Legal reform on the dispute resolution mechanism in Islamic banking and finance in Indonesia: issues and challenges

• Main Authors: Rasyid, Abdul, Zulhuda, Sonny
• Format: Conference or Workshop Item
• Language: English
• Published: 2011
• Subjects: KBP Islamic Law; KBP3190 Economic law
• Online Access: http://irep.iium.edu.my/8774/1/Legal_Reform_on_The_Dispute_Resolution_Mechanism_in_Islamic_Banking_and_Finance_in_Indonesia.pdf; http://irep.iium.edu.my/8774/; http://conference.qfis.edu.qa/

Nearly fifteen years after the establishment of the first Islamic bank Indonesia, a new law was introduced in 2006 that in effect empowers the Religious Court in the country to oversee, hear and decide on disputes relating to matters of Islamic finance and Islamic economics. In its way to the enactment, the Parliament preferred the word ‘Islamic economics’ than the word ‘Islamic banking’ which was initially put in the draft law. This law (which amends the older 1989 Act on the Religious Court) has resulted in two things: first, depriving the power of conventional courts over disputes relating to Islamic economics activities and, secondly, expanding the jurisdiction of a considerably inferior Religious Court that was restricted on areas of Muslim matrimonial and personal property matters. While many applauded the passing of this new law, the Law No. 3 of 2006 may have at the same time raised the eye-brows of many in the industry and campuses. When Islamic banking professionals and scholars are awaiting a more fundamental and substantive law on Islamic banking, the passing of 2006 law is rather an unexpected gift. This regulatory reform had in many ways upgraded the Religious Court in Indonesia; this is what makes everyone happy. But this reform surely requires those in legal fraternity (judges, attorneys, legal practitioners and academia) to prepare lots of things in order to make the law works. Issues such as human resource development and capacity building, harmonization of legal and regulatory frameworks especially in the dispute resolution matters, jurisprudential development and many more will need to be identified and responded in quick and professional fashion. Otherwise, the 2006 legal reform may become like a posh car which is left untouched in a garage. With a strong view that this ‘unexpected gift’ should not be wasted, this paper seeks to explore and investigate those potential issues and challenges resulting from the enactment of this law (Law No. 3 of 2006). In addition to this Court, an alternative institution for resolution of Islamic banking and finance disputes such as BASYARNAS (National Shari'ah Arbitration Body) is also established. In order to achieve its objective, this paper employs an analytical and comparative studies as well as observing through some empirical case studies. This paper hypothesizes that this identification would help Religious Courts and BASYARNAS uphold an effective reform to better improve the Islamic financial institutions in Indonesia.