Institutionalization of Sharia Financial Norms in Indonesia
Muhammad Hasanuddin and Sofian Al-Hakim
Program Studi Ekonomi Syariah, UIN Sunan Gunung Djati Bandung, Jl. A.H.Nasution No.105, Bandung, Indonesia
Keywords: Sharia finance, norm, islamic law.
Abstract: A norm can be institutionalized, if it is known, understood, obeyed, and respected. This happens with the
institutionalization of Islamic finance in Indonesia. The norms of Islamic financial institutions in Indonesia
were originally sourced from Al-Qur’an and al-Hadith are then understood, adhered to, valued and
institutionalized into shariah financial institutions. Institutionalization of norms into Islamic financial
institutions in Indonesia is not only determined by the awareness of the community in complying the norm,
but the extent to which awareness to comply with norms can be consolidated into cultural strength that can
affect the structural strength. This is where the institutionalization of Islamic finance is formed.
1 INTRODUCTION
A new era of Islamic finance in Indonesia originated
from the establishment of Bank Muamalat Indonesia
(BMI) on November 1, 1991, operating in 1992.
Externally, the establishment of BMI is inseparable
from OIC encouragement through IDB supporting the
establishment of Islamic Bank in Muslim majority
countries. Internally, BMI was founded on the
contribution of civil society gathered in Indonesian
Ulama Council (MUI) and Ikatan Cendikiawan
Muslim Indonesia (ICMI) which encouraged the
government to establish sharia bank in Indonesia.
In the other hand, the initiative of sharia banking
establishment in Malaysia and some other countries
was not initiated from the lower society (bottom-up).
The establishment of sharia banking in Malaysia
was the result of a government push (top down) which
is then accepted by the people. While in Indonesia,
the establishment of sharia banking was the result of
the initiatives of the moslem people as layman. This
argument is revealed from Atang Abd Hakim's
research which says that MUI and ICMI are important
elements that determine the establishment of sharia
banking in Indonesia. Both are civil society
representations, not representations of government
(Atang Abd Hakim, 2010).
The presence of BMI initiated by the MUI and
driven by ICMI turned out to provide a new pattern in
the national financial system, from which previously
only conventional finance alone became colored with
the existence of Islamic finance. In addition, the
presence of BMI has stimulated the development of
other Islamic financial institutions, namely: sharia
banking, sharia insurance, shariah financing, shariah
venture capital, sharia guarantee, sharia pawnshops,
sharia pensions, sharia mutual funds, and sharia
bonds.
2 THE NORMS OF SHARIA
FINANCE
Before becoming an institution, Islamic finance was
shaped as norm (Mahmud Muhammad Balily, 1990).
Norms are generally contained in the Qur'an and al-
Hadith. However, these norms are not described in
detail in the Qur'an and al-Hadith. Although it was not
explained in detail, the Qur'an and al-Hadith have
given guidance on the value and norms about the
provisions that may and should not be done in Islamic
financial activities.
Riba is an Arabic word, derived from the verb
raba that literally means ‘to grow’ or ‘expand’ or
‘increase’ or ‘inflate’ or ‘excess’(Al-Raghib Al-
Isfahani, 186-187). The same literary meaning has
occurred in many places of al-Qur’an as well. It is,
however, not every growth or increase, which falls in
the category of riba prohibited in Islam. It is generally
translated into English as “usury” or “interest”, but in
fact it has a much broader sense in the Shari`ah. Riba
in the Shari`ah, technically refers to the ‘premium’
that must be paid by the borrower to the lender along
106
Hasanuddin, M. and Al-Hakim, S.
Institutionalization of Sharia Financial Norms in Indonesia.
In Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 106-111
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

with the principal amount as a condition for the loan
or for an extension in its maturity. (M. Umar Chapra,
56-57) In fiqh terminology, riba means an increase in
one of two homogeneous equivalents being
exchanged without this increase being accompanied
by a return. The term riba is, however, used in the
Shari`ah in two senses. The first is riba al-nasi’ah
and the second is riba al-fadl. Some Muslim scholars
attempt to define riba which seems to be closer to the
sense implied in the verses of the Qur’an and ahadith
related to it. They define riba as an increase or excess
which, in an exchange or sale of a commodity,
accrues to the owner (lender) without giving in return
any equivalent counter-value or recompense to the
other party (Zia-ul Haque, 16).
Prohibition of gharar in sharia financial business
institutions, more visible in Takaful insurance. So far,
it is alleged that in conventional insurance contains
elements of gharar. The gharar element in
conventional insurance lies in the uncertainty about
the source of funds used to cover claims. Funds
received by participants as payment of claims are
unclear. Because of this lack of clarity, conventional
insurance is exposed to gharar elements.
The word gharar is sometimes interpreted as
‘uncertainty’ rather than deception. With regard to
gharar, Islamic Law is clear that it should not be
present in contractual agreement. One cannot for
example sell what one does not own, because this is
regarded as a form of deception. Similarly, one
cannot sell an item of uncertain quality, an unborn
calf for example, since the buyer and the seller do not
know exactly what it is that they are trading. As far as
maisir is concerned, it is regarded in Islam as one
form of injustice in the appropriation of others’
wealth and therefore has much in common with the
concept of riba.
The act of gambling, sometimes referred to
betting on the occurrence of a future event, is
prohibited and no reward accrues for the employment
of spending of wealth that an individual may gain
through means of gambling. Under this prohibition,
any contract created, should be free from uncertainty,
risk and speculation. Contracting parties should have
perfect knowledge of the counter values intended to
be exchanged as a result of their transactions. Also,
parties cannot predetermine a guaranteed profit. This
is based on the principle of ‘uncertain gains’, which,
on a strict interpretation, does not even allow an
undertaking from the customer to repay the borrowed
principal plus an amount to take into account
inflation. The rationale behind the prohibition is the
wish to protect the weak from exploitation. Therefore,
options and futures are considered as not Islamic and
so are forward foreign exchange transactions because
rates are determined by interest differentials (Abu
Umar Faruq, 18-20).
The next norm, the prohibition against waste on
the use of property. This prohibition is based on the
idea that waste of property will have a negative
impact on the economic life of the community. The
consequences of waste will lead to inefficiency of
economic resources. At the same time, Islam also
prohibits the accumulation of property (ikhtikar).
Treasure hoarding occurs due to the monopoly of
wealth by a group of people. The consequences of
monopoly impact price volatility in the market.
Conditions such as this will surely burden the public.
According to Afzalur Rahman Prophet
Muhammad before being appointed as Prophet,
known as al-amin (a beloved man), his reputation as
an al-amin encourages Siti Khadijah to invest her
funds to be managed by Prophet Muhammad. Siti
Khadijah's position as an investor (shahibul maal)
and Prophet Muhammad as the entrepreneur
(mudharib). This then initiated the creation of
mudaraba institution, which is a principle of
cooperation in business that appreciates the principle
of profit sharing (Afzalur Rahman, 1997).
3 SHARIA FINANCIAL
INSTITUTIONALIZATION
According to Juhaya S. Pradja, social institutions are
shaped by the growing norms of norms that are rooted
in society. The norms found in people's lives have
different bonding power. There is a weak norm of
binding force. There is also norm with a strong
binding form. The bound ability of this norm will
depend on the level of public understanding of the
norm. If people's understanding of the norm is high,
then the binding power becomes stronger, in contrast,
if the society's understanding of the norm is weak,
then its binding strength becomes weak.
