Understanding sharia economics – In the world of economics, Islamic economics is also called sharia economics. Islamic economics is basically a middle way between the capitalist and socialist economic systems. Therefore, the Islamic economic system applies the principles of goodness from both of these economic systems.
You may have often heard the term Islamic economics in the Indonesian banking industry. However, what exactly is Islamic economics? To find out more about Islamic economics, you can see this article till the end, Readers.
Understanding of Islamic Economics According to Experts
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The following is the definition of Islamic economics according to several experts.
Yoyok Prasetyo
Quoting from the book Sharia Economics by Yoyok Prasetyo, the term Sharia Economics is the same as Islamic Economics, the difference is only the point of view of each expert who defines it.
Yusuf Qardhawi
According to Yusuf Qardhawi, the concept of sharia economics is an economy that is based on God, with God’s ultimate goal and the use of facilities that are inseparable from God’s sharia.
MA Mannan
According to MA Mannan, the term sharia economics is a social science that studies the economic problems of the people imbued with Islamic values.
Omar Chapra
On the other hand, according to Umar Chapra, the concept of Islamic economics is a branch of knowledge that helps humans create wealth by allocating and distributing various resources according to predetermined goals. However, it does not unduly restrict individual freedom, create macroeconomic and ecological imbalances, or weaken family and social cohesion.
Broadly speaking, Islamic economics is an economic system that applies the teachings of the Qur’an and hadith or Islamic law in its activities.
Readers can read a book entitled ” Introduction to Islamic Economics Basic Concepts, Paradigms, Development, Islamic Economics” to find out more about the history and understanding of Islamic Economics itself.
Characteristics of Islamic Economics
After discussing the meaning of Islamic economics according to several experts, the next discussion is the characteristics of Islamic economics. The following are some of the characteristics of the Islamic economy.
1. Using a Profit Sharing System
One of the principles of Islamic economics is the distribution of ownership that prioritizes justice. In other words, all profits derived from economic activity are shared fairly, for example in Islamic banking there is a profit share for the bank as well as for the customer.
2. Relationship Between Spiritual Values and Material Values
Islamic economics is a form of helping the customer’s economy to benefit according to Islamic teachings. According to Islam, wealth from economic activities can be used for Zakat, Infaq and Sadaqah.
3. Granting Freedom Based on Islamic Teachings
Islamic economics gives freedom to economic actors to act according to their rights and obligations in carrying out economic activities.
4. Recognition of Various Types of Ownership
Ownership of funds and assets in the economy actually belongs to Allah alone. Hopefully the economy runs according to Islamic teachings.
5. Bound by Faith, Sharia and Morals
All economic activities are based on Aqidah, Sharia and morality to balance the economy.
6. Maintain Mental And Physical Balance
The goal of Islamic economics is not only to gain physical benefits, but to gain inner peace and profit in one’s life.
7. Providing space for the state and government
The sharia economy provides space for the government and the state to intervene as intermediaries when problems arise.
8. Prohibition of Riba
A form of usury is the accumulation of payments from a person who owns property to a person who lends property because of a failure to make a promise to repay the loan by a certain time. In Islamic economics, riba is prohibited.
The Purpose of Islamic Economics
Islamic Economics According to Islam, the best economic system is: As Muslims, it is appropriate for us to run this economic system. The objectives of Islamic economics, among others:
1. Purify the soul
Purify the soul so that every Muslim can become a source of virtue for society and its environment.
2. Uphold justice in society
Justice in question includes aspects of life in the field of law and muamar. In this way, the bond of brotherhood increases.
3. Creating economic prosperity
With the sharia economy, economic growth can become more prosperous.
Principles of Islamic Economics
The implementation of Islamic economics must follow the following principles (Sudarsono, 2002:
105):
- Various sources are considered as gifts or entrusted by God to humans.
- Islam allows private ownership within certain limits.
- The main driving force of the Islamic economy is cooperation.
- Islamic economics rejects the accumulation of wealth controlled by a handful of individuals.
- The Sharia economy guarantees public property and its use is designed for the benefit of the many people.
- Muslims must fear Allah and the Day of Judgment in the hereafter.
- Zakat must be paid on wealth that reaches the ceiling (nisab).
- Islam prohibits all forms of usury.
Benefits of Sharia Economics
If Islamic economics is practiced, Muslims will benefit greatly. The benefits of Islamic economics include:
- If Muslims are found to be still struggling and practicing conventional economics, it means they have not converted to Islam.
