While sharia banks are currently struggling to expand in the market, which is dominated by conventional banks, a senior executive at a leading sharia bank has predicted that the two banking systems will eventually converge in competition as global demands change.
Mulya E. Siregar, the president commissioner of Bank Mandiri Syariah, said conventional banks would eventually leave interest-based banking, as interest rates – the profit-generating element of their business – had been proven to be a source of inequality in the world.
Mulya cited the opinion of notable economists, including International Monetary Fund (IMF) managing director and chairwoman Christine Lagarde. Lagarde once criticized interest rates during her term as France's finance minister, that interest rates weighted the equity system.
The UN Sustainable Development Goals (SDGs) would drive away the interest-based monetary system, he added, as many countries had started adopting business models that sought profit while considering human prosperity and environmental protection.
“I do not know when it will be exactly, but one day, conventional banks will no longer apply interest rates,” he recently told journalists in Cirebon, West Java. “Islamic banks should be ready. The competition will be harsh,” he warned.
Sharia (Islamic) banking does not use an interest-based banking system because interest is incompatible with Islamic teachings. Instead, sharia banks are based on profit- and risk-sharing methods. Islamic financial institutions currently hold about 6 percent of the financial market in Indonesia. (bbn)