The research team of the Shariah banking directorate of the central bank, Bank Indonesia is now working to create a real sector index. The index will have 11 real sector indices covering agriculture, mining, property, industry and services. The objective of the index is to bring the pricing practice of the Islamic banking industry to really reflect the spirit of Shariah, which prohibits interest (Riba), while allowing trade.
With this index, for example, when an Islamic bank wants to provide Murabahah financing facility to a customer, the bank in the buying and selling process under the Murabahah scheme can use the pricing from the real sector index to determine how much the price of the house will be charged to customers. It has also been reported that the index will be computerized so that it can be updated periodically in line with the real movement of the price in the real sector.
It is expected that the index could be introduced to the industry by the end of the year. However, it remains to be seen whether the central bank will impose the use of the index on Islamic banks. In the transition process, the usage of the index will be voluntary, meaning that the central bank will leave it up to the Islamic banks as to whether or not they use the index in pricing their debt-financing products.
If the above research could be implemented smoothly according to the schedule, this will be a breakthrough not only for the Indonesia’s Islamic banking industry, but also the industry in general. This approach will really differentiate Islamic banking from its conventional counterpart, which in turn will encourage more financial innovation in Islamic banks.
Farouk A Alwyni is the CEO of Alwyni International Capital. He can be reached at
[email protected]
.