Spirituality as a Sufficient Condition to Improve Islamic Banks Contribution for Islamic Economic Development
by: Abdul Muhyil Hikam Ladiku
Currently, issues about Islamic banks contribution to economic development are questioned. Islamic banking is indeed expected to fully contribute and give a lot of contribution to the development of the economic condition, through practices like the transmission of a partnership contract owned by capital financing. But instead, it is seen that Islamic banking, contrary to what is expected, implements the practice like business as usual and even mirroring to the conventional banking system which is a profit-oriented practice.
Islamic banking also expected to do the profit-loss sharing model (Profit loss sharing model contribute to economic development) But what they do in the actual situation instead is Murabaha or bay al’inah model. This happens because profit-loss sharing model has a big problem (This problem will be described more in the second part of this writing) while murabahah and bay al’inah though seems legit they are indeed equal with riba. As a result, the Islamic banking system finds difficulty to growth.
In my hypothesis, this is might happen because Islamic banking has not met the required spirituality aspect that should be the Sufficient Condition of the success of Islamic banks. The current Islamic banking system is merely just focused to solve the shariah compliance problems, which includes the problem of whether a product halal or not. While the efforts did are considerably good. Yet it is far from enough. Two other aspects should be solved to meet the required spirituality aspects. These aspects are Iman and Ihsan aspects or spirituality aspects.
This paper contains three parts. The first part of this writing describes the problems, dilemmas, and hypothesis that is going to be exposed to the study. The second part describes even further regarding the problem in Islamic bank products like adverse selection and moral hazar disincentive or moral hazard falsification. And the last part in this writing is the solution from Islamic Spirituality perspective with a focus on spirituality, to be the answer of the problems in Islamic bank and also some sum ups of the whole paper itself.
Current Issues in Islamic Banks
Islamic banks are currently faced with three quite essential problems which if there were no future action are taken from the Islamic banks side a severe disadvantage have to be faced by them. These including Adverse Selection Problem, Moral Hazard Disincentive Problem, and Moral Hazard Falsification Problem.
Adverse selection begins in the first step of collaboration between bank and businessman. A businessman has to provide a financial report as part of the requirement to get funding. From the financial report, the bank will decide whether they will be funded or not. The problem arises when the businessman manipulates the financial report. The asymmetric information will cause the inability of the bank on giving appraisal regarding the qualification of the lender itself. The other effect is the higher cost that must be sacrificed by the bank to get the true information.
Moral Hazard Disincentive begins when the collaboration is on progress. The businessman tends to not give his best effort to get profit. This is because, in a profit-loss sharing system, the businessman tends to feel even though the profit will be high, the amounts they will receive is still small. Why? Because the profit-loss sharing system forces the businessman to share the profit with the bank. This is different from the conventional banking system wherein this system, the businessman just need to return the interest, so that the profit margin will be obtained by the businessman.
Moral Hazard Falsification begins when the businessman reports their performances. The businessman will commonly tend to report the profit obtained lower than what it is supposed to be. On the other side, the businessman also can manipulate the cost of business operation for the sake of some unnecessary things. So the effect of moral hazard falsification is a lower profit sharing ratio that will be obtained by the bank.
To reduce the effects of adverse selection, it is crucial for the bank to establish a secure screening process along with good information rent. While at the same time, the government also have to build an independent accrediting institution that responsible to audit the businessman according to the funding’s possible risks. The next step that is needed to be taken by the bank to reduce the effects of adverse selection is to reflect the information rent in the profit-sharing ratio. All of the steps are expected to give incentive to the businessman to provide true information about the company.
To be able to deal with the disincentive caused by the businessman, the Islamic bank should be able to enlarge the proportion of profit sharing that will be received by the businessman. It is also recommended for the bank to apply a cost of security or collateral to the businessman. This collateral is expected to give incentive to the businessman to do his best effort while the collaboration is ongoing.
Then, to face this moral hazard falsification, the Islamic bank is recommended to set the maximum operational cost ratio to the profit. An Islamic bank is also recommended to make some regulation that gives ease to the bank to monitor the performance of the businessman with a periodical, secure yet random monitoring, as well as set the monitoring cost as a helping factor to reduce the profit margin.
Solution by solution proposed above seems still not enough to fix the problems encountered by Islamic banking. Instead of fixing, it gives an adverse effect leading to the tendency of Islamic banking to follow the model of conventional banking per se.
