A Theoretical Analysis of Indonesian Islamic Banking Model: A Guideline for Modifying Iranian Islamic Banking Law

Several operational models for Islamic banking have been implemented in Muslim as well as non-Muslim countries. Islamic banking activists can learn a wide range of helpful lessons from these implementations. One of the countries in which Islamic banking has been implemented is Indonesia, which has the largest Muslim population. It has a dual banking system. In other words, in this system, both Islamic banks and conventional banks cooperate with each other. Since Iran is reviewing its banking law, an analysis of their banking model can be helpful. By using library and Internet resources, this descriptive-analytic study investigates the validity of this hypothesis: Indonesian Islamic banking is relatively comprehensive, legitimate, and efficient. According to this study, there are some shortcomings as far as being comprehensive in mobilization is concerned. Moreover, the bank cannot meet the needs of those who are willing to invest in the bank to “contribute to good deeds” or the ones who would like to “receive fixed interest rates”. With respect to resource allocation, Indonesian Islamic banking cannot fulfill institutions needs for “paying for services” and “buying intangible assets, such as equity and so forth”. This banking model extensively makes use of Mudaraba contract, which is illegitimate according to prominent Shiite and some Sunni scholars. Moreover, it exploits loan agreement in settling the accounts of bank guarantees which is not in line with the essence of banking activity that aims at gaining economic benefits. On the whole, this paper sheds light on some of the important aspects of Indonesian Islamic banking which can be helpful in reviewing the regulations of Iranian banking system.