by M Amin · Cited by 9 — Ulema issued a fatwa unequivocally that every economic transaction containing fraudulent (gharar fahisy) shall be declared not valid in terms of

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Abstract. Fatwa and ˜e Development of Sharia Financial Industry: A Lesson From Indonesia. ˝is article is a critical study to analyze the impact of the Fatwa issued by Ulema of the Indonesian Ulema Council (MUI) against the Development of Sharia Financial Industry in Indonesia. ˝e development of Sharia ˜nancial industry in Indonesia has been started since the early 1990s. But the most improved level of development was since 2003, when MUI issued a fatwa on the illegitimate Bank™s Interest. It was a necessity for the Ulema to perform ijtihad or istinbat laws in order to give a fatwa on his people. Ulema as the agents of social change oriented to make continuous improvements (islahiyyah) in the social -economic order, especially in the ˜nancial industry. Considering that the circulation of money in the community is a re˙ection of society, if the ˜nancial ˙ows controlled by virtuous people then so the community. Conversely if the ˙ows of ˜nance are controlled by people who are not good, then the community became devastated. Keywords: fatwa, sharia ˜nancial industry, ulema, descriptive Abstrak. Fatwa dan Perkembangan Industri Keuangan Syariah: Pembelajaran dari Indonesia. Artikel ini merupakan kajian kritis untuk mengalisis dampak dari Fatwa Ulama Majelis Ulama Indonesia (MUI) terhadap perkembangan industri keuangan syari™ah di Indonesia. Perkembangan industri keuangan syari™ah di Indonesia sebenarnya sudah dimulai sejak awal tahun 1990- an. Namun tingkat perkembangannya yang paling meningkat adalah sejak tahun 2003, ketika itu setelah MUI mengeluarkan fatwa MUI tentang Haramnya Bunga Bank. Suatu keniscayaan bagi ulama untuk melakukan ijtihad atau istinbat hukum agar dapat memberikan fatwa pada umatnya. Karena fatwa pada hakikatnya merupakan jawaban keagamaan terhadap problem dan permasalahan yang terjadi dalam masyarakat. Ulama sebagai agen perubahan sosial yang berorientasi secara kontinuitas untuk mengadakan perbaikan (islahiyyah) dalam tatanan sosial ekonomi terutama di bidang industri keuangan. Karena peredaran uang di masyarakat adalah suatu cerminan dalam masyarakat, kalau arus keuangan dikuasai umat yang soleh maka solehlah masyarakat tersebut. Sebaliknya kalau keuangan yang beredar dikuasai orang-orang yang tidak baik, maka rusaklah masyarakat tersebut. Kata kunci: . fatwa, industri keuangan syariah, ulama, deskriptifFATWA AND THE DEVELOPMENT OF SHARIA FINANCIAL INDUSTRY: A LESSON FROM INDONESIA Ma™ruf Amin

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332Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) Vol. 9 (2), July 2017 Introduction ˜e occurrence of the various waves of economic and ˝nancial crisis that hit many parts of the world was a very valuable lesson for the Ulema. Due to the occurrence of the ˝nancial crisis, especially when we examine the global ˝nancial crisis that struck the United States in 2008, because of the element of gharor . Indonesia also has experienced the ˝nancial crisis ten years earlier, namely in 1998. ˜ere are lessons that we can take in many cases related to the ˝nancial crisis, the emergence onto the surface of an Islamic economic system as a way out of the crisis. ˜erefore, the Islamic economic system becomes an alternative system that emerges from mistakes done by the capitalist system and the socialist system. ˜at the economy is driven by the usurious system de˝nitely will ultimately lead to a crisis in the economy, especially the ˝nancial crisis. Abdullah and Chee (2010) con˝rmed that the Islamic ˝nancial system is now increasingly becoming the mainstream and alternative to the conventional ˝nancial system. Considering that the Islamic ˝nancial system proved to have endurance in to face the wave of economic crisis. At least three waves of the global crisis, the oil crisis of 1973, the terrorist attacks of 11 September 2001 and the global ˝nancial crisis, known as the fisubprime crisisfl in 2008. Especially in the latter case that was the global ˝nancial crisis that began in the US but worldwide impact, re˙ected in the variety of the trading ˙oor of the world, all a˚ected by the crisis, only those indexed by sharia alone that have endurance to the crisis.Similar recognition comes from Moody Rating Agency (2008) that one of the advantages of Islamic ˝nancial system is the immune to shock the power of the global ˝nancial crisis. As has been known, the cause of the crisis is because of the element of speculation in the conventional ˝nancial system. Islamic economic system has the spirit of eliminating the elements of gharar / speculation in economic practice. In the consideration of fatwa issued by Ulema, one that becomes our concern is to remove the practice of gharar ( adamul gharar ) in economic activity of society. Because gharar will eventually trapping people in deceptive action stratagem in the economy. Ulema issued a fatwa unequivocally that every economic transaction containing fraudulent ( gharar fahisy ) shall be declared not valid in terms of Islam law (Daradika, and al-Dharir, 1990). ˜e system that put forward in the sharia ˝nancial industry is a system that brings maslahah for the community. In other words, economic activity must be conducted on the principles of Sharia that bring bene˝ts for the good of society such as improving welfare and other virtues. In addition, the Islamic ˝nancial system should avoid any harm or damage in the community. In usul ˜qh Qaeda, it

