INDONESIA: To support the development of Islamic banking products in the country, the Financial Services Authority, or Otoritas Jasa Keuangan (OJK), introduced three new guidelines at the 2024 Islamic Banking Annual Meeting held in Banda Aceh on the 25th October 2024. The guidelines cover Mudarabah financing products, Shariah Restricted Investment Account (SRIA) based on Mudarabah Muqayyadah contracts and Cash Waqf Linked Deposit implementations.
Launched by Dian Ediana Rae, chief executive of banking supervision at OJK, during the event themed ‘Accelerating Islamic Banking Development for Nation Building,’ the new guidelines will support the sector through product development, aligning with the 2023-2027 Indonesian Islamic Banking Development and Strengthening Roadmap and will provide more detailed technical explanations, examples and the necessary documentation to facilitate industry implementation.
“OJK’s product guidelines are expected to provide guidance for industry and stakeholders in implementing Islamic banking products, ensuring a common understanding in their execution,” Dian said.
Among the guidelines, the Mudarabah financing product guidelines are the latest addition, following earlier issues on Murabahah and Musharakah financing products. Developed in collaboration with the National Shariah Board – Indonesian Ulema Council, or Dewan Syariah Nasional – Majelis Ulama Indonesia (DSN-MUI), industry players and other stakeholders, this set of guidelines will highlight the profit-sharing characteristic of Mudarabah financing as a fair concept for both banks and customers, Dian highlighted.
The Mudarabah financing products guidelines encompass several areas including general provisions related to capital, business activities eligible for financing, distribution methods and mechanisms, parties involved in the financing and financing restructuring mechanisms, among others.
Separately, guidelines to implement SRIA based on Mudarabah Muqayyadah contracts, promote investment-based transactions that distinguish Islamic from conventional banking and provide instructions on SRIA implementation.
According to Dian, the SRIA guidelines are a follow-up to Indonesia’s recent Law No 4 of 2023 on Financial Sector Development and Strengthening, which differentiates between investment and savings products in Islamic finance, with the SRIA product serving as an investment model where risks are borne by the investor.
The guidelines address areas including SRIA product structure, risk management and market conduct for transactions, among others.
Additionally, the OJK introduced guidelines for Cash Waqf Linked Deposits, an Islamic banking product integrating commercial with social finance. These deposits operate as a temporary cash Waqf product, involving Islamic banks as institutions receiving cash Waqf and Nazhir cash Waqf as managers, in establishing Waqf programs.
The guidelines for this product outline the legal aspects of temporary cash Waqf, financing and non-financing schemes and concepts including parties involved and program features.
The release of these three guidelines is anticipated to support the Islamic banking sector in developing a broader range of innovative and competitive Shariah compliant products to contribute to inclusive and sustainable economic growth. As of July 2024, Indonesia has 14 Islamic commercial banks and 19 Islamic business units.
