Legal Aspect of Economics

Islamic Capital Market

Lecturer:
Dr. Gemala Dewi

Arranged by:
17101138 Herdy Almadiptha Rahman
17101133 Naufal Ahmad
17101146 Iza Faiz Saputra
17101164 Muhammad Daffa Assyauqi

Sekolah Tinggi Ekonomi Islam (STEI) Tazkia

Jl. Ir. H. Djuanda No. 78, Sentul City, Bogor, Jawa Barat Indonesia 1681
 Preface
There is no more appropriate sense to be conveyed by the author except by
giving thanks for the blessings of Allah Almighty for the completion of this small
writing. As well as the writer's gratitude to the family, and lecturer Dr. Gemala Dewi
this paper was made to fulfill the assignment of the subject of Legal Aspect of
Economic.
The author realizes there are still many shortcomings in this small paper. For
that, the author is open for any revision and correction.

Bogor, December 2018

(Author)
 1. Introduction

According to Law (Undang-undang) Number 8 of 1995 concerning Capital Market

(UUPM), Capital Market defined as an activity concerned with Public Offering and
Securities trading, Public Companies relating to Securities issued, as well as
institutions and professions related to Securities.
Based on these definitions, Islamic Capital Market terminology can be interpreted as
activities in the capital market as stipulated in the Capital Market Law which does not
conflict with sharia principles. Therefore, the Islamic capital market is not a system
separate from the overall capital market system. In general, Islamic Capital Market
activities do not have a difference with conventional capital markets, but there are some
special characteristics of Islamic Capital Market, namely that the product and
mechanism of transactions do not conflict with sharia principles.
The application of sharia principles in the capital market certainly comes from the
Qur'an as the highest legal source and the hadith of the Prophet Muhammad.
Furthermore, from the two sources of law, the scholars carried out interpretations which
were later called the science of jurisprudence. One discussion in the science of
jurisprudence is a discussion of muamalah, namely the relationship between human
beings related to commerce. Based on that, the Islamic capital market activities are
developed on the basis of fiqh muamalah. There are fiqh muamalah rules which state
that basically, all forms of muamalah can be done unless there are arguments that forbid
them. This concept is the principle of the Islamic capital market in Indonesia.
In short, Islamic capital market is a capital market activity that does not conflict with
sharia principles in the Capital Market.

2. Regulation

As part of the Indonesian capital market system, capital market activities that apply
sharia principles also refer to Law Number 8 of 1995 concerning the Capital Market
and its implementing regulations (Bapepam-LK Regulations, Government
Regulations, Stock Regulations and others) . Bapepam-LK as the capital market
regulator in Indonesia, has several specific regulations related to the Islamic capital
market, as follows:
 Rule Number II.K.1 concerning Criteria and Issuance of List of Sharia
Securities
 Rule Number IX.A.13 concerning Issuance of Sharia Securities
 Rule Number IX.A.14 concerning Contracts used in the Issuance of Sharia
Securities
 Fatwa DSN-MUI No. 20/DSN-MUI/IX/2001 concerning Guidelines for
Implementing Investment for Sharia Mutual Funds
 Fatwa DSN-MUI No. 32/DSN-MUI/IX/2002 concerning Sharia Bonds
 Fatwa DSN-MUI No. 33/DSN-MUI/IX/2002 concerning Mudharabah Sharia
Bonds
 Fatwa DSN-MUI No. 40/DSN-MUI/X/2003 concerning the Capital Market and
General Guidelines for the Implementation of Sharia Principles in the Capital
Market Sector
 Fatwa DSN-MUI No. 41/DSN-MUI/III/2004 concerning Ijarah Sharia Bonds
 Fatwa DSN-MUI No. 59/DSN-MUI /V/2007 concerning Convertible
Mudharabah Sharia Bonds
 Fatwa DSN-MUI No. 65/DSN-MUI/III/2008 concerning Sharia Pre-emptive
Rights
 Fatwa DSN-MUI No. 66/DSN-MUI/III/2008 concerning Sharia Warrants
 Fatwa DSN-MUI No. 69/DSN-MUI/VI/2008 concerning State Sharia
Securities (SBSN)
 Fatwa DSN-MUI No. 70/DSN-MUI/VI/2008 concerning SBSN Issuance
Method
 Fatwa DSN-MUI No. 71/DSN-MUI/VI/2008 concerning Sale and Lease Back
 Fatwa DSN-MUI No. 72/DSN-MUI/VI/2008 concerning SBSN Ijarah Sale and
Lease Back
 Fatwa DSN-MUI No. 76/DSN-MUI/VI/2010 concerning SBSN Ijarah Asset to
Be Leased
 Fatwa DSN-MUI No. 80/DSN-MUI/III/2011 concerning the Implementation
of Sharia Principles in the Mechanism of Trading Equity-Type Securities in the
Regular Market of the Stock Exchange.
 3. Structure

