SHARIA COMPLIANCE RISK MANAGEMENT ANALYSIS FOR

LIQUIDITY IN ISLAMIC BANK

Prepared to Meet the Risk Management Task financing Islamic

Bank

Written By:

MUHAMMAD HAFIZ

NIM: 1407025080

ISLAMIC BANKING STUDIES PROGRAM

ISLAMIC FACULTY
MUHAMMADIYAH UNIVERSITY PROF. DR. HAMKA
JAKARTA
YEAR 2017 M / 1438 H
A. preliminary
1. Background
Management of liquidity for banks is of paramount importance and the
bank's management tried to the maximum to be able to maintain the liquidity
position of banks. The importance of banks to manage liquidity better,
primarily intended to minimize liquidity risk due to lack of funds and the bank
relating to customer confidence in the bank. Bank liquidity management is also
part of the management of customer confidence in the bank program that is
tailored to the basic principles of the bank concerned. Islamic bank confidence
in the principle is very crucial and affect the liquidity of banks due to Islamic
banks must promote Islamic principles in each system and transactions.
In the course of Islamic banks in Indonesia, many through a variety of
problems, and one of them is a problem related to violation of Islamic
principles.
2. Writing purpose
Writing this journal aims to study the analysis of risk associated with the
Islamic bank customer confidence in the Islamic bank principle has been
followed related to the bank in its activities.
3. Writing method
a. Sources Writing
- Prof. Dr. H. Veithzal Rival, SE, MM, MBA & Rifki Ismail, SE, M.Ec., Ph.D.
Islamic Risk Management For Islamic Bank. Jakarta. PT Gramedia Pustaka
Utama. 2013.
- Imam Wahyudi, et al. Risk Management Bank Islam. Jakarta. Salemba Four.
2013.
b. Objects Writing
B. Results and Discussion
1. Islamic Banking Risk Management
Risk management is a process. As a process, in which there are various
stages of interrelated and recurring to complement and enhance each. The risk
management process run in tandem with the Islamic bank itself and integrates
with all business activities carried out by Islamic banks.
The main objective of risk management is to ensure that all policies and
business risks can be implemented consistently. The risk management process
is a comprehensive system, including creating the right environment are risk
management, maintaining an efficient risk assessment, mitigation and
monitoring processes, and to develop adequate internal control. There are five
stages in the risk management process, such as risk identification, risk
assessment, risk mitigation, risk monitoring, and controlling and reporting risks.

2. Definition Liquidity and Liquidity Risk

In a simple sense is the availability of liquidity sufficient cash at any time
when necessary. Bank liquidity is the ability of banks to meet its obligations,
particularly short-term funding obligations. From the corner of assets, liquidity
is the ability to change all of the assets into cash (cash). Meanwhile, from the
point of liabilities, liquidity is the ability of banks to meet the funding
requirements through increased portfolio liabilities (Arifin 2009: 179).1
Liquidity risk is caused by the inability of the Islamic banks to meet
maturing liabilities. To meet its liquidity needs, banks can use the funding
sources of cash flow and high-quality liquid assets that can be used without
interfering with the activities and financial condition of the bank. This risk
appears as a logical consequence of the inequality between the maturities of

1
Ihsan Dwi Nuraini, Sharia Bank Treasury Management (Jakarta: UIN PRESS, 2015), p. 269
 bank funding sources, namely the Third Party Fund (TPF) and bank financing
agreement to the debtor. Moreover, if the financing provided by banks
defaulted. Often, the main trigger bankruptcies experienced by banks, large and
small, is not due to losses sustained, but rather the inability of banks meet their
liquidity needs.2
Islamic Financial Services Board (IFSB) defines liquidity risk as the
potential loss that can be experienced by Islamic banks because of inability to
meet liabilities that have matured or inability of Islamic banks to fund the
increase in assets with a relatively low cost and the absence of significant losses
suffered. Meanwhile, Bank Indonesia through Bank Indonesia Regulation
(BIR) No. 13/23 / PBI / 2011 defines liquidity risk as the risk due to the
inability of banks meet liabilities maturing of funding sources of cash flow
and / or liquid assets of high quality that can be pledged, without interfere with
the activity and bank finance.3

3. Incentives occurrence Liquidity Risk General

Liquidity risk is a result of the interaction between assets and liabilities
that Islamic banks have. So that the problem of liquidity in Islamic banks can
occur if some of the following events arise, among others:4
a. In the event of the withdrawal of large amounts of deposits, Islamic banks do
not have enough funds and sources of funding that can be used quickly to
meet the liquidity needs.
b. When Islamic banks has committed financing in large amounts not yet
realized by the debtor and upon realization, Islamic banks do not have
sufficient funds.

2
Imam Wahyudi, et al, Risk Management, Bank Islam (Jakarta: Four Salemba, 2013), p. 27-28
3
Imam Wahyudi, et al, Risk Management, Bank Islam (Jakarta: Four Salemba, 2013), p. 212
4
Imam Wahyudi, et al, Risk Management, Bank Islam (Jakarta: Four Salemba, 2013), p. 212
 c. Occurs fairly large deposit withdrawals and Islamic banks do not have assets
that can be readily availed to meet the liquidity needs of customers.
d. There was a decrease massively the value of bank assets that have sparked
distrust so that customers withdrew funds from bank deposits.