From this thought, Juhaya divided the norm into
four parts. First, norms are defined as a means
(usage), i.e. irregularities on the way will not get
severe punishment, but only reproach; second, norms
are defined as folkways, which are repetitive acts
that’s becoming into habits. Habits have binding
strength compared to ways. If not done, it is
considered to deviate from the common practice and
society; third, the norm is defined as a behaviour, a
habit that is considered not only as a behaviour only,
but accepted as regulatory norms; Fourth, norms are
defined as customs, which is a behaviour that
integrates with the patterns of community behaviour
Institutionalization of Sharia Financial Norms in Indonesia
107

and has more binding power. If violated, one will get
hard sanction from the community (Juhaya, 2014)
In line with the above phrase, according to
Sukanto (1987) that the prerequisite of institutions
become social institutions if they have rules or norms
that live and thrive in society. Therefore, according to
Philip Gillin that the norm can become an institution,
it must be known, understood, obeyed, and respected.
In this context, the establishment of Islamic
financial institutions does not grow in a vacuum. It
grows through an evolutionary process stages.
Sociologically, sharia finance institutions, initially
the sharia-economic norms of the new business
understood only on the surface alone, so that the
attachment of norms in the community is relatively
weak.
Norms about prohibition in economic practice
containing elements of maysir (gambling), gharar
(uncertainty), dharar (harm), ikhtikar (monopoly),
iktinaz (hoarding), and riba (usury). The prohibited
norms are abbreviated as "maghadir." These norms
are, in fact, already known in the community, but
because the level of public understanding of the norm
is still weak, the violation of the norm is not
accompanied by severe sanctions. Thus, the
economic activities of Muslims that are contrary to
the economic norms of sharia-business are seen as
commonplace. As in the practice money lender that
occur in society. The practice is contrary to Islamic
norms, but this is considered normal, due to the
public's lack of understanding of the norms of sharia-
business economics.
However, after the islamic proselytizing (da'wah)
and education (tarbiyah) of Islam increasingly
developed by Muslims, the level of public
understanding of the economic norms-sharia business
is getting better. Growing public awareness of
economic norms-sharia business, it will increase the
knowledge Of the consequences from disobeying the
norm. In these conditions, the norms of sharia-
economic business become the norms that bind the
behaviour of Muslims. The economic activity of loan
sharks can be minimized as much as possible. Even
in Islamic societies, economic activity is seen as
something that is blameworthy. In this case, the norm
of prohibiting usury has been embedded among
Muslims, so that the perpetrators get a stronger social
sanction compared with the first stage in the process
of establishing norms into an institution.
The above incidents became a driving force
among Muslims to realize the Islamic teachings about
economic norms-business in accordance with the
principles of sharia. In 1968 the Majelis Tarjih
Muhammadiyah conducted an in-depth study of
usury and bank interest. The study concluded that
bank interest given by state banks to its customers
include syubhat (Pusat Pimpinan Muhammadiyah,
2011).
In 1985 Assembly Assessment (study forum)
under the Majelis Ulama Tk. I Sumatera Utara and
Baitul Makmur Foundation Medan held a study of
banks and non-bank financial institutions. The study
concludes that: 1) banking and non-banking
institutions are one sub-system and economic system
that is difficult to avoid, 2) usury which is adh'afan
mudha'afan (multiply) the law is haram (prohibition),
3) bank interest is the problem That sparks different
opinion from scholars (Ibrahim Lubis, 1995).
In 1990 the discourse of sharia economy grew
stronger with the focus of the establishment of
Islamic banks organized by the Indonesian Ulama
Council (MUI) on 19-22 August 1990. The workshop
still has not resulted in a unified agreement on bank
interest. However, the passion for building an
alternative banking system became a unanimously
agreed decision. At the 5th National Assembly
(MUNAS) of the 5th Indonesian Ulama Council
(MUI), the results of the workshop were discussed in
depth. At the end of the MUNAS, MUI recommended
to establish a Sharia Bank in Indonesia. The
recommendations then received a positive response
from the Association of Indonesian Muslim
Intellectuals (ICMI). MUI and ICMI formed a joint
team to establish a sharia bank. On first of November
1991, Bank Muamalat Indonesia (BMI), the first bank
based on sharia, has established.
