The Existence of Islamic Banking in Indonesia

The development of Islamic economic, especially in finance and banking has shown improvement both in the world and in Indonesia. At the world level, there are many countries that have Islamic finance and banking industries. In fact, around 75 countries have practiced Islamic economic and financial systems. In its implementation, the development of Islamic Economic system was marked by the establishment of Islamic financial institutions such as Islamic Banking, Baitul Mal Wat-Tamwil, Sharia Capital Markets, Sharia Mutual Funds, Sharia Pawnshops, Sharia Insurance and other institutions that use Sharia principles. With the development of financial institutions that are based on sharia principles, it can provide a wider alternative for the public to use financial institutions that are not based on the interest system or riba (conventional financial institutions).

Islamic financial institution is a financial institution that are oriented towards efforts to improve the welfare of members and the community in accordance with Islamic principles. Now, Islamic financial institutions have grown into alternatives for improving the economy in Indonesia. In its concept, Islamic financial institutions are in accordance with the times and grow into an alternative and solutive financial system. The first Islamic financial institution established in Indonesia was Bank Muamalat established in 1992.

The preference of Indonesian people to switch from conventional financial institutions to Islamic financial institutions began since the financial crisis. This happens because people feel disadvantaged by the bank interest system used by conventional banks to get benefit from funds invested through financing customers, regardless of whether the customer's business is get profits or losses. However, this is very different from the system of Islamic banks to get profits on the funds invested, Islamic banks apply the profit sharing ratio, namely by dividing the profit or loss (Profit and Loss Sharing or PLS) obtained from the business carried out by the customer. This is applied to Islamic banks because Islamic banks are banks that all other operating systems must not contradict the teachings of Islam, that prohibiting Riba, Gharar, and Maysir. In Al-Quran Surah Al-Baqarah verse 275 it has been explained that Allah forbids Riba and instead uses the principle of profit sharing. With this principle, it is expected that no party will be disadvantaged in the contract, because this principle is based on an agreement between the two parties who made the contract.

The development of Islamic banks in Indonesia has actually been going for a long time, but in reality it still hasn't touched the principles of sharia until the end of  Orde baru. The development of Islamic banks in Indonesia tends to be unstable, so it cause the growth to be less than optimal. The unstable growth was caused by several factors including: lack of government commitment, government regulations which tended to limit the participation of the community in efforts to advance sharia banking, socialization about sharia banking that was still lacking. Based on BI annual report data, each year only disseminates 51 times. The intensity is still lacking when it compared to the large population of Indonesia. Another factor is that Islamic banks still do not have an effective strategy to reach consumers, so they have not been able to beat the existence of conventional banks. After that, the Indonesian people's understanding of Islamic banks is also still lacking. Based on the 2016 Survei Nasional Literasi dan Inklusi Keuangan (SNLIK) of Otoritas Jasa Keuangan(OJK) in 2016 the level of users of Islamic financial products and services in Indonesia is only 11.06%. While the Islamic financial literacy index was 8.11 percent.

To deal with these problems, still need more efforts to be made to increase the growth of Islamic economics and Islamic Banking in a number of ways, such as making regulations that do not limit public participation, a comprehensive introduction to Islamic Banking programs and by building public trust in Islamic banks by promoting adherence to Sharia. In addition, to support the existence of Islamic economics and Islamic banking in Indonesia also requires the role of the community, especially Muslims who have a better understanding of the principles of muamalah, which are justified by Islamic sharia.