Concept of Iman Islam and Ihsan
The fulfilment of kaffah in islam must include three main pillars. The three main pillars are Iman, Islam and Ihsan. This hypotesis based on Hadits Rasulullah Saw
بَيْنَمَا نَحْنُ جُلُوْسٌ عِنْدَ رَسُوْلِ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّم ذَاتَ يَوْمٍ إِذْ طَلَعَ عَلَيْنَا رَجُلٌ شَدِيْدُ بَيَاضِ الثِّيَابِ شَدِيْدُ سَوَادِ الشَّعْرِ, لاَ يُرَى عَلَيْهِ أَثَرُ السَّفَرِ وَلاَ يَعْرِفُهُ مِنَّا أَحَدٌ, حَتَّى جَلَسَ إِلَى النَّبِيِّ صَلَّى اللهُ عَلَيْهِ وَسَلَّم, فأَسْنَدَ رُكْبَتَيْهِ إِلَى رُكْبَتَيْهِ, وَوَضَعَ كَفَّيْهِ عَلَى فَخِذَيْهِ, وَ قَالَ : يَا مُحَمَّدُ أَخْبِرْنِيْ عَنِ الإِسْلاَمِ, فَقَالَ رَسُوْلُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّم : اَلإِسْلاَمُ أَنْ تَشْهَدَ أَنْ لاَإِ لَهَ إِلاَّ اللهُ وَ أَنَّ مُحَمَّدًا رَسُوْلُ اللهِ, وَتُقِيْمُ الصَّلاَةَ, وَتُؤْتِيَ الزَّكَاةَ, وَتَصُوْمَ رَمَضَانَ, وَتَحُجَّ الْبَيْتَ إِنِ اسْتَطَعْتَ إِلَيْهِ سَبِيْلاً. قَالَ : صَدَقْتُ. فَعَجِبْنَا لَهُ يَسْئَلُهُ وَيُصَدِّقُهُ. قَالَ : فَأَخْبِرْنِيْ عَنِ الإِيْمَانِ, قَالَ : أَنْ بِاللهِ, وَمَلاَئِكَتِهِ, وَكُتُبِهِ, وَرُسُلِهِ, وَالْيَوْمِ الآخِرِ, وَ تُؤْمِنَ بِالْقَدْرِ خَيْرِهِ وَ شَرِّهِ. قَالَ : صَدَقْتَ. قَالَ : فَأَخْبِرْنِيْ عَنِ الإِحْسَانِ, قَالَ : أَنْ تَعْبُدَ اللهَ كَأَنَّكَ تَرَاهُ فَإِنْ لَمْ تَكُنْ تَرَاهُ فَإِنَّهُ يَرَاكَ. قَالَ : فَأَخْبِرْنِيْ عَنِ السَّاعَةِ قَالَ : مَا الْمَسْؤُوْلُ عَنْهَا بِأَعْلَمَ مِنَ السَّائِلِ. قَالَ : فَأَخْبِرْنِيْ عَنْ أَمَارَاتِهَا, قَالَ : أَنْ تَلِدَ الأَمَةُ رَبَّتَهَا, وَأَنْ تَرَى الْحُفَاةَ الْعُرَاةَ الْعَالَةَ رِعَاءَ الشَّاءِ يَتَطَاوَلُوْنَ فِيْ الْبُنْيَانِ, ثم اَنْطَلَقَ, فَلَبِثْتُ مَلِيًّا, ثُمَّ قَالَ : يَا عُمَرُ, أَتَدْرِيْ مَنِ السَّائِل؟ قُلْتُ : اللهُ وَ رَسُوْلُهُ أَعْلَمُ. قَالَ : فَإِنَّهُ جِبْرِيْلُ أَتَاكُمْ يُعَلِّمُكُمْ دِيْنَكُمْ. رَوَاهُ مُسْلِمٌ
“Umar ibn Al-Khattab reported: We were sitting with the Messenger of Allah, peace and blessings be upon him, one day when a man appeared with very white clothes and very black hair. There were no signs of travel on him and we did not recognize him. He sat down in front of the Prophet and rested his knees by his knees and placed his hands on his thighs.
The man said, ‘O Muhammad, tell me about Islam’ The Prophet said: Islam is to witness that there is no God but Allah and Muhammad is the Messenger of Allah, to establish prayer, to give the alms, the fast the month of Ramadan, and to perform pilgrimage to the House if he is capable of travel. The man said, ‘You have spoken truthfully’ We were surprised that he asked him and then said he was truthful. He said, ‘Tell me about faith’
The Prophet said: Faith is to believe in Allah, His angels, His books, His messengers, the Last Day, and to believe in providence, both its good and its evil. The man said, ‘You have spoken truthfully. Tell me about excellence’ The Prophet said: Excellence is to worship Allah as if you see Him, for you do not see Him but He certainly sees you.
The man said, ‘Tell me about the final hour’ The Prophet said: The one asked does not know more than the one asking. The man said, ‘Tell me about its signs’ The Prophet said: The servant girl will give birth to her mistress and you will see barefoot, naked, and destitute shepherds compete in constructing tall buildings.
