Diversification of Islamic Financial Instruments
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that regulate the industry, namely the Lembaga Penjamin Simpanan (Deposit Insurance
Institution) for deposit insurance scheme, Dewan Syariah Nasional – Majelis Ulama Indonesia
(National Shariah Council - Indonesian Ulama Council) for Fatwa and Shariah-based decisions,
Ministry of Finance to regulate sovereign Sukuk, Ministry of Cooperative and Medium and
Small Scale Enterprises to supervise the Shariah cooperative business, Badan Arbitrase
Syariah Nasional (Arbritrage and Dispute Resolution in Islamic finance), and Ikatan Akuntan
Indonesia (Indonesian Accountant Association) Shariah for Accounting standard.
Indonesia is among the countries that have specific acts regulating Islamic banking, insurance
and Sukuk. The first act regulating Islamic banking practices was the Banking Act 1992. This
Act facilitated the establishment of the first Islamic bank in Indonesia, namely Bank Muamalat
Indonesia. Since then various acts have been passed to accommodate the practice of finance in
Shariah perspective and guide its development. The Indonesian acts related to Islamic banking
and financial practices are as follows:
 Banking Act No. 7 of 1992 (amended by Act No. 10 of 1998).
 Central Bank Act No. 23 of 1999 (amended by Act No. 3 of 2004).
 Deposit Insurance Act No. 24 of 2004.
 Islamic Banking Act No. 21 of 2008.
 Islamic Sovereign Bond (Sukuk) Act No. 19 of 2008.
 Government Law No. 25 of 2009 (income tax for sharia transactions).
 Tax Neutrality in Government Law no. 42 of 2009.
Internationally, Indonesia is already a member of the Islamic Development Bank (IDB), the
Islamic Financial Services Board (IFSB), the International Islamic Financial Market (IIFM) and
the International Islamic Liquidity Management Corporation (IILM) and has adopted the
regulations of the IFSB and the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI) beside adhering to various fatwa issued by the OIC Fiqh Academy (based
in Jeddah).
3.2.2. INTRODUCTION
The early development of Islamic finance industry in Indonesia is very promising. Since the
first establishment of Islamic bank in1992 through the establishment of Bank Muamalat
Indonesia, the Islamic banking industry currently is having 34 Islamic banks (full-fledged and
windows), 53 Takaful operators, and more than 5000 Islamic micro-financing institutions
(called as Bank Perkreditan Rakyat Syariah) across the country (OJK, Islamic Bank Monthly
Statistic January 2017).
With the growing public interest in the industry and its significant contribution to the national
economy, the Government of Indonesia has shown concern on how to develop and elevate the
industry further.
However, the contribution of Islamic finance industry to the national financial system, and to
the national economic growth at large has not yet been significant, compared to the existing
conventional financial market. Islamic banking industry, for example, contributed only 5 % of
country’s banking assets in 2015. Another ASEAN country, Brunei Darussalam, has achieved
nearly 49% of the country’s banking assets being Shariah-compliant, and Malaysia has reached