ISLAMIC BANKING

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ISLAMIC BANKING

FOREWORD

Praise and thank you we pray to the presence of Allah Almighty who has given me His blessings, blessings and gifts, because we will also be able to complete this paper because of His will.

The theme or title of this paper is "ISLAMIC BANKING". The contents of this paper are about the understanding of Sharia Banks, the background of the establishment of Islamic Banks in Indonesia, the development of Sharia Banks in Indonesia, and the Implications of Government Policy on Banking Development in Indonesia. We hope that this paper can be useful, so that it can increase knowledge for readers. Critics and suggestions from all parties that are constructive are always expected by us for the perfection of this paper.

Finally, we would like to thank all those who have participated in the preparation and completion of this paper from beginning to end. And may Allah SWT always bless our efforts.

Binjai, July 2019

Author

TABLE OF CONTENTS

PREFACE

TABLE OF CONTENTS

CHAPTER I INTRODUCTION

A.    Background

B.      Problem Formulation

C.     Purpose of Writing

CHAPTER  II DISCUSSION      

A.    Definition of Sharia Banks

B.      Background of the Establishment of Islamic Banks in Indonesia

C.     Development of Sharia Banks in Indonesia

D.     Implications of Government Policy for Development

Banking in Indonesia

CHAPTER III CLOSING

A.    Conclusion

B.      Suggestion

BIBLIOGRAPHY

CHAPTER I

INTRODUCTION

A. Background

The development of the Islamic economy lately is so rapid. In the form of studies, Islamic economics has been developed in various universities, both in Muslim countries and western countries. This shows that the Islamic economy developed and became the center of world study, especially in developing increasingly global and complex business activities. Islamic banking as a sharia financial institution, initially developed slowly, but then began to show progress that increasingly achieved the achievement of growth far above the development of conventional banking. In Indonesia, Islamic banking has emerged since the issuance of Law No. 7 of 1992 concerning Banking, which implicitly opened up banking business opportunities that had an operational basis for profit sharing. Sharia Banking in Indonesia, first operated on May 1, 1992, marked by the establishment of Bank Muamalat Indonesia (BMI). On this occasion, we will discuss the development of Islamic banking in Indonesia. Sharia Banking is a banking system based on Islamic law (sharia). The formation of this system is based on the prohibition in the Islamic religion to lend or collect loans by applying interest loans (usury), as well as the prohibition to invest in illegitimate business (haram).

B. Problem Formulation

From the description above, several problems can be formulated, while the formulation of the problem in this discussion is:

1.     What is the meaning of a Sharia Bank?

2.  What is the background of the establishment of Islamic Banks in Indonesia?

3. What is the development of Islamic banks in Indonesia?

4.  What are the Implications of Government Policy on Banking Development in Indonesia?

C. Purpose of the Problem

From the formulation of the problem above can be formulated several objectives of the discussion, there are also the objectives namely as follows:

1.   To know Islamic banks in general.

2. To find out the background of the establishment of Islamic Banks in Indonesia

3. To know the development of Islamic banks in Indonesia

4. To find out the Government Policy Implications of Banking Development in Indonesia

CHAPTER II

DISCUSSION

A. Definition of Sharia Banks

In general, the definition of an Islamic Bank (Islamic Bank) is a bank whose operations are adapted to the principles of Islamic law. At present there are many terms given to refer to Islamic Bank entities other than the term Islamic Bank itself, namely the Interest Free Bank, Lariba Bank (Lariba Bank), and Islamic Bank (Islamic Bank). 2Bank Islam is a financial / banking institution that is operational and its products are developed based on the Qur'an and the Hadith of the Prophet. In other words, Islamic banks are financial institutions whose core business is providing financing and other services in traffic payments and circulation of money operated in accordance with Islamic sharia principles. Antonio and administrative staff distinguish it into two terms, namely Islamic banks and banks that operate with Islamic sharia principles are:

1.    Banks operating in accordance with sharia principles

2. Banks whose operating procedures refer to the provisions of the Koran and Hadith.

Whereas banks that operate in accordance with Islamic sharia principles are banks which in their operations adhere to Islamic sharia provisions, especially those concerning Islamic worship procedures. Furthermore, it was said, in the method of pursuing Islamic sharia provisions, especially those relating to procedures to be considered must be obeyed by matters and practices which are feared to contain elements of usury to be filled with investment activities based on profit sharing and trade finance.

