Indonesian banks shun Aceh as province tightens Islamic finance regulations
A number of large Indonesian banks are closing their conventional banking operations in the country’s strictly Muslim province of Aceh, The Jakarta Post reported.
The province has introduced a regulation that all financial institutions have to comply with Islamic law, effective from the beginning of next year, which led to a reconsideration by the banks on doing business there, the report said.
The regulations mean that all banks in Aceh are only allowed to offer Shariah banking services, which exclude charging interest on loans, while all banking services are based on participation contracts in one form or another and done on a profit-and-loss-sharing basis.
State-backed Bank Rakyat Indonesia, Bank Mandiri and Bank Negara Indonesia have said they are shutting their branches in Aceh and will do future business only through their newly established joint company Bank Syariah Indonesia, which was merged from the three bank’s respective Islamic finance subsidiaries in February 2021.
Panin Bank calls it quits in Aceh
In addition, CIMB Niaga and Bank Central Asia said they would convert their Aceh branches to fully-fledged Islamic banking outlets, while Panin Bank decided to leave the province completely even though it has its own Islamic finance unit, Bank Panin Dubai Syariah.
The new regulation has been criticised by some. The head of the Aceh office of the Indonesian Ombudsman, Taqwaddin Husen, urged the provincial government to be “more tolerant” since not all people in Aceh were Muslims and their business with other non-Muslims could be affected.
A local lawyer and rights activist is even suing the state-backed banks for closing their conventional services in Aceh, despite the province’s special autonomy to enforce Shariah law on all levels in administration and business. Non-Islamic banks would provide better services, the lawyer argued.
A number of large Indonesian banks are closing their conventional banking operations in the country’s strictly Muslim province of Aceh, The Jakarta Post reported. The province has introduced a regulation that all financial institutions have to comply with Islamic law, effective from the beginning of next year, which led to a reconsideration by the banks on doing business there, the report said. The regulations mean that all banks in Aceh are only allowed to offer Shariah banking services, which exclude charging interest on loans, while all banking services are based on participation contracts in one form or another and done...
A number of large Indonesian banks are closing their conventional banking operations in the country’s strictly Muslim province of Aceh, The Jakarta Post reported.
The province has introduced a regulation that all financial institutions have to comply with Islamic law, effective from the beginning of next year, which led to a reconsideration by the banks on doing business there, the report said.
The regulations mean that all banks in Aceh are only allowed to offer Shariah banking services, which exclude charging interest on loans, while all banking services are based on participation contracts in one form or another and done on a profit-and-loss-sharing basis.
State-backed Bank Rakyat Indonesia, Bank Mandiri and Bank Negara Indonesia have said they are shutting their branches in Aceh and will do future business only through their newly established joint company Bank Syariah Indonesia, which was merged from the three bank’s respective Islamic finance subsidiaries in February 2021.
Panin Bank calls it quits in Aceh
In addition, CIMB Niaga and Bank Central Asia said they would convert their Aceh branches to fully-fledged Islamic banking outlets, while Panin Bank decided to leave the province completely even though it has its own Islamic finance unit, Bank Panin Dubai Syariah.
The new regulation has been criticised by some. The head of the Aceh office of the Indonesian Ombudsman, Taqwaddin Husen, urged the provincial government to be “more tolerant” since not all people in Aceh were Muslims and their business with other non-Muslims could be affected.
A local lawyer and rights activist is even suing the state-backed banks for closing their conventional services in Aceh, despite the province’s special autonomy to enforce Shariah law on all levels in administration and business. Non-Islamic banks would provide better services, the lawyer argued.
