Big Task Ahead

Among trivial question asked by people on Islamic banking is why Islamic bank refer money market rate for charging profit in their financing. While such a rate is a bid-and-offer combination of interest (hence, riba) such a practice will strengthen the image of Islamic bank as being mirror of conventional bank. People keep saying that Islamic bank is just conventional bank under a new robe. The Islamic bank practitioner provide a simple answer for that. "We do not have a alternative reference for the rate." 

When the case is referred to Sharia Supervisory Board, since it involves sharia matter, the board has a good answer. AAOIFI Sharia Standard allows such practice, since the rate is being used as calculating reference. As long as the bank does not use the rate as term and condition in the contracts, then the financing will be considered as complying to sharia.
As a matter of fact this condition shows that Islamic banking has not provide a fundamental instrument for their own system of operation. Conventional banking has since a long time established system of reference for their profit calculation. Nowadays this system is divided into regional area such as London Inter Bank Offer Rate (LIBOR) or Singepore based Inter-Bank Offer Rate (SIBOR). In Indonesia they used to have Jakarta Inter-bankOffer Rate (JIBOR) but last only a couple of years before replaced by Sertifikat Bank Indonesia (SBI) rate. The latter is a published rate that resulted from auction  of central bank cerrtificate by central bank, on weekly and monthly basis.
A profit reference system is an essential for financial system since they are very useful for determining profit and cost in the economy. It is also an indicator of pricing standard in a financial region. Conventional system, despite of high-established arrangement for the reference, failed to provide an answer to the basic question forwarded: What is the basis of such rates. These days, a formula of complicated calculation of risk analysis is tried to be introduced as a justification.
Since Islamic banking cannot use interest as their instrument of profit, they should find their own reference so that it will reflect the real cost and profit in the business.Other criteria that might be taken into consideration is that the reference is a result of an average profit rates in real industries.

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