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EDITOR’S VIEW

Image Problem
Islamic finance has a problem, an image problem.

While some investors suspect a political or religious agenda behind Islamic finance, other simply do not understand it. This is true even for Indonesia, the country with the world’s largest Muslim population.

Bank Indonesia has ambitious plans to increase Islamic finance to 20% of total finance in Indonesia by 2020, from just 4.9%.

Dadang Mulyaman, deputy director of macroprudential policy, says Islamic finance needs to make same transition that socially responsible investment funds have made over the past decade. “Socially responsible investment funds are based on ethics and morality, something they share with Isamic funds.”

Farouk Abdullah Alwyni, chairman at the Centre for Islamic Studies in Finance, Economics, and Development (CISFED), pushes this idea even further. Islamic funds, he says, need to “go beyond formality” to appeal to mainstream investors, meaning that Islamic finance should go much deeper into ethical issues.

Because gharar – risk and uncertainly – is prohibited under sharia, Muljaman says Islamic finance furthers stability and real economic development, which sould be in the interest of the government to promote. In Indonesia Islamic finance started from a desire to create a more stable economic and financial system, based on the values of Islam, afther the Asian financial crisis.

Indri Pramitaswari, partner at Hadiputranto, Hadinoto & Partners, a local affiliate of law firm Baker & McKenzie, says Islamic finance has not been able to shake off the perception that these products are exclusively for Muslim.

There are $378 billion of assets held in socially responsible investment funds worldwide, nearly nine times the $42.4 billion held in sharia-compliant funds.
However, many asset managers have not registered their funds as sharia-compliant for reasons of discreation or because the fear investors will be put off by the Islamic finance label.

Stefanie Eschenbacher
Asia Editor

(Tulisan ini diambil dari EDITOR’S VIEW Halaman 3 pada Majalah Funds global ASIA terbitan Inggris)

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