In Law No.21 of 2008 concerning Sharia Banking, the definition of Islamic banking and an understanding of Islamic banks are proposed. Islamic banking is anything that involves Islamic banks and sharia business units, which include institutions, including business activities, as well as procedures and processes in carrying out their business activities. Sharia Bank is a bank that runs its business activities based on sharia principles and according to its type Islamic banks consist of BUS (Sharia Commercial Banks), UUS (Sharia Business Units) and BPRS (Sharia Community Financing Banks).

B. Establishment of Islamic Banks in Indonesia

In general, what is meant by Islamic banks is a financial institution whose main business is providing credit and other services, in addition, cross payments and circulation of money operating in accordance with sharia principles. Therefore, the bank's business will always be related to money issues which are its main merchandise ... bank activities and business will always have commodity relations, including:

1.   Transfer money

2.   Receive and pay money in a checking account

3. Discount money orders, order letters and other securities

4. Buy and sell securitiesBuy and sell money orders, money orders, trade papers

5.   Give credit, and

6.   Give credit guarantees

The idea of ​​establishing Islamic banks in Indonesia has actually emerged since the mid-1970s. This was discussed at the national seminar on Middle East Indonesia relations in 1974 and in 1975 in an international seminar organized by the Institute of Social Sciences (LSIK) and the Bhiineka Tunggal Ika Foundation. But there are several reasons that hinder the realization of this idea.

1. Islamic bank operations that apply the principle of profit sharing have not yet been regulated, and are therefore not in line with the prevailing banking core law, namely Law No.14 / 1957

2. The concept of Islamic banks in terms of political connotation ideologically, is part of or related to the concept of an Islamic state and therefore unwanted by the government.

3.  It is still questionable who is willing to put up capital in such a venture while the founding of a new bank from the Middle East is still prevented, including restrictions on foreign banks that want to open their offices in Indonesia.

In Indonesia, the pioneer of Islamic banking is Muamalat Indonesia. Established in 1991, the bank was adopted by the Indonesian Ulema Council (MUI) and the government and support from the Association of Indonesian Muslim Scholars (ICMI) and several Muslim entrepreneurs. This bank was affected by the monetary crisis in the 90s so that its equity was only one third of the initial capital. IDB then gave an injection of funds to this bank and made a profit. At present the existence of Islamic banks in Indonesia has been regulated in law 7 of 1992 concerning banking. Until 2007 there were 3 Islamic banking institutions in Indonesia, namely Bank Muamalat Indonesia, Mandiri Islamic Bank and Mega Syariah while commercial banks in 2016 that had chosen Islamic business units were 19 banks including large banks such as state banks Indonesia (Persero), Banks Rakyat Indonesia (Persero), a National Private Bank, Sharia System has also been used by the Bank of Credit Rakyar, currently has developed 165 BPR Syari'ah.

C. Development of Sharia Banks in Indonesia.

In Indonesia, the first Islamic bank founded in 1991 was Bank Muamalat Indonesia (BMI). Although the development is rather late when compared to other Muslim countries, Islamic banking in Indonesia will continue to grow. If in the period 1991-1998 there was only one Islamic bank unit, in 2005, the number of Islamic banks in Indonesia had increased to 20 units, namely 3 Islamic banks and 17 Islamic business units. Meanwhile, the number of sharia lending (BPRS) until the end of 2004 increased to 88. Based on data from Indonesian banks, the outlook for Islamic banking in 2005 is estimated to be quite good. The Islamic banking industry is predicted to continue to grow with a fairly high growth rate. If in the position of November 2004, the business volume of Islamic banking has reached 14.0 trillion rupiah, with a growth rate that occurred in 2004 of 88.6%, the volume of Islamic banking business at the end of 2005 is estimated to reach around 24 trillion rupiah. With this volume, it is estimated that the banking industry will reach a share of 1.8% of the national banking industry in bandikang by 1.1% at the end of 2004. The growth of the Islamic banking business volume is supported by the plan to open a new sharia business unit and the opening of office networks broader. Third party funds (DPK) are estimated to reach IDR 20 trillion with total funding of around 21 trillion rupiah at the end of 2005. Meanwhile, research carried out by Karin Business Consulting in 2005 showed that the total assets of Islamic banks in Indonesia were estimated to be greater than what is projected to reach between 1.92% and 2.31% of the national banking industry. This model was developed with a rational expectations approach or by utilizing all relevant information available and simulating the projected growth of assets of each BUS / UUS (organic) and projections of new (non-organic) BUS / UUS which were then born with growth aggregation. Until now the number of Indonesian Islamic banks currently amounts to around 200 Islamic banks, the role of Islamic banks in Indonesia has entered the 3rd decade. Since it was first pioneered in 1992 by Bank Muamalat Indonesia (BMI), other Islamic banks also emerged.