Picture 1 Organizational Structure of Indonesian Islamic Capital Market

4. History of Indonesian Islamic Capital Market

History of Islamic Capital Markets in Indonesia begins with the issuance of Sharia
Mutual Funds by PT. Danareksa Investment Management on July 3, 1997.
Furthermore, the Indonesia Stock Exchange (formerly Jakarta Stock Exchange)
cooperated with PT. Danareksa Investment Management launched the Jakarta Islamic
Index on July 3, 2000 which aims to guide investors who want to invest their funds in
sharia. With the presence of these indices, investors have provided stocks that can be
used as a means of investing in accordance with sharia principles.
On April 18, 2001, for the first time the National Sharia Council of the Indonesian
Ulema Council (DSN-MUI) issued a fatwa directly related to the capital market,
namely Fatwa Number 20 / DSN-MUI / IV / 2001 concerning Investment
Implementation Guidelines for Sharia Mutual Funds. Furthermore, Islamic investment
instruments in the capital market continued to grow with the presence of Sharia Bonds
PT. Indosat Tbk at the beginning of September 2002. This instrument is the first Sharia
Bond and the contract used is the mudharabah contract.
The history of the Islamic Capital Market can also be traced from the institutional
developments involved in regulating the Islamic Capital Market. This development
started from the MoU between Bapepam and DSN-MUI on March 14, 2003. The MoU
showed an understanding between Bapepam and DSN-MUI to develop a sharia-based
capital market in Indonesia.
From the institutional perspective of Bapepam-LK, the development of the Islamic
Capital Market was marked by the establishment of the Islamic Capital Market
Development Team in 2003. Furthermore, in 2004 the development of the Islamic
Capital Market was included in the organizational structure of Bapepam and LK, and
was carried out by echelon IV units specifically has the task and function of developing
the Islamic capital market. In line with the development of the existing industry, in
2006 echelon IV units that had previously been increased to echelon III level units.
On November 23, 2006, Bapepam-LK issued a package of Bapepam and LK
Regulations related to Islamic Capital Market. The regulation package is Bapepam and
LK Regulation Number IX.A13 concerning Issuance of Sharia Securities and Number
IX.A.14 concerning Contracts used in the Issuance of Sharia Securities in the Capital
Market. Furthermore, on August 31, 2007, Bapepam-LK issued Bapepam and LK
Regulation Number II.K.1 concerning Criteria and Issuance of List of Sharia Securities
and followed by the launch of the first List of Sharia Securities by Bapepam and LK
on September 12, 2007.
The development of the Islamic Capital Market reached a new milestone with the
passing of Law Number 19 of 2008 concerning State Sharia Securities (SBSN) on 7
May 2008. This law is needed as a legal basis for the issuance of state sharia securities
or state sukuk. On August 26, 2008 for the first time the Indonesian Government issued
the SBSN series IFR0001 and IFR0002.
On June 30, 2009, Bapepam-LK has made improvements to Bapepam-LK Regulation
Number IX.A.13 concerning Issuance of Sharia Securities and II.K.1 concerning
Criteria and Issuance of List of Sharia Securities.

5. Instrument

In doing muamalah, humans are given the freedom to carry out activities but must pay
attention to things that are prohibited. Capital market activities are included in the
muamalah group, so transactions in the capital market are permissible as long as there
is no prohibition according to sharia. The prohibited muamalah activities are activities
of speculation and manipulation which contain elements of gharar, riba, maisir,
risywah, immorality and tyranny.
Activities/actions that are contrary to sharia principles (according to DSN-MUI fatwa
Number: 80 / DSN-MUI / III / 2011), include:
1. Maisir: Every activity that contains elements of gambling / speculation
2. Gharar: Uncertainty in a contract, both regarding the quality or quantity of
contract objects or transactions that take place
3. Usury: Additions given in exchange of ribawi goods (al amwal al ribawiyah)
and additions given to principal debt in exchange for absolute deferral of
payments
4. Bathil: Fair buying and selling is buying and selling that is not in accordance
with the pillars and contract (provisions of origin / principal and its nature) or
is not justified in Islamic sharia
5. Ba'i al-ma'dum: sell goods (sharia securities) that are not yet owned (short
selling)
6. Summary: buying an item that is needed by the community when the price is
high and hoarding it with the aim of reselling when the price rises (hoarding)
7. Taghrir: an effort to influence other people, both by saying and acting with lies,
to be encouraged to make transactions
8. Ghabn: An imbalance between two objects exchanged in a contract, both
quality and quantity
9. Talaqqi Al-Rukban: Part of Ghabn; namely buying and selling goods at prices
far below market prices because the seller does not know the price
10. Tadlis: the act of hiding an object's disability that is done by the seller to trick
the buyer
11. Ghisysy: Branch of tadlis; i.e. the seller explains the superiority of the goods
sold and hides the disability
12. Tanajusy: The act of bidding for goods at a higher price by those who do not
intend to buy them, to give the impression that many parties are interested in
buying them
13. Dharar: actions that can cause harm or loss to other parties
14. Risywah: a gift that aims to take something that is not his right, justify the
physical and make the false as something that is right
15. Maksiat and Zhalim: actions that are detrimental, take or obstruct the rights of
others who are not justified in sharia, so that they can be considered as a form
of persecution
 6. Operational
1) Products in the Islamic Capital Market
Islamic Capital Market products are sharia securities. Islamic securities are securities
that do not conflict with sharia principles in the capital market.
Islamic securities consist of:
 Islamic securities in the form of shares
 Sukuk
 Sharia Mutual Fund
 Sharia Asset Backed Securities (Sharia EBA)
 Sharia Real Estate Investment Fund (Sharia DIRE)
Other Sharia Securities:
 Capital Market Sharia Expert
 Sharia Investment Manager
 Sharia Investment Management Unit
 The Issuer Register Sharia Securities
 Sharia Online Trading System
 Custodian Bank that provides sharia custodian services
 Trustee who provides services in issuing sukuk
 Sharia Online Trading System
 Custodian Bank that provides sharia custodian services
 Trustee who provides services in issuing sukuk

a) Islamic securities in the form of shares

The concept of stock is the concept of musyarakah / syirkah