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333 Ma’ruf Amin: Fatwa and ˜e Development of Sharia Financial Industry is known as the principle of fi Jalb al-mashalih wa dar™u al-mafasid fl, means bringing bene˝t and avoiding any damage. ˜is principle contains a consequence, that the Islamic economic system did not justify their economic practices that may damage or disrupt the lives of people such as gambling, drug sales, prostitution and so on (Zaid, 1964 and al-Qaradawi, 2001). El-Komi™s study (2010) showed that the cause of poverty in the world mainly that a˚ecting the third world countries that are predominantly Muslim, is their belief that the bank interest is the unlawful usury. ˜e poor people were not able to access to micro-˝nance credit because it con˙icts with their religious beliefs, that the micro-credit-based interest is forbidden. As generally known, the role of micro˝nance is very signi˝cant in poverty alleviation. ˜e ˝ndings of this study show us that interest-based ˝nancial system will create a widening social inequality and will extend the row number of poverty population. In fact, one third of the poor society is on the third world countries whose population is majority the Muslim. Ideal ˝nancial system should be able to accommodate and commit to engage in poverty alleviation. Because, the increase levels of the welfare of poor people will boost purchasing power. One of the goals of the Islamic ˝nancial system is Khidmah principle, which is a commitment of the Islamic ˝nancial system that encourages the sharia economic activity in order to realize social services ( tahbiq al-khidmah al-ijtima™iyah ). Of course, the orientation is towards the creation of the social services that can alleviate the burdens of the weak economy. ˜is principle is inherent in all activities of Islamic economics, because the sharia economic system in addition to allow the increase of pro˝ts and wealth, there must be concern for the social conditions of the surrounding community. Conventional ˝nancial system, as revealed in Al-Harran (1996), closes access to the small farmers, small businessmen and small craftsmen, because they are considered not worthy to get credit by the conventional ˝nancial institutions. In addition, they mostly do not have collateral, as well as those deemed unworthy venture business. Obstruction of access to sources of funding from the conventional ˝nancial system creates injustice and imbalance between small and large businesses that will cause social jealousy. If these conditions cannot be overcome, it will create instability, which in turn would disrupt the economy of the community itself. ˜at is why the sharia ˝nancial system committed to promote justice in the economy. Fair principle that is intended to encourage every economic activity should be oriented towards the creation of fairness and balance ( al-‚adlu wa al- tawazun). Islamic economic system is intended to maintain the values of justice