- The application and practice of Sharia economics by Islamic financial institutions such as banks, insurance companies, pawnshops and Baitul Maal wat Tamwil will benefit the world and the future.
- The benefits of this life are obtained from the sharing of profits, but the benefits of the hereafter are freed from usury which is prohibited by Allah.
- Business practices based on Islamic law have religious value because they carry out God’s law.
- Islamic economic practices by Islamic financial institutions. This means supporting the development of Islamic economic institutions.
- Practicing the Islamic economy by opening savings and deposits and buying Islamic insurance means supporting the economic empowerment of the people. Because the collected funds are collected and sent to the real trading department.
- Practicing the Sharia economy means supporting the Amar Ma’ruf Nahi Munkar movement. This is because the funds raised by Islamic financial institutions can only be used for halal companies and projects.
What are the Roles of Islamic Economics?
In the 2020 Sharia Economic and Financial Report (LEKSI), Bank Indonesia describes the three roles of the Islamic economy in the recovery of Indonesia’s national economy.
- The aim is to support the liquidity of Islamic banks so as to facilitate the distribution of Islamic funds in Indonesia.
- Implementing a partnership business model (KKMU Syariah) to optimize profit sharing properly. Thus, business opportunities are maintained by supporting resilience to manage business risks.
- Optimization of Islamic social finance.
Sharia Economic Potential in Indonesia
Indonesia’s Islamic economic and financial potential is enormous, according to the Ministry of Finance (Kemenkeu). This can be seen in the increasing trend of the Financial Inclusion Index which is supported by Islamic financial assets as a whole. Moreover, this potential is supported by the rise of Sharia KUR and the rise of Sharia debtors.
As a bridge between economic development and Islamic finance, several financial institutions, such as the growth of social finance with zakat and waqf, tokenization of sukuk, digitization and development of Islamic fintech, and regulation of Islamic finance and impact investment (ESG). I have a chance.
In fact, according to the Ministry of Finance of the Republic of Indonesia, Indonesia currently ranks fourth after Malaysia, Saudi Arabia and the United Arab Emirates in terms of Islamic economic and financial development.
In order to support the sharia economy and financial ecosystem, the Ministry of Finance of the Republic of Indonesia is committed to coordinating policy makers, supporting regulations and developing the halal industry. all supporting elements of the Islamic economy, including government incentives to encourage Indonesia’s Islamic economic and financial potential will continue to grow.
What are the Sharia Economic Products in Banking?
Islamic economics deserves thumbs up. Of course this makes a significant contribution to the productivity and professionalism of Islamic banking itself. The following is the presence of Islamic economic products, especially in the banking sector, which support the development of a very large Islamic economy.
1. Sharia Savings
Savings are described as deposits whose withdrawals are subject to various conditions imposed by the bank on its customers. Withdrawal facilities allow passbooks, ATMs, withdrawal slips, and other advanced methods such as internet banking.
The hallmark of sharia savings is the implementation of the wadiah contract. In other words, the savings are only deposited, the customer does not receive interest, but the bank gives gifts or bonuses to customers, which is of no use.
2. Sharia deposits
Time deposits are deposits that ordinary people choose to invest in. Not only is it easier, the profit you get is also higher than ordinary savings. Deposits are bank savings products that allow deposits and withdrawals to be made only at certain times because the bank needs time to invest.
A bank’s business or investment must be included in the halal category according to Islamic law. The terms or terms offered are the same as traditional deposits and range from 1 to 24 months.
Sharia deposits use Mudharabah contracts. This means saving through a profit-sharing system (relationship) between the customer and the bank. The advantage of this mudharabah contract deposit is usually using a ratio of 60:40 for customers and banks. The higher the bank’s profit, the higher the customer’s profit, and the lower the bank’s profit, the lower the customer’s profit, which means that the profit is risky.
3. Sharia Pledge (Rahn)
Sharia Pledge, practiced at PT. Pegadaian lends its customers valuable, salable and insurable assets. The money you lend is interest free. However, if the pawnshop cannot pay off its debt on the agreed date, the customer (rahin) is obliged to provide collateral (marhum) for the purpose of paying off the debt.
In practice, collateral is sold to cover debts if confirmed by the trustee. when the security interest is sold.