This is inseparable from the bright prospect of the Islamic finance sector in Indonesia. Moreover, in 2008 law number 21 concerning sharia banking was born. This law is a legal umbrella and evidence of recognition of the existence of Islamic banking in Indonesia. Until April 2016 the number of Islamic banks in Indonesia amounted to 199 Islamic banks consisting of 12 sharia commercial banks (BUS), 22 sharia business units (UUS), and 165 Islamic sharia financing banks (BPRS). The following is a complete list of Islamic banks (BUS, UUS and BPRS) that operate in Indonesia until 2016.

D. Implications of Government Policy on the Development of Islamic Banking.

Government policy regarding Islamic banking, especially the policies issued by the government in the period 1998-1999, affected the development of Islamic banking institutions which were quite encouraging in Indonesia. Although it was realized that this development was not lively with what happened in other Islamic countries, such as Malaysa. Because countries first developed and implemented the Islamic banking system and banking practices. In addition, the infrastructure devices provided by the government, especially those in Indonesian banks, as an institution that oversees and guides Indonesian banks, have not fully supported the development of Islamic banking. The devices used by Indonesian banks are still using conventional systems so that Islamic banking is assessed according to conventional measures as well. The absence of these legal instruments has caused Islamic banking to adapt its products to the applicable law. The unsatisfactory results of the government's policy on Islamic banking in the period 1992-1998 can be seen from the growth of Islamic banking institutions. Until 1998, there were only one commercial bank operating with a revenue sharing system, namely 37 outlets, ranging from branch offices to cash offices, which were spread in various regions in Indonesia. Likewise, the asset growth rate of the bank is very small, which is around 0.01% of the total assets of the national bank.

in 7 cities, namely Jakarta, Yogyakarta, Jepara, Pekalongan, Malang, and Padang. The significant development of sharia branch offices occurred in Bank Syariah Mandiri. This bank is only 2 years after being established as a Sharia Commercial Bank, since November 1, 1999, able to open 19 branch offices spread in various major cities in Indonesia. This amount exceeds the branch office owned by Bank Muamalat Indonesia, which has only 13 sub-branch offices and cash offices as owned by Bank Muamalat Indonesia. Another advantage of a Sharia Bank is the branch office network that is wider in area than Bank Muamalat Indonesia, Bank Syariah Mandiri branch offices are located in cities: Aceh, Jakarta, Medan, Bandung, Surabaya, Solo, Pekalongan, Pemekakasan, Makassar, Banjarmasin, Bogor , Pekanbaru and Palembang. While Bank Muamalat Indonesia has a cash office (27 units) in cities such as: Jakarta, Bandung, Semarang, Surabaya, Makassar, Balikpapan, PekanBaru and Pekalongan. Compared to the previous period, there was an increase in outlets from 37 to 43 outlets.

CHAPTER III

CLOSING

A. Conclusion

In the explanation above, it can be concluded that Sharia Banking is a financial institution whose core business is providing financing and other services in the payment traffic and money circulation which operations are adapted to the principles of Islamic Sharia. The idea of ​​establishing a Bank that uses the principle of profit sharing has emerged since the 1970s. The first syari'ah bank in Indonesia was Bank Muamalat which was established on November 1, 1991 and began operations on May 1, 1992. In 1999, Bank Syariah Mandiri was established, which was a conversion from Bank Susila Bakti. Bank Susila Bakti is a conventional bank purchased by Bank Dagang Negara, which was later converted into Bank Syariah Mandiri, Indonesia's second Islamic bank. With the establishment of Bank Syariah Mandiri this was followed by the establishment of several Islamic banks or other sharia business units. Islamic banking developed gradually and progressed and declined in certain times, along with the ups and downs of Muslim civilization.

B. Suggestions

Islamic banks still have some disadvantages, such as the lack of public understanding of Islamic banks. And much more. But don't worry, because over time all the shortcomings it has, Islamic banks will try and try to cover up and even eliminate all the shortcomings. It all becomes our duty together both the government and the wider community. Although our country is not 100% Islamic, but do not worry for non-Muslims to use Islamic banking services because Islamic banks bring mercy to all people not only for Muslims, and therefore Islamic economics is inclusive.

BIBLIOGRAPHY

Muslimin Kara, 2005, Bank Syariah di Indonesia, Yogyakarta : UII Pres.

Rachmadi Usman, 2012, Aspek Hukum Perbankan Syariah di Indonesia. Jakarta:

Sinar Grafika.

https://id.wikipedia.org/wiki/Perbankan_syariah.