The establishment of BMI is seen as a new round
of institutionalization process of sharia-economic
business in Indonesia From this, the sharia economic
institutions started to emerge, both in the financial
sector of sharia and non-sharia financial sector. In the
sharia financial sector, emerging sharia banking,
sharia insurance, sharia pawnshops, syariah venture
capital, sharia guarantee, and sharia pension. While in
the non-syariah financial sector appears, syariah
tourism, sharia hotels, sharia restaurants, sharia
fashion, and sharia-based business companies.
From the above explanation, it can be seen that
the process of institutionalization of Islamic business-
economy in Indonesia begins with the public
awareness of economic norms-sharia business.
Sociologically, these norms are then absorbed and
internalized in the economic activities of society. So
that the weak norms become stronger and have a
stronger binding power. The process of establishing
norms into economic institutions-sharia business can
be seen in the Figure below
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
108

Figure 1: The Process of Establishing Norms into Sharia
Financial Institutions.
According to some scholars, such as Anas bin
Malik (d.795), al-Shafi'i (d.820), al-Tabari (d.926),
ibn Qutaibah (d.892), Ibn Abd al-Bar (d. 1076), Ibn
Arabi (d.1159), the religious rule composed of
Awamir (commands) is the commandment of Allah
whose perpetrators will reward the Hereafter. Nawahi
(prohibitions) is a prohibition of God who will be
sinners in the afterlife. Meanwhile, irsyadat
(guidelines) are good instructions of God in the form
of orders or restrictions that imply on the benefit in
the world. (Kholah Mohammad Omar Bazmool,
1435/2014).The human understanding of those values
is manifested in the norms internalized by a number
of experts in consciousness to implement the whole
teaching comprehensively. The form of awareness of
the implementation of Islamic teachings leads to the
institutionalization of norms. The framework above
could describe how sharia financial institution in
Indonesia born.
4 FACTORS AFFECTING THE
ESTABLISHMENT OF SHARIA
FINANCIAL INSTITUTIONS IN
INDONESIA
The process of establishing an economic institution-
sharia business is influenced by various factors, the
most dominant factors are: 1) theological factors, 2)
sociological factors, 3) cultural factors, 4) economic
factors, and 5) political factors of economic law.
4.1 Theological Factor
The theological factor here is a factor influencing the
formation of the religious consciousness of Muslims
in doing business who wishes to implement economic
practices in accordance with the principles of sharia.
This factor appears to be motivated by the notion
that conventional financial business institutions are
seen to be in conflict with the provisions of sharia. In
practice the institution contains elements of maysir
(gambling), gharar (uncertainty), dharar (harm),
ikhtikar (monopoly), iktinaz (hoarding), and riba
(usury) or abbreviated as maghadir. On that basis,
Muslims are eager to have an economic institution-
sharia business that can shelter their activities in
doing business .
4.2 Sociological Factors
Sociologically, the emergence of sharia-economic
economic institutions is based on the idea that the
majority of Indonesians are Muslim. Therefore, it is
considered reasonable if there is a desire of Muslims
who in economic activities run in accordance with the
principles of sharia.
However, it is not denied that there is an
ambivalent attitude in the society. On the one hand,
he believes that the interest is haram, but on the other
hand he still interacts with the conventional bank,
dealing with this condition also affects the MUI fatwa
which states that bank interest is forbidden because
usury (MUI Fatwa No. 1, 2014), but on the other hand
MUI also allows doing business with conventional
banks for people to whom the sharia bank do not
available at their area.
4.3 Cultural Factors
Culturally, it is found that in the economic transition
that occurs in the society who apply maro system
(revenue/profit share), mertelu (revenue share of one
third two-thirds), and nengahkeun (a half-profit
share). The system highlights the principles of profit
sharing as practiced in sharia banks. The long-term
revenue-sharing pattern in the community, actually
leads to the creation of justice and the balance of
economic players with their environment. Not only
that, the profit-sharing pattern also keeps the spirit of
partnership between business actors, rather than just
the relationship between employer and subordinate.
