Indonesia is the most populous Muslim country in the world. Taking into
account also its endowment and potential economic resources, the Islamic
banking industry in Indonesia was expected to take on an important role
in facilitating more financial resources and to contribute to the
internationalization of the Islamic mode of financing particularly in
the Asia-Pacific region. However, the reality is far from the
expectation. This book aims to clarify the causes and fundamental
constraints leading to the extraordinarily low level of Indonesia's
Islamic financial deepening.
The authors draw on the traditions of Institutional Economics which are
concerned with the rules or mechanisms of creating the 'incentive' and
'threat' for economic players because the rules (institutions) would
matter as the determinant for economic development and economic
efficiency. This book offers a fairly new analytical lens by
hypothesizing that Islamic banks must earn additional profit- the
authors coined as 'Islamic bank rent' - to maintain their franchise
value as prudent Shari'ah-compliant lenders when compared to
conventional banks. The authors argued that insufficient provision of
the Islamic bank rent opportunity may have caused the Indonesia's
Islamic banks the opportunity to learn and improve their skill and
capacity for the credit risk management. The book also offers
evidence in support of implementing economic and affirmative policy
necessary for incubating and developing the Islamic banking industry in
Indonesia and making Indonesia an international Islamic financial hub in
the Asia-Pacific region.
This book will be a useful resource for policy makers and researchers
interested in Islamic banking in Indonesia.
