Aceh Considers Wiping Off Conventional Banks

Image credit : Mandiri Syariah

JAKARTA (TheInsiderStories) Aceh provincial government has proposed a controversial plan to wipe off conventional bank branch offices and replace them with sharia bank offices in compliance with the Islamic law that prevails in the region.

​Islam is the dominant religion in Aceh and over 98 per cent from about 4 million population identify as Muslims. The plan was proposed because the existing conventional banks are adopting interest rate based income which is contradicting with sharia law, Abdullah Salleh, member of Aceh Regional Representative Council, told Antara news agency (21/11).

“We still have sharia banking, so it (the plan) will not become a burden,” he said.

Islamic finance is banking that is consistent with the principles of sharia (Islamic law). For example, the prohibition of interest (riba) payments and excessive uncertainty (gharar) or gambling (maysir).

The characteristic of Islamic banking operation, which is based on partnership and mutual benefits principle, provides an alternative banking system with mutual benefits both for the public and the bank.

This system will give priorities to aspects related to fairness in transaction and ethical investment by underlining the values of togetherness and partnership in production, and by avoiding any speculative activity in financial transaction.

In respond for the plan, Indonesia Financial Services Authority (FSA) said the authority should respect the fundamental rules applied in Aceh. However, the authority would review the proposed plan before issuing any regulation to restrict conventional bank’s operational in Aceh.

“If the law say so, then we must obey,” said Wimboh Santoso Chairman of FSA, on Wednesday (22/11).

Director of PT Bank Mandiri (Persero) Tbk Herry Gunardi said the bank will coordinate with its sharia subsidiary unit, Bank Mandiri Syariah to mitigate the shifting of customer’s portfolio. Currently, the lender has three main offices and operating hundreds of ATMs across Aceh.

“We still don’t know yet about the plan, but we try to mitigate the consequences,” he said.

Despite having the world’s largest Muslim population and forming a dynamic emerging economy, Indonesia plays a minor role in the global Islamic banking industry, also known as sharia banking (referring to banking that is in line with Islamic principles).

Not only does Indonesia’s Islamic finance industry lag far behind Islamic finance industries in other countries that contain a big Islamic community (such as Malaysia and Saudi Arabia), Indonesia also lags far behind the country’s domestic conventional banking industry.

Written by Elisa Valenta, email : elisa.valenta@theinsiderstories.com