Then the man left and I remained. The Prophet said to me: O Umar, do you know who he was? I said, ‘Allah and His messenger know best’ The Prophet said: Verily, he was Gabriel who came to teach you your religion” Source: Ṣaḥīḥ Muslim 8, Grade: Sahih
This hadits describe 3 pillars that should be the foundation for the chance in Islamic banking. First pillars are Iman. Iman means a comprehensive understanding of Islamic worldview and the main goals of islam. Iman in the Islamic bank is expressed by a comprehensive understanding of Islamic bank main goals. An Islamic bank, the businessman and the customers must have this understanding.
So the next question is, what is the main goals of Islamic bank? Az-zuhayli (2003) in the book of Fiqh Islam wa Adillatuhu explained that the establishment of an Islamic bank aims to fulfill social-economic development goals and to eradicate poverty. Far before that, Kameel (1997) also explained that the goals of the establishment of an Islamic bank need to be reflected on economic development, increase in export, and expected to increase the number of working opportunities.
This two opinions regarding the aims of Islamic bank, according to Az-zuhayli and Kameel are get along with the general purpose of the establishment of Islamic economy generally which is too rich falah instead of profit.
So, Islamic bank has to explain more the aims of the establishment of an islamic bank to the businessman and the customer in the first of their collaboration in akad. When the bank already explained the goals of Islamic bank clearly to the customers, at least there will be three big changes.
First, there will be changes in volition and behaviors of the customers. Customers will not demand a very high-profit margin ratio anymore. The most important thing for the customers is to make sure that the money will be beneficial for economic development and for eradicating poverty. Customers also will participate and assist the businessman on his project so that the given fund will be impactful to the development of economic.
Secondly, on the banking side, the Islamic bank also will not charge a higher cost to serve its intermediary function. Islamic bank also will help the businessman when he start to run the business.
Thirdly, from the businessman itself, Haron (1996) said that ”Funds will be used properly and the sense of selﬁshness is reduced considerably”
The conclusion of the Iman point of view is to make sure that all of the Islamic bank stakeholders, and also the islamic bank its self, must understand what is the main goals of why Islamic bank established. To make sure this, Islamic bank must first explain clearly to the businessman and the customers.
Islam will be reflected from the completion of syariah compliances. An Islamic bank, as previously stated, already quite well in the completion of these syariah compliances. A lot of actions had been taken to close the all possible gaps that make the transaction does not comply with the syariah compliances. However, there are still a lot of debates going on towards business contract like bay’ al’inah and tawarruq which has not to reach consensus. What islamic bank should do is to make sure that they have a syariah committee which is the main job of syariah committee is to make sure all of the contracts in islamic bank is syariah compliance.
The next point of view of this solution is Ihsan point of view. Ihsan by the hadits that previously stated means “Ihsan is to worship Allah as if you see Him, for you do not see Him you must believe that He certainly sees you”. In everyday live Ihsan means the feeling of awareness of being watched by Allah Swt. Islamic bank must make sure that the businessman and the customers have this feeling.
How to achieve that? In Ihya Ulumuddin, Hujjatul Islam Al-Ghazali (2017) said that “The basis of Ihsan is Love”. Further, he explained that only if we mutually love each other then the feeling of being watched can root much deeper. Love also will bring into inner peace. If the customers love the businessman, the customers will help the businessman. If the businessman loves the customers, the businessman will do anything to maximize the business.
On top of that, when the bank, the customers and the businessman love each other and love Allah swt as their Gods, Al-qur’an guarantees that their will get “berkah” at their business. When they get “berkah”, each of them will be helped by Allah swt, so their efforts to maximize the business will be more than the usual.
The next question is how to sprout love? Still, from Ihya Ulumuddin, Al-Ghazali (2017) recommended a couple of ways to sprout the love is to provide spiritual teacher that always remind his student to recall Allah swt in mind. Al-Ghazali also explains that love can be created with “tajalli” or to see the kindness’ of the other people. When the businessman, the Islamic bank and the customers have the willingness to love each other, they have to see the kindness of each other. Further, they have to see the kindness of Allah swt. When they see the kindness of each other, they will see the shared-goals in the business.
The case study of the implementation of this Ihsan point of view comes from BTPN Syariah. Ratih Rachmawati, Executive Directors of BTPN Syariah, explained that BTPN Syariah puts a higher priority to the value of respecting each other on top of the other company values. BTPN Syariah always introduces to their customers and another stakeholder to have these values. BTPN Syariah also has a monthly gathering between the bank, the businessman and the customers. In this gathering, BTPN Syariah strengthens the family connection between them, and this strong family connection strengthen the love between them.
In conclusion from the discussion of Iman, Islam and Ihsan point of view is the need elaborate the comprehension of shared-goals along with the fulfillment of shariah compliance, and strengthening the love between Islamic bank, the customers and the businessman. One of the most important changes that need to be done by the Islamic bank is to make sure their customers and stakeholders understand the shared-goals and to strengthen the love between them.
Finally, when this ecosystem presents in the Islamic bank, “berkah” can make the way to the business, which means the God will help and make sure Islamic bank contribution to economic development much more improved than before.
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