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334Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) Vol. 9 (2), July 2017 and avoid the element of injustice. In terms of economy, there should not be any elements of oppression, exploitation and so on. It should be considered an element of proportional balance. For example, if we want a big advantage, then it should also consider the risks that would arise.Islamic economic system should also accommodate the values of pleasure (al-Zarqa, 1968), that in any economic activity there should be a process of mutual give up ( taradhi ), there should be no element of coercion ( ikrah ). Element of ridha among people that conduct economic activity is a fundamental aspect, so that the activity runs healthy, there is a spirit of honesty and mutual Ihlas and must not be under-pressure. Nevertheless, the ridha principle is not necessarily make the transaction is valid in terms of syar™i . It is true that each element of the pleasure is the principle in economic activity, but it is not the cause of the permissibility of something forbidden (ar-ridha ruknun li al-aqdi wa laisa sababan li al-hilli ). In addition the economic transaction should be based on the attitude of non-pressure ( ghaira ikrah ). ˜is principle is a basic principle in jurisprudence of mu™amalat and as the basic principle as well in the agreement (contract). ˜ere must be freedom among the parties involved in the contract either in determining the terms of the agreement and the object being agreed (object of the agreement), including methods for the settlement of disputes. Freedom in determining these terms shall be allowed, as long as no con˙ict with other provisions of sharia. Furthermore, Islamic economic system emphasizes the principle of Mubah (Buzed, 2004). ˜e principle of Mubah is in accordance with the rule that any form of economic activity or the mu™amalat activity basically in under mubah law, unless otherwise determined by a proposition. ˜is principle is usually used as a basis in determining the law of economic transactions. ˜is principle also shows that Islamic law would not be di˛cult for the transaction actors of sharia system. It is precisely that this principle provides convenience and vast opportunities for growth and development of the economy in accordance with the needs of the era and the needs of the livelihood of the people. Ulema in determining the legal fatwa regarding Islamic economics is usually also consider the principle of Istirbah (al-Mansur, 2007). ˜is principle is intended that the sharia economic activity must consider the principles of pro˝table or pro˝tability in the business. Actually this has become a common formula, that people who do business certainly expect their pro˝ts. Be illogical, if there are people who do business bit do not expect any pro˝t. Formulation of a fatwa is not only based on nushush syar™iyyah , but also to adjust the same with the economic changes and needs in the community, so that

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335 Ma’ruf Amin: Fatwa and ˜e Development of Sharia Financial Industry the output applied and encourages the economic growth that exists. Fatwa issued by MUI is indeed departed from the fatwa that is requested by the community businesses, government o˛cials and those of other interested parties. ˜erefore such fatwa is issued directly functional and can trigger the growth of national economic. Literature Review Reform of Islamic Law and the Demand of Islamic Economic Fatwa Reform of Islamic Law is a necessity, because it is in accordance with the guidance of nash and also in accordance with the changing demands in the ˝eld of economy. Various changes in the society because of the change of era raise new issues, which are sometimes di˛cult to ˝nd the answers in the existing texts. ˜is fact requires the e˚ort of ijtihad or law istinbat to accommodate the change in the order of economic life in the community. In accordance with the Hadiths (al-Hakim, at-˜abrani, al-Baihaqi, Abu Daud, Sunan Abi Daud in Maktabah Syamilah, t.thn) which reads: fi Truthfully Allah sent to this people at the end of every hundred years, a person that reforming the religion of such people fi. ˜is hadits explicitly mentioned the need to reform the Islamic law at the end of every century or hundred years. In relation to such hadits, it also reveals the provision in the Qaeda (al- Jawziyyah,, al-Nadawi, 1999): fi the change of fatwa of the law is because the change era, place, condition, intentions and customs fl. ˜is rule gives the explanation that the characteristics of Islamic law are ˙exible and contextual in line with the dynamics and development of the era, especially in the new and renewable matters (al-masail al-jadidah wa al-mustajaddah). Simultaneously, it negates the notion that Islamic law is sacred and cannot be changed. ˜e assumption that Islamic law is standard and cannot be changed is from an idea that Islamic law or jurisprudence originated from the ijtihad result of the previous Ulema is standard and is sacred. ˜ey assume that the forces of law and the sanctity of Islamic law as strong as nushush syar™iyyah contained in the Qur™an and Hadits. ˜is does not correspond to historical facts, because of the fact that the text of the Qur™an and al-hadith has been stopped, while society continues to change and evolve with di˚erent problems. ˜e idea that Islamic legal reform is the inevitability that is in accordance with the formulation of Ulema (al-Syahristani, fi Truthfully nash was limited, while the problems that arise are not limited, or because truthfully nash has been stopped while the problems continue to arise and never stop fl.