4. The influence of Sharia Compliance On Against Islamic Bank Liquidity

One important pillar in the development of Islamic financial institutions
are syariah compliance. Pilar which is the main differentiator between Islamic
financial institutions by conventional financial institutions. To ensure Islamic
principles in banking and Islamic financial institutions applied, oversight is
required sharia played by the Sharia Supervisory Board (DPS). The government
has issued two laws that positioned strategically Sharia Supervisory Board to
ensure compliance with the principles of sharia in Islamic banking and finance
institutions.
Both the Act is, Law No. 40 of 2007 on Limited Liability Companies and
Law No. 21 of 2008 concerning Islamic Banking. Second Act is a fairly strong
juridical basis for the existence of sharia implementation DPS to ensure
compliance in Islamic banking and finance institutions.
Operational practices shari'a banking and financial institutions should be
completely executed based on the principles of the Shari'a. The application of
the Sharia compliance is a necessity. The answers apologetic shelter under the
umbrella of the Sharia Board does not guarantee the operations practice really
Shari'a. With the ever-expanding network of banking and finance Shari'a, the
Shari'a Supervisory Board, should further enhance its role actively. During this
time very much Shari'a Supervisory Board does not function optimally in
monitoring Shari’a aspects.
Results of Bank Indonesia research collaboration with Ernst and Young
(2008) concluded that the role of DPS is not optimal. Violation of sharia
compliance as a result of weak supervision DPS has an impact on risk
management. Type of risk management is closely related to the role of DPS is
the reputational risk that subsequent impact on the displaced commercial risk,
such as liquidity risk and other risks.
If the DPS is not optimal role in making sharia supervision against sharia
practices that result in the violation of sharia complience, then the image and
credibility of Islamic banks in the public to be negative, so it can reduce public
confidence in the Islamic bank concerned. This is what is said by Shanin
A.Shayan CEO and Board Member of Barakat Foundation "The biggest risk
facing the Global Financial System is not a fall in its earning power but most
importantly a loss of faith and credibility on how it work" s. So he thinks the
biggest risk facing the global financial system is not the fault of the ability to
make a profit, but more important is the loss of trust and credibility about how
the operation works.
Here, the role of DPS needs to be optimized, so that they can ensure all
products and operational systems Islamic banks totally sharia-compliant. The
role of Sharia Board: to Ensure that every transaction complies with Islamic
Law, to ensure each transaction in accordance with Islamic law, DPS members
must understand the economics and banking and extensive experience in the
field of Islamic law. Thereby qualifying a member of DPS must necessarily
understand the economics and finance and banking. However, unfortunately,
there are still many who do not understand the DPS financial economics and
banking. Besides they do not understand the science, they are also still many
who do not carry out supervision and examination-contract agreement in
Islamic banking. Yet according to its terms, the Sharia Supervisory Board work
independently and are free to review and comment on all contracts and
transactions (The Sharia Supervisory Board works Independently and is free to
review and comment on all contracts and transactions)
To carry out these tasks, then a DPS must meet certain qualifications.
That is, to be the DPS is not just anyone, as occurred during this time.
 Appointment of members of DPS as it was, understandably, given the sharia
economic experts is still very limited. Even recruitment DSN member was in
the past, according KH. Ma'ruf Amin (Chairman DSN), just as the appointment
of TNI 1945. Selection not strict and not based on scientific qualification
standard.

5. Solutions In Tackling Problems Sharia And Repairs Needed

Therefore, in the future DSN needs to involve experts who are competent
in their field of sharia. During this time still the dominant members of DPS
comes from members of the National Islamic Council as such. Though there are
many experts on sharia outside DSN that has a comprehensive scientific
competence, good economics and Islamic finance. It should be noted, the
condition of competent experts in 10 years ago is different from the Islamic
economic education nowadays, acceleration to give birth to a scientist so fast.
Then economist figures sharia competent scientists must be appreciated to
oversee and ensure the implementation of the sharia compliance.
In addition it should be noted that, for the assurance of compliance in
future Sharia, the Sharia Supervisory Board DPS is not enough to understand
the science of finance and banking as well as can not just scholars and Muslim
scholars who do not understand banking operations and financial economics.
Thus, a DPS must be scholars of high repute with extensive experience in
law, economics and banking systems with specializing in law and finance as
prescribed by Islamic Sharia make up the DIB's Fatwa and Sharia Supervision
Board. (Dubai Islamic Banking, 2008)
A DPS should have a degree (of scientists) who have a high reputation
with extensive experience in the legal, economic and banking systems and
specialized in the field of law and finance. Referring to the DPS qualifications
mentioned above, the Islamic banks in Indonesia needs to do a restructuring,
improvement and change for the better and lifting DPS Islamic economics from
the scientists who are competent in their field. Those who float many studies
and scientific research in the field of sharia. It is absolutely necessary so that its
role can be optimized and appears to be positive for the development of sharia
banks in Indonesia.
Error Islamic banks in Indonesia raised the DPS, which raises the very
well-known in Islamic organizations or well-known in Islamic sciences (not
sharia), but it is not competent in the field of Islamic banking and finance. Most
DPS did not understand Islamic banking operations and oversee the bank is not
optimal. Reality is advantageous for management of Islamic banking, because
they are free to do anything, because it is very loosened. But, supervision in the
long term this would harm the Islamic economic movement, not only for
Islamic banks concerned but also for the economic movement and Islamic
banks as a whole and the progress of islamic banks in the future. Therefore it is
not surprising that many people who believe that Islamic banks together with
conventional banks.