4. Sharia Demand Deposits
One of the sharia banking products included in the Wadiah (Deposit) Concept is Current Accounts. Current accounts are generally understood as deposits that can be withdrawn at any time by check, demand deposit slip, other methods of payment, or bookkeeping. Sharia demand deposits are current accounts managed in accordance with Sharia principles.
In this case, the National Sharia Council issued a fatwa stating that current accounts that are justified by sharia are those based on the principles of Wadia and Mudarabha.
The Mudharabah Current Account Sharia contract is a cooperation contract between the customer as a depositor of funds (Shahibul Maal) and the party managing the funds by a Sharia Bank (Mudharib). The provisions for Sharia Current Accounts using a Mudharabah contract are:
- In this transaction the customer acts as shahibul maal or owner of funds and the bank acts as mudharib or fund manager.
- In its capacity as Mudharib, banks can conduct and develop various types of businesses that do not violate Sharia principles. This includes mudharabah with other parties.
- Capital must be stated in cash and not in debentures.
- Profit sharing is expressed in the form of a percentage and stated in the Account Opening Agreement.
- The bank, as Mudharib, finances the operational costs of site deposits with its personal profit margin.
- Banks cannot reduce customer win rates without proper authorization.
On the other hand, Sharia Current Accounts with Wadiah Contracts are contracts to store customer funds in Islamic Banks, and Islamic Banks can manage these funds without giving compensation to customers when they make a profit. Sharia demand deposits for wadiah contracts are subject to the following conditions:
- Deposit nature
- The deposit can be taken at any time (on-call).
- No compensation is required except in the form of a voluntary contribution (athaya) from the Bank.
- In practice, most Islamic banks use Wadiah contracts for demand deposits. This is because customers have to open deposit sites for smooth and easy transactions, not for profit. Intermediate mudharabah contracts are usually used for profitable investment contracts.
5. Sharia Financing (Ijarah)
Leasing is a very familiar part of our daily lives and many people use this service to buy cars, motorbikes and other valuables. Rent was originally known in America, from the word lease which means rent. In Islamic economics, the term associated with flower bouquets is Ijarah (al Ijarah), derived from the word al ajru, which means al iwadhu (change).
According to the Decree of the Minister of Finance No. 1169/KMK.01/1991 dated 21 November 1991, what is meant by lease is a lease with options (financial lease) or lease without options (operating lease).
After we already know about Islamic Economics products in Banking, of course, Readers is also interested in learning more about them. Well, you can read a book entitled ” Development of Islamic Banking Products in Indonesia “. This book discusses the theory and practice of developing sharia products creatively, innovatively and prospectively – the main key to opening the door to the success of the sharia banking industry.
Differences between Islamic Banks and Conventional Banks
The Indonesian banking system has two bank operating systems. The two banking systems are regular banks and Islamic banks. Traditional banks are indeed very familiar to the ears of the Indonesian people, but what are the differences between Islamic and traditional banks?
Sharia Banks are banks that operate based on Sharia principles or Islamic law as stipulated in the fatwa of the Indonesian Ulema Council (MUI). Thus, every activity carried out by this Islamic bank, both raising funds and in the context of channeling funds, provides and charges rewards based on sharia principles, namely buying and selling and profit sharing.
Meanwhile, conventional banks are banks that carry out their activities conventionally, referring to national and international agreements, and based on state law.
The Financial Services Authority (OJK) explained the difference between Islamic banks and conventional banks, that the principles of Islamic banking regulated in the MUI fatwa include the principles of justice and balance (‘adl wa tawazun), benefit (maslahah), universalism (alamiyah), and not contains gharar, maysir, usury, unjust, and objects that are forbidden.
Islamic banking law also stipulates to perform a social function by performing functions like a biturmal institution, based on the differences between Islamic banks and traditional banks. Manager (Nazhir) at the will of the Waqf giver (Wakif).
In this difference between Islamic and traditional banking, the Islamic banking system and traditional banking work synergistically to support the wider mobilization of public funds to increase the financing capacity of national economic sectors.
In general, the difference between Islamic banks and conventional banks lies in the form of business of Islamic banks, which consist of commercial banks and Islamic People’s Financing Banks (BPRS), the prohibition of accepting deposits.
After we already know about the history, understanding, characteristics, goals, principles, benefits, roles, potential, various products to differences with conventional banks. Surely Readers is very curious besides bank products, is there any investment but Sharia? Of course! Readers can read a book entitled “Sharia Capital Market “. This book is very suitable to read especially for those of you beginners who want to know about the capital market but in Sharia.