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336Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) Vol. 9 (2), July 2017 In order to reform the Islamic law ( ˜qh), the Ulema have already provided the basis of methodology or manhaj. Understanding the ˜qh limited only to the existing compilation of Islamic law is not enough to answer the challenges of the era, because it is the inevitability to jihad conducting Islamic law reform. ˜ere are several factors that need to be observed, with respect to the need to reform the Islamic law, namely the changing of era as a result of progress in the ˝elds of industry, trade, services, contract, technology, communication and others. Among the urgent factors to reform the Islamic law (read al-Qaradhawi, 1989), shall be as follows: Firstly, social changes, which including the changes in culture, economy and politics which today requires the fuqoha (Islamic law experts) for rethinking the opinions of previous Ulema that are no longer appropriate to the current social context. Secondly, the development of science technology is very in˙uential on the quest for a stronger opinion ( rajih ) among the opinions that developed in classical ˜qh in which the classical period of science and technology has not yet developed rapidly, particularly the exact sciences. With the help of science and technology, the Islamic law expert can re-examine the provisions of the previous laws that have been topics of discussion in the Middle Ages to contextualize the contemporary conditions that are certainly much more complex. Now, the more powerful determination (rajih ) is not only based on the textual argument with a deductive approach, or even just approach of the school of thought of Islamic jurisprudence, but also the relevance of the changes taking place in society. ˜irdly, the demands of the changing era requires the contemporary Islamic law expert to look at the complexity of the contemporary problems and choosing the views and legal fatwa which makes it easier ( taisir) and avoid trouble ( al-haraj ) under the laws of furu™ , both pertaining to the worship and in mu™amalat matters. ˜e emergence of new and renewable cases necessitated a new ijtihad because these issues have never been answered by the classic fuqoha (Ismail, 1985). ˜e reform of Islamic law conducted by the National Islamic Council of Indonesian Ulama Council (the fiDSN-MUIfl) is not a new legal product of all. However, the reform of Islamic Law conducted by the DSN-MUI is a legal reform that is still associated with the opinions of the previous ulama codi˝ed in the mu™tabarah books. DSN-MUI conducted a review with a certain method or manhajiul hukmi , that is by re-analyzing the ‚illat / legal consideration against the legal opinion of the previous ulama ( masalik al-™illah). ˜e present case is linked

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338Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) Vol. 9 (2), July 2017 veri˝cation analysis of the four stages, the DSN-MUI also sets the standard of legal reform methodology at least by implementing three methods. First, the DSN-MUI revitalizes tahqiqul manath (see Al-Amidi,, namely the step to acknowledge the existence of a legal reason ( ‚illat) on a new case after ‚illat itself is known beforehand, both in the nash Al-Qur™an-Hadits, ijma™ or result of istinbath law. ˜e di˚erence with qiyas is that qiyas limits the equation of ‚illat only to the nash of Al-Qur™an- Hadith, while in terms if tahqiqul manath, the search for the equation of ‚illat extends to ijma™ and qiyas in the previous of qaul of ulama. In NU this method is known as ilhaqi method that is comparing ‚illlat of law of a new problem with the ‚illat of law which stated the opinion of the previous ulama. ˜e second stage, DSN MUI performs the method of I™adah al-Nadhar / re-examination (see Amin, 2008) by re-examining the legal consideration ( ‚illat) of the opinion of the previous ulama relating to the problem. ˜e study of law shall be done since the legal perspective of ‚illat has changed or because some opinions of the previous ulama considered not applicative and inadequate with contemporary conditions. ˜e opinion is considered to be no longer suitable for legal guidance, because its implementation is di˛cult to be done (ta™assur, ta™adzdzur aw shu™ubah al-amal).One of the ways used in this re-examination is to re-examine the mu™tamad opinion (which has been made by law all this time) taking into consideration the legal opinion which has been regarded as weak opinion ( marjuh even mahjur), due to the existence of a new legal ‚illat and or the said opinion is more bene˝cial. Furthermore the opinion is used as guidance ( mu™tamad ) in establishing the law. ˜e third method commonly done by DSN-MUI with answering the problems posed by the community, namely Tafriqul halal min al-haram (separating something halal from the haram ) that is usually done in the economic ˝eld. ˜e sample case is when the conventional bank wants to establish a Sharia unit (the UUS). ˜ough its conventional business is based on interest that is expressed as usury and is forbidden. It is not allowed to establish sharia business with capital from illicit funds. According Tafriqul Halal min al-haram is used, namely by identifying the separation between haram funds and halal funds. Once known, the unlawful funds are taken out so that the rest of it is really the halal fund. ˜erefore the fund that is declared halal through the method of Tafriqul halal min al-haram is used as capital to establish the UUS (read Amin, 2013). Demands of Islamic Economic Fatwa Fatwa (Amin, 2013) is a religious answer for all problems and the problems faced by Muslims contextually. Fatwa processes not only based on the existing text

