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Flipping Up the Pyramid:. The Issue of Enhancing iB Competitiveness. Yuslam Fauzi CEO Bank Syariah Mandiri. Presented in: CEO Forum III Masyarakat Ekonomi Syariah (MES). +/- 15 menit. Contents. 1. II. III. IV. I . Reflections. a. Maqasid al Sharia. Menurut Imam Al-Syatibi:.

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  1. Flipping Up the Pyramid: The Issue of Enhancing iB Competitiveness Yuslam Fauzi CEO Bank Syariah Mandiri Presented in: CEO Forum III Masyarakat Ekonomi Syariah (MES) +/- 15 menit

  2. Contents 1 II III IV

  3. I. Reflections a. Maqasid al Sharia Menurut Imam Al-Syatibi: Tujuan syariah adalah terciptanya kesejahteraan manusia Al Muwafaqat Fi Ushul Al-Syariah, 2:8 Firman Allah SWT: “Dialah (Allah) yang telah menciptakan kalian dari Bumi (tanah) dan telah meminta kalian untuk memakmurkannya (Bumi)” Q.S. Hud: 61

  4. I. Reflections a. Maqasid al Sharia Contoh dari ayat Quran: “Bukanlahmenghadapkanwajahmukearahtimurdanbaratitusuatukebajikan, akantetapisesungguhnyakebajikanituialahberimankepada Allah, harikemudian, malaikat-malaikat, kitab-kitab, nabi-nabidanmemberikanharta yang dicintainyakepadakerabatnya, anak-anakyatim, orang-orangmiskin, musafir (yang memerlukanpertolongan) danorang-orang yang meminta-minta; dan (memerdekakan) hambasahaya, mendirikanshalat, danmenunaikanzakat; danorang-orang yang menepatijanjinyaapabilaiaberjanji, danorang-orang yang sabardalamkesempitan, penderitaandandalampeperangan. Merekaitulahorang-orang yang benar (imannya); danmerekaitulahorang-orang yang bertakwa. ” (QS. Al-Baqarah [2]: 177.)

  5. I. Reflections a. Maqasid al Sharia Al Fajr (15 – 20) Verses Translation Arabic 15 16 17 18 19 20

  6. Affluent I. Reflections a. Maqasid al Sharia Middle Class Poor At least, 4 billion people live on less than $2 a day Sharia banks should become the locomotive in flipping up the economic pyramid Source: CK Prahalad, 2004. The Fortune at The Bottom of The Pyramid The flipped economic pyramid once occurred in caliphate of `Umaribn `Abd al-`Aziz, where it was very difficult to find zakat beneficiary (mustahiqq)

  7. I. Reflections a. Maqasid al Sharia In BSM Financing composition changed from corporate majority to non corporate majority

  8. I. Reflections a. Maqasid al Sharia Daftar 42 Negara Muslim (Majority)

  9. I. Reflections a. Maqasid al Sharia HDI negara-negara muslim lebih rendah dibanding dengan HDI negara-negara non-muslim. Statistik: Bandingkan dengan total muslim di Eropa sebesar +/- 51,46 juta

  10. I. Reflections a. Maqasid al Sharia Education Index negara-negara muslim lebih rendah dibanding dengan Education Index negara-negara non-muslim. Statistik: Bandingkan dengan total muslim di Eropa sebesar +/- 51,46 juta

  11. I. Reflections a. Maqasid al Sharia Life Expectancy Index negara-negara muslim lebih rendah dibanding dengan Life Expectancy Index negara-negara non-muslim. Statistik: Bandingkan dengan total muslim di Eropa sebesar +/- 51,46 juta

  12. I. Reflections a. Maqasid al Sharia GNI pc negara-negara muslim lebih rendah dibanding dengan GNI pc negara-negara non-muslim. Statistik: Bandingkan dengan total muslim di Eropa sebesar +/- 51,46 juta

  13. I. Reflections a. Maqasid al Sharia 5. Top 10 negara muslim adalah natural resource-based economy Top 10 HDI of Muslim Country Natural resource based-economy Knowledge Economic Index (KEI) rendah Rerata KEI sebesar 5,49 Knowledge based-economy Top 10 HDI of the World Knowledge Economic Index (KEI) tinggi Rerata KEI sebesar 9,11 • The Knowledge Economy Index (KEI) takes into account whether the environment is conducive for knowledge to be used effectively for economic development

  14. I. Reflections a. Maqasid al Sharia 6. Indonesian Prosperity HDI Indonesia 2010 • Tahun 2009, dari 184 negara, Indonesia menempati peringkat 111 dengan HDI Index: 0,734. • Tahun 2010, dari 192negara, Indonesia beradapadaperingkat ke-108 mengalami peningkatan dibanding tahun 2009. • Faktorutamapenyebabrendahnya HDI Indonesia adalahtingkat Income Indeks dan Education Index.

