Towards a sustainable Islamic banking system: re-embedding murabaha mode of financing

Jatmiko, Wahyu (2017) Towards a sustainable Islamic banking system: re-embedding murabaha mode of financing. Indonesian Capital Market Review, 9 (2), 101-116, [4]. (doi:10.21002/icmr.v9i2.8066).

Record type: Article

Abstract

This study is an attempt at solving the chronic problems of banking murabaha, notably the ribawi benchmark rate problem. To this end, the first stage of this study examines whether the recent solution for banking murabaha, namely Islamic Interbank Benchmark Rate (IIBR), is a sustainable solution to solve the problem, particularly in Indonesia. Using data covering the 1210-day period from November 14th, 2011 (the first date emergence of IIBR) to July 1st, 2016, the Johansen cointegration test between IIBR and JIBOR (Jakarta Interbank Offered Rate) is performed to prove that notion. The re- sults suggest that IIBR has long-run equilibrium relationship with the Indonesian ribawi benchmark rate. IIBR hence does not fulfil the sustainability feature as a long-run solution for Islamic finance. The second stage of this study proposes the so-called universal Islamic banking system as a solution to remedy the problem. The proposed model is not only theoretically appealing but also practically possible to be implemented.

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