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339 Ma’ruf Amin: Fatwa and ˜e Development of Sharia Financial Industry in texts or nushush syar™iyyah, but also articulate or re˙ect the social conditions that surrounded him. In the early era of Islam, when the Prophet Muhammad was alive, al-Quran and as-Sunnah explicitly can answer the problems of the day. After the death of Prophet Muhammad, the source of Islamic law in order to answer the problem are extended which is ijma™ and qiyas. Qoul of Ulema who has become a compilation of Islamic law in the books of Islamic jurisprudence emerged in medieval times, so as to address the contemporary problems it is inadequate if simply only rely on the resources of existing law. Facing problems of the present and replied to this contemporary issue, Ulema must do the ijtihad in order to conduct the reform of Islamic law which out-put is in the form of a fatwa. Fatwa cannot be done by just anyone; authority to issue the fatwa is in the hands of Ulema that have depth religious knowledge, usually called a mufti. Historically, there is mufti appointed by government and the independent mufti because of his expertise to become imam. Mufti who has authored several books pronounced ability to open several legal ijtihad results in books of mu™tabarah . ˜e works of earlier Ulema in the books of Islamic jurisprudence is also referenced as a source of lawmakers to make the fatwa, lately. Although Indonesia is an Islamic majority, but Indonesia does not recognize the country™s o˛cial mufti. Fatwa in Indonesia is jama™i which is usually done by the fatwa section of each Islamic organization, if in NU, it is carried out by the Institute of Bahtsul Masail , in Muhammadiyah by the Legal A˚airs Committee and in MUI, and it is implemented by the Division of fatwa. Because Indonesia is not a religious state, the nature of the fatwa is not binding. ˜e Constitution states that Indonesia is not a religious state, nor a secular state, but the state upholding the religion. ˜erefore, religion can be a source of law, sources of inspiration, the cornerstone of thinking, and rules guiding the system of national and state in Indonesia. Constitution opens the opportunities for the accommodation of principles of religious into laws. In this context fatwa of Ulema of the Indonesian Ulema Council may become a source of law and the foundation of thinking the formation of legislation in this country, particularly the MUI fatwa related to the economic problems of sharia. Currently the development of Islamic economics has become so advanced. Islamic economics is not only developed in the countries that are predominantly with Muslim, but also in developed countries that are in daily applying secular system. ˜e more rapid development of Islamic economy, their will the greater challenge. Especially to be more competitive than the conventional economy, especially in realizing the goal of Islamic economics, which is the bene˝t for the people.