  15. I. Reflections b. Human Capital Readiness Islamic Banking Asset(IDR Trillion) Human Resource(Thousand) 1.800* 101* 97.5 83 thousand human resourcesgap to be solved 18 2020 2010 Islamic banking growth must be supported by ...... thousands resources All of them must have hi-competences and unquestionable integrity How can we deal with this challenge? What kind of education we need to deal with? * Assumption: the ratioofassetperemployeeincreases by 13% per year based on data 2007to 2010 Asset growth 34% p.a.

  16. Contents 1 II III IV

  17. II. Characteristics & Prospects of Indonesia a. Historical: Growth Driver Malaysia Indonesia Society–driven iB to retain Petrodollar & to reach int’l investment Islamic Banking Abundant Petrodollars Government-driven iB Different country/nation has different characteristics in developing Islamic banking; There is a need for developing nation-based iB product development.

  18. II. Characteristics & Prospects of Indonesia a. Historical: Growth Driving Factor in Middle East Oil prices are rising; Islamic banks are flush with funds and are driving growth on the back of strong recent performances. Propelled by rising oil prices and economic diversification, GCC (Gulf Cooperation Council) countries are growing rapidly. Islamic banks, or banks that offer Islamic banking units, have a market that holds half of the world’s oil reserves and whose citizens have an estimated $1.5 trillion in private wealth, according to the International Monetary Fund. Source: Rajashekara V Maiya, Basudev Banerjee. 2009. Banking on Faith: Islamic Banking in the Middle East. Prespective. Finale Infosys. Islamic banks in Middle East are petrodollar-driven

  19. II. Characteristics & Prospects of Indonesia a. Historical: Growth Driving Factor in Europe An added spur is the huge liquidity overhang in the Gulf due to the high petroleum prices for which Shariah compliant investments are the channel of choice. This situation has led to European states promoting their acceptance of Islamic finance. Europe’s acceptance of Islamic finance is a natural follow-through to the emergence of a sizeable Muslim middle and upper classes, but the players are eyeing the overall population as a cycle of financial and credit crises pushes consumers to seek ethical financial services. The main reason behind the development of Islamic bank in Europe is due to the opportunity maximization of huge liquidity of in the Gulf countries. Source: Islamic Finance News, Vol. 5, Issue 355th, September 2008www.assaif.org/content/download/1243/8684/version/1/file/IFN+Sept.+08.pdf

  20. II. Characteristics & Prospects of Indonesia a. Historical: Growth Driving Factor in Malaysia Government of Malaysia has played significant role on boosting Islamic banking industry Source: Jennifer Chang. 2009. Incentives from the Malaysian Government. Islamic Venture Capital & Private Equity Conference 2009. PriceWaterHouseCoopers. Online. www.assaif.org/content/download/3046/18281/file//Incentives%20from%20the%20Malaysian%20Government-Jennifer%20Chang.pdf

  21. II. Characteristics & Prospects of Indonesia a. Historical: Growth Driving Factor in Indonesia *Santrinic is terminology to describe to those who has more concern on religion **Abangan is a terminology to describe to those who has less concern on religion or syncretism.

  22. II. Characteristics & Prospects of Indonesia b. Economic & Business: Population (Middle Class) Recently, Indonesia has about 102 mn middle class Sources: Key Indicator for Asia and Pacific (barrolee.com)

  23. II. Characteristics & Prospects of Indonesia b. Economic & Business: Population (Middle Class) Middle-class in Indonesia will be doubled Household consumption as GDP growth driver There is gonna be a big challenge to solve Sources: Key Indicator for Asia and Pacific (barrolee.com), BPS, Facebook, media reports, A.T. Kearney analysis

  24. II. Characteristics & Prospects of Indonesia b. Economic & Business: Population (Middle Class)

  25. II. Characteristics & Prospects of Indonesia b. Economic & Business: Future Economy Growing 7% per year, Indonesia shall become the fifth biggest economies in the world by 2030. The Indonesian economy prospect should affect to the Bottom of the Pyramid. For Islamic bank, this requires sophisticated capabilities of Islamic banking in providing products & services.

  26. Contents 1 II III IV

  27. III. What Islamic bank should do? ? How to inline the wealth creation & distribution issues in the light of Indonesian economy prospective in the next two decades? What should Islamic bank do next? What business model should Islamic bank pursue?

  28. Affluent III. What Islamic bank should do? How Islamic banks should take the role? Islamic banks Shari’a mission • Islamic banks should implement its main mission: wealth creation & distribution Take opportunity optimally • Islamic banks is supposedly able to take optimally these opportunities thru advancing technology, innovating product scheme, and creating new business models, etc.

