“This is the type of article one might expect to see on the Muslim Brotherhood’s web site. Yet, it was paid for by US taxpayers and it was distributed by Uncle Sam…” So says Shariah Finance Watch, and they’re right. Be sure to read all their excellent observations on this.
Indonesia’s central bank has recently embraced new regulations for Islamic banking, which it sees as key to building on last year’s strong economic growth. In a country that is home to more than 200 million Muslims, the potential for expansion is enormous, although Islamic finance still accounts for a small part of the country’s financial market. [...]
Some financial experts say Islamic banking principles, which limit the use of sophisticated derivatives and require transactions to be backed by real assets, could prevent the excessive leverage that undermined the global financial system two years ago.
Bank Indonesia senior bank researcher Dadang Muljawan says those characteristics helped convince the government to develop its dual-banking system. “The Islamic bank can survive very well the economic crisis. This is maybe what has been seen by the Indonesian government as an opportunity …. If we have two systems that can work together and then if one goes bust – I hope not – the other one can sustain,” he says.
That does not negate the need for better supervision. The system still requires proper supervision. “Jokingly we sometimes say that we can’t say Islamic banks are too holy to fail … it’s not the magic word,” he says. [...]
For now, the focus will remain on building small and medium-sized businesses in the financial sector. But there is hope that improved regulations and new government measures could see Indonesia grab a bigger slice of what the central bank says is a $900 billion global market for Islamic banking.