element in LKS governance to carry out activities following Sharia principles.15
The role of DPS, which is critical in an LKS's actions, is frequently ineffectual. The position and function of the DPS are governed by Bank Indonesia Regulation Number 6/24/PBI/2004. In this PBI, DPS supervises the internal level of LKS. The position of DPS as LKS's internal supervisor is equivalent to that of LKS directors. Thus, in an LKS organizational structure, the relationship between DPS and LKS directors is coordinative. A DPS has the right and authority to provide advice and input to LKS directors regarding LKS activities or transactions based on Sharia principles. The equal position of the DPS and the LKS directors in an LKS also has consequences: the DPS within the LKS internally as a company is under the Board of Commissioners and Shareholders. This kind of organizational structure description makes it difficult for DPS to carry out its functions as advisory and supervisory. This is since the DPS's considerations and input on LKS activities or transactions must also adjust the needs of shareholders and the board of commissioners to maximize profit, which in practice will encourage DPS as a party that only participates in fulfilling the interests of other parties.16
Aside from that, another issue with the LKS's administrative supervision is that members of the National Sharia Council - Indonesian Ulema Council (DSN-MUI) are permitted to join the DPS. This results in a dual role in the managerial function of a member of the DSN-MUI and DPS. Even though the supervising role carried out by DSN-MUI members is as an exterior monitoring authority for LKS, DPS oversight is more internal. As a result, internal and external supervision outcomes may be biased. Dual membership as DSN-MUI and DPS members simultaneously can cause issues with the independence of the two supervisory institutions' functions. This is because, according to PBI Number 6/24/PBI/2004, 27, a DPS member at an LKS has to carry out activities to provide reports on the monitoring outcomes related to applying sharia principles in an LKS to the DSN-MUI on an as-needed basis. If a DSN member also serves as DPS at an LKS, there may be a conflict of interest in the report's findings, causing.17 Aside from that, a study performed by Wafik and Pallegrini on the function of DPS in Islamic
15 Minarni, 2013 “Konsep Pengawasan, Kerangka Audit Syariah dan tata Kelola Lembaga Keuangan Syariah”, Jurnal Ekonomi Islam La Riba, Vol. 7, No. 1, p. 30.
16 Taufik Kurrohman, 2017, “Peran Dewan Pengawas Syariah Terhadap Syariah Compliance Pada Perbankan Syariah”, Surya Kencana Satu: Dinamika Masalah Hukum dan Keadilan, Vol. 8, No. 2, p. 53.
17 Imam Abdul Hadi, 2011, “Kedudukan dan Wewenang Lembaga Fatwa (DSN MUI) pada Bank Syariah”, Jurnal Economic, Vol. 1, No. 2, p. 3.
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institutions around the globe reveals that one of the challenges DPS encounters is its absence of freedom in voicing opinions. Because a supervised financial institution provides fee incentives 18
C. Conclusion
Applying Sharia principles to Islamic Financial Institutions (LKS) and banking Sharia is urgent. To achieve the conditions for applying Sharia, a supervisory structure was created, implemented, and guided by the fatwa of the National Sharia Council. Laws and other regulations have supported some of these goals, but still regulations have not. There are still discrepancies in banking and LKS practices that do not comply with the fatwaDSN or do not according to Sharia and need to be fixed. There are LKS who do hilah or tricks to take usury.
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166
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