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340Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics) Vol. 9 (2), July 2017 It must however be recognized that Islamic economics is a merger of the two disciplines, namely; economic and Islam. ˜erefore, Islamic economics should consider the principles that exist in both the economic principles and the principles of Islam. Economic practices that do not pay attention to the principles of Islam are potentially causing an imbalance in the economy. ˜e impact of usury economic practice is indicated by the capitalist and socialist economic system. In contrast, the economic practices that simply forward the principles of sharia by ignoring the economic principles would tend potentially trapped in the area philanthropic that consider the e˚orts of pro˝t withdrawal is taboo ( al-istirbah), which in the long term potentially lead to bankruptcy. ˜erefore, the combination of economic principles and doctrine of Islam in economic practice becomes absolutely necessary. ˜e modern economy and the problems that arise in people™s lives is a new issue in the discussion of Islamic Law. ˜erefore it requires a new fatwa of the ulama with the reform of Islamic Law. It can be assumed that the problems of the economy will continue to emerge which require a continuous legal response as well. In fact, nash, both Al-Qur™an and Al-Hadith have stopped. Herein exists the relevance of the fatwa of the ulama with the legal ijtihad, since it does not get explicit answers in the nash of Al-Qur™an-Hadith as well as qoul of ulama in the Book of Fiqh. Ijtihad of ulama is required to reform the Islamic law in order to answer these new questions.˜e provision of fatwa (see Amin, 2011) is a form of guidance and counseling to the ummah (ri™ayah wa himayat al-ummah ) as an explanation of the responsibilities of the ulama against the guidance of society ( mas™uliyah ummatiyah ). Communities should not be allowed to simply conduct their own ijtihad to ˝nd answers to religious law, because such actions are very risky and harmful to the life of the people. Performing ijtihad or istinbath of law requires scholarly quali˝cations, namely ulama that explore depth religious scholarship and also understand the development of community life so that the fatwa does not plunge people in error. ˜is is the religious responsibility of the ulama ( mass™uliyah diniyah ) and the other responsibility is to guard the unity of the Unitary State of the Republic of Indonesia (mas™uliyyah wathoniyah) by establishing a religious frame of mind in the context of nationality. Method ˜is study uses a qualitative approach that emphasizes the meaning, context, and perspective of the native point of view. ˜e process of collecting research data is taken from the ˝eld through direct observation as the primary data. On

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341 Ma’ruf Amin: Fatwa and ˜e Development of Sharia Financial Industry the other hand, researcher also uses secondary data by reviewing documented information in the form of books, lea˙ets, journals and scienti˝c papers and research results. As a qualitative feature, this research seeks to ˝nd out a deeper understanding that is not enough by tracing the causal relationship of fisocial factsfl. Researcher in understanding the problem not only sees the aspect of causal relationships, but strives to understand more deeply and comprehensively from some of the proposed variables. To that end, the researcher tried to explore the meaning, values, deeper understanding of the impact of the fatwa of the ulama of the Indonesian Ulama Council (the fiMUIfl) on the development of Islamic ˝nance industry in Indonesia. Data analysis is done through data collection, presentation and reduction of data to ˝ndings, propositions and conclusions. Collecting and analyzing data is done simultaneously; Prioritize observations and interviews and the researchers themselves as the main instrument. ˜rough the process, researchers attempt to understand the data, categorize, and identify the characteristics of each category until clearly di˚erent from each other. ˜us obtained a deep understanding, both in terms of depth, validity and reliability as supported by adequate data. With a theoretical approach, conclusions are drawn to obtain useful recommendations. Result and Discussion ˙e In˛uence of Fatwa that Bank Interest is Illegitimate Whether it is recognized or not, fatwa of MUI regarding the illegitimate of Bank Interest in 2003 had a strong in˙uence on the development of the Islamic ˝nancial industry and laws and regulation related thereto. It can be proved by the fact of the existing statistics. In the span of 1990 to 1998 there was only one Islamic bank. In the span of 1998 to 2002, was born ˝ve Islamic banks. Whereas after 2003 in which the fatwa of MUI about the illegitimate of interest has been born, the more emerging Islamic banks, both in the form of Sharia or Islamic Banks. Something similar occurred in the non-bank sector. After the release of the fatwa of MUI regarding the illegitimate of bank interest, more Islamic insurance, sharia ˝nancial companies, Islamic capital markets, and other Islamic ˝nance institutions were emerged. Domino e˚ect after the issuance of the fatwa of MUI on the prohibition of bank interest can also be seen from the improvements in the government accommodation to the development of Islamic ˝nancial institutions. ˜is can be seen from the enactment of a special section on the regulatory agencies that deal with Islamic economics, both in Bank Indonesia through the Directorate of Islamic Banking which speci˝cally deal with sharia banking, or in the Ministry of Finance

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