Tahawwuth, just another window

Islamic banks in Indonesia recently discussed on the possibility of Tahawwuth (hedging) as an instrument of mitigating market risk in Islamic bank. It came up (again) following International Seminar on Islamic Finance in Bank Indonesia, 6th May 2014, coorganized by International Islamic Financial Market and Bank Indonesia.
Some people consider the instrument is not allowed based on DSN fatwa on Foreign exchange transaction, which allows spot transaction based on naqd principle while provides forward contract (as a part of hedging) only for hajiyat principle. Therefore, according to this assumption, forward contract is not allowed. It is allowed only within two conditions: it is in the form of agreement (not contract) and it has underlying transaction.

The Biggest Problem: Ignorance

Many people thought that banking practice is a genuine invention of Italian people with their "banco" style. New findings proved that Knight Templar already praticed banking activities prior to what Italian did for the first time. However, if one steps back more to older history, they will find that even Baghdad and Basra people during Abbasid dinasty (long time before Crussade when Templar was formed and established) already involved in paper documents as collecting instrument.

Islamic Bank: Our daily practice and the essence

Many people know Islamic mode of transactions from modern Islamic banking practices. They oftenly define every transaction based on their experience in dealing with Islamic banking. While there are many modifications are made to fit in financial transaction, such definition definitely contain additional elements that are not available in original term.

Murabaha Commodity, What is it for?

Since 2004 there has been a big issue in Indonesian Islamic banking and finance community with little attention given by the industry. The issue become big not because there is no answer to the problem raised, but because the issue is forwarded by a big-foreign bank which run Islamic window. The bank insists that since the issue is settled by Sharia Board of the bank in their headquarters, then the country in which the bank operate Islamic window also should allow the product to be launched and utilized by the community.

Indonesia-Malaysia; Two Different Questions

Talking about Islamic Banking in South East Asia, there is always comparison between Malaysia and Indonesia. Malaysia is considered to have their Islamic banking more developed and fast growing compared to Indonesia. Does it mean Malaysia is better than Indonesia?

My friend, Dr. Ugi Soeharto has different answer. In Malaysia, the question faced by Islamic bank is Can Islamic bank do what conventional banks do? while in Indonesia, the question is more specific and somewhat underestimating: What is different Islamic bank from their conventional counterpart?

It means that Malaysian Islamic banks need only to answer yes to the question and start arranging their products similar to what is in conventional banks. The only different between their products are in the label "i" (islamic).

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."