Sharia Trade Swaps Mooted

Islamic banks in Southeast Asia are considering to apply Sharia-compliant currency swaps in support of trade, within the scope of their financial services, a Sharia banking expert said on Monday

The CEO of the Islamic-based Tazkia Group Syafii Antonio said "To develop the Sharia financial system, we have to go global. And for that we need to secure our transactions under Sharia law."

According to him, foreign exchange swaps are necessary to secure trade transactions within the framework of Islamic banking and to guarantee continued liquidity. "Perhaps we can first introduce the foreign exchange swap. This is also important to secure liquidity among the Islamic banks.

"Even more than that we can perhaps apply the swaps under one single currency, perhaps under the Dinar. This could be done under the Sharia banking system," he told the press on the sidelines of a seminar on the ASEAN Sharia economy.

The seminar attracted about 150 participants from six ASEAN member countries, namely Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Syafii explained that the requirements for Sharia compliance would be discussed during the seminar.

At present Islamic scholars have different ideas on what is needed to facilitate Sharia-compliant currency exchange swaps and the seminar would address these differences in order to move towards agreement on definitions and applications.

On the development of Sharia in Indonesia, Syafii noted that the government should improve the regulatory and business environment so that the Sharia banking system could develop better and grow faster.

"The government has issued the law on Sharia banking and on sukuk ‘Islamic bonds’. But I think they can do more to accelerate its development. "This is a matter of political will. If the government has the political will then Sharia banking here can grow much faster," he said.

He also proposed that the government should consider Sharia banking as an infant industry for at least 10 years, during which the government should design its laws to meet the needs for tax incentives and should create a favorable climate for its development. "Malaysia and Britain have given such incentives to the Islamic banking," he noted.

However, the CEO of the CIMB Islamic bank Badlisyah Abdul Ghani, (pic above) who also participated in the ASEAN seminar, said that what the Sharia banking system actually needed was a level playing field.

"Actually, what we need the most is a level playing field, not a new legal framework for sharia banking. With a level playing field all players will receive equal treatment as has been the case with conventional banking.

"I think this kind of problem is faced by most countries in ASEAN, except Malaysia," he said. He pointed out that the Indonesian government needed to go further in pushing the growth of shariah banking by providing tax neutrality, as had been done by some other countries.

"Malaysia provided such tax neutrality since long time ago. Even Britain and Singapore have followed suit ," he noted.

(From Jakarta Post)