  29. III. What Islamic bank should do? ..Giving fair competitiveness & incentives to both BoP Market and Islamic banks become a strategic enabler for succeeding wealth creation & distribution in Indonesia… Competition Fairness • Fiskal (?) • ATMR (?) • Relaksasiregulasi (?) • Relaksasisyariah (?) • Dst Which one is better & relevant for wealth creation & distribution? Comply with Fiqh??? Incentives Fulfill MaqashidSyariah!!! • Fiskal (?) • ATMR (?) • Relaksasiregulasi (?) • Relaksasisyariah (?) • Dst

  30. Contents 1 II III IV

  31. IV. Expectations 1. To Regulators & Ulama: Contextualization & Reactualization …The most challenging of Islamic bank on tapping up the BoP Market is more than providing customized, simple, and cheap Products, but on how shari’a compliance deals with flexibility & cost… BoP Market Segment Customised Products Simple products Cheap products 2 1 3 PembiayaanSektorPertanian Contraints: No “IDC” syariah Possible solutions: Margin During Construction/Plantation • Context: Pembiayaan Multi Guna • Contraints: compliance cost • PMG Konsumer: satuobyeksatuakad. Solusi: satupaketsatuakad • PMG Konsumer/Mikro: Tawarruq. Possible solutions: Bai’ Al Inah • Pembiayaan Executing: satuakadsatu disbursement. Possible solutions: ?? • dsb Sharia Compliance Flexibility Operational cost Compliance cost Kontekstualisasi & Reaktualisasi

  32. IV. Expectations 2. To the Government: Tax Fairness Instead of Tax Incentives We need Tax Fairness (Case of Malaysia) (a Proposal for Indonesia) Tax Incentives Tax Fairness To create fair competition, Islamic banking must be placed in “the same playing ground” with the conventional one Tax fairness could be considered See one example in the next slide

  33. IV. Expectations 2. To the Government: Tax Fairness Income Tax of Depositors Customer’s Question: “Why are we (depositors) charged with the same tax rate while facing higher uncertainty in Islamic Banking?”

  34. IV. Expectations 2. To the Government: Tax Fairness Income Tax of Depositors Conventional Commercial Bank Islamic Commercial Bank Investment Bank Both principal and interest are not guaranteed Both principal and interest are guaranteed Principal is guaranteed but yield is not guaranteed Debt Culture (low risk) In Between (moderate risk) Equity Culture (high risk) Interest Profit Sharing Dividend Income Tax For Depositors/Investors 15% 20% 20% Corporate Tax ? 10% Individual Tax Based on the risk-return principle, is 20% of Income Tax for islamic banking depositors fair? How much is the appropriate percentage of tax for Islamic banking depositors (investment account)? We think it should be lower than 20%

  35. IV. Expectations 2. To the Government : Human Capital Quality of the educational system How well does the educational system in your country meet the needs of a competitive economy? [1 = not well at all; 7 = very well] Therefore, to fully utilize the ‘window ofopportunity’ in 2020-2030, Indonesia needs toimmediately initiate policies and programs to prepare highquality human capital to meet the rapid changing demandof labor Source: Klaus Schwab. 2010. The Global Competitiveness Report 2010–2011. World Economic Forum. Geneva, Switzerland 2010 Intenational Labor Org. (ILO) - Indonesia Education in Indonesia has not matched yet with business needs Can our education meet Islamic banking needs? Supposedly, educational institution can play hand in hand with business player, especially Islamic banking players We should consider tax incentives for sharia human capital development Source: ILO Jakarta News Letter. 2008. Indonesia-ILO to Continue Tackling the Worst Forms of Child Labour. http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_101368.pdf .

  36. IV. Expectations 2. To the Government : Human Capital Islamic Banking Asset(IDR Trillion) Human Resource(Thousand) 1.800* 101* 97.5 83 thousand human resourcesgap to be solved 18 2020 2010 Islamic banking growth must be supported by 83 thousands resources All of them must have hi-competences and unquestionable integrity How can we deal with this challenge? What kind of education we need to deal with? * Assumption: the ratioofassetperemployeeincreases by 13% per year based on data 2007to 2010 Asset growth 34% p.a.

  37. IV. Expectations 2. To the Government : Human Capital Lessons Learnt from Malaysia • Tax incentives on training in Islamic Finance • Tax exemption for non-resident Islamic finance expert • Additional 20% stamp duty exemption on Islamic Financial instruments • Tax deduction for promoting MIFC

  38. IV. Expectations 2. To the Government : Human Capital Experience Islamic banking practitioners are unsatisfied with unfair decision made by court due to lack of understanding of Islmic economic and finance. Islamic banking had unnecesary lost Government should take a role to equip adequate training for judges who are involved in dispute in sharia economic & finance

  39. Finish

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