The Urgency of Codification of Sharia Economic Law

1. Introduction

This paper aims to describe an urgent condition (circumstance) which is the reason why it is necessary or not necessary to make efforts to systematically and comprehensively collect various written regulations in the field of sharia economic law, so that they become one of the elements in (national) laws and regulations.

The idea towards codifying sharia economic law has received the attention of various parties, especially enthusiasts and observers of sharia economic law, so this topic intends to discuss how far the idea of ​​codifying sharia economic law can be implemented within the framework of the national legislation system.

Several objective facts of the implementation of the sharia economic system that encourage the need to establish sharia-oriented economic law fundamentals can be stated by mentioning a number of historical developments as follows:

2. Historical Development of the Implementation of Islamic Economics

According to Frank E Vogel & Samuel L. Hayes, who discussed Islamic law and finance, the initial thought of Islamic finance was not an invention of this century, which was marked by Islamic political movements initiated by extremist political movements .), rather it is rooted in the injunctions of the Qur’an and the Hadith of the Prophet Muhammad (PBUH), as well as the thoughts that inspired the formation of Islamic law in the area of ​​marriage. Over the course of centuries, ancient financial practices applied in Islamic countries adopted a colonial-imposed system with rules established by Western powers. With such strong influence from Europe, most Islamic countries apply a banking system and business practices that are dominated by the Western system. It can be said that the beginning of the implementation of the Islamic financial system in the modern period now coincides with the independence of Islamic countries after the Second World War. [1]

Based on existing records, the first Islamic financial institution was the Mit Ghamr project which was established in Egypt in 1963, which was soon followed by the Nasser Social Bank in 1971. The establishment of the Islamic Development Bank (1973) was initiated by the Organization of the Islamic Conference (OIC), which its shares are partly held by the government and partly by the private sector, is the cornerstone of the development of a modern banking system. Driven by the desire to break away from Western-dominated politics and culture and the desire to carry out things based on Sharia principles, in various countries several banks have been established based on Sharia principles.

The idea of ​​an Islamic economic system departs from the concerns of the Muslim world about the application of an interest system to conventional banks which some Muslims consider to be included in the riba category. Therefore, it was in the 1970s when the idea of ​​an Islamic economic system first appeared at the International Conference on Islamic Economics in Mecca in 1976. [2]

Institutions offering Islamic financial services began to emerge in the 1960s in remote areas, but the Islamic banking and finance movement gained growth momentum with the establishment of the Dubai Islamic Bank and the Jeddah-based Islamic Development Bank in 1975. In the process of evolution, early theoretical models of the two-level mudharabah was developed into a multipurpose model that allows Islamic Financial Institutions (IFIs) to conduct trade and financing businesses to earn profits and distribute equal shares to depositors/investors. In order to complete the Islamic financial cycle, institutions offering Takaful services began to appear in 1979 as a substitute for modern insurance systems. [3]

In addition to the increased involvement of Shariah experts, the creative work of research institutions such as IRTI (IDB), and the issuance of Sharia Standards by AAOIFI (Bahrain) which provided the foundation for a budding financial discipline, the participation of major world banking institutions such as HSBC, BNP Paribas and Citigroup in The 1990s provided the impetus to transform from a small discipline into a global industry. The establishment of the Islamic Financial Services Board (IFSB) in 2002 which serves as the institution that sets Islamic finance standards paved the way for Islamic Finance to become a globally acceptable proposition. It provides impetus for the promotion and standardization of the financial operations of the Islamic Financial Institution (IFI) which includes consultations between regulatory authorities and international financial institutions. The emergence of sukuk as an investment and liquidity management instrument in the last six years has not only tended to complete the investment cycle in financial structures that are starting to grow, but also provides impetus for their development with great potential ahead.[4]

3. Development of Sharia Legislation in Laws and Regulations

Since the proclamation era until the 1990s, the word sharia was considered taboo to be included in the treasury of legislation. The stigma of sharia in political and legal discourse is perhaps due to the phobia (worry) that the implementation of sharia will lead to the formation of an Islamic state, or at least “the obligation to carry out Islamic Shari’a for its adherents”, as stated in the Jakarta Charter. However, with the developments that occurred in the latter part of the New Order regime, the government and national legal political policies began to be “tolerant” with this word, so that sharia stigmatization was slowly erased.

Based on a (temporary) search on the Directorate General of Legislation of the Ministry of Law and Human Rights, there are currently 108 laws and regulations (Laws, Government Regulations, Presidential Regulations, Presidential Decrees, and Bank Indonesia Regulations)

The implementation of business activities based on sharia economic principles has achieved significant developments to be observed, at least from a legislative perspective. In this regard, it will be proposed the formation of sharia legislation in the banking sector, judiciary, securities and regulations in the field of limited liability companies.