The spirit of partnership is what will lead business
actors, not just business relationships that are profit
oriented, but in essence is a humanitarian
Institutionalization of Sharia Financial Norms in Indonesia
109

cooperation; each other will care for each other and
help each other.
The existences of cultural relation of economic
activity of society with sharia economy encourage the
emergence of Islamic economic-business institution.
This is in line with Max Weber's saying that to
understand the real community how we understand
social action between social relationships, where
"meaningful action" is interpreted to arrive at a causal
explanation (George Ritzer, 1975). Thus, in fact that
culture can be created, culture does not form
naturally. Cultures are built on the basis of a
consensus of values that develop in common and are
driven by universal consciousness. (Hans-Dieter
Evers, 2003).
However, the thing that is often forgotten in the
development of business institutions is a lack of
understanding of the culture of the community in
which the business institutions are located, not least
the Islamic bank which is part of the business entity
itself. Understanding of community culture and local
wisdom is one of the significant factors as a
prerequisite for designing, aligning and developing
the business we are running. Thus, a business
institution is not only corporate oriented, but it has
socio-cultural harmony and corporate social
responsibility.
4.4 Economic Factors
Economically, every human being doing economic
activity can hardly be released from financial
institution either bank or non-bank. Financial
institutions serve as intermediary financing, which
brings between surplus units (excess funds) with
deficit units (lack of funds). In this context, Muslims
are in a deficit unit position. Therefore, in this
position Muslims need financial institutions. In this
framework, Muslims need the presence of Islamic
financial institutions.
4.5 Legal Political Factors
Political law plays an important role in the
institutionalization of Islamic financial norms in
Indonesia. This role is carried out by civil society,
such as ICMI, MUI, and campus community through
its cultural movement. This movement then
encourages the political forces of Islam in parliament
to support the ratification of Law no. 21 of 2008
concerning sharia banking. At first, the political
power in parliament was limited to Islamic political
parties only. However, in its proliferation, this
movement is influential on political parties that have
no historical traditions and roots with Islam.
There are 9 factions supporting the ratification of
Law no. 21 of 2008 concerning Sharia Banking. Of
the nine, 6 factions of which represent the political
power of Islam, namely: 1) Fraction of United
Development Party (FPPP), 2) National Mandate
Party Faction (FPAN), 3) Reform Star Party Fraction
(PBR), 4) National Awakening Party (PKB), 5)
Prosperous Justice Party Faction (FPKS), 6) Fraction
of Pioneer Stars of Democracy (FBPD). And three
factions of the nationalist element, namely: 1) Faction
of Democratic Party of Struggle, 2) Golkar Party
Faction, and 3) Democratic Party Faction. And there
is only one faction that refused, the Prosperous Peace
Party Faction (FPDS). (Djawahir Hejazziey-121)
The existence of political party support in the
parliament of both Islamic political parties and
nationalist political parties, indicates the legal
political efforts carried by civil society into a model
in institutionalizing Islamic legal norms into Islamic
financial institutions. Thus, the institutionalization of
norms into sharia financial institutions must combine
cultural movements with structural movements.
(Younes Soualhi, 2012) With the enactment of Law
no. 21 Year 2008 is the result of legal politics initiated
by civil society.
5 CONCLUSIONS
Philip Gillin said that for a norm to become an
institution, it must be known, understood, obeyed,
and respected. The phrase seems to correlate with the
phenomenon of Islamic financial institutionalization
in Indonesia. Islamic financial institutions in
Indonesia were originally the norms sourced from al-
Qur'an and al-Hadith which are then understood,
adhered to, valued and institutionalized into shariah
financial institutions. Institutionalization of norms
into Islamic financial institutions in Indonesia is not
only determined by the awareness of the community
in complying with the norm, but the extent to which
awareness to comply with norms can be consolidated
into cultural strength that can affect the structural
strength. This is where the institutionalization of
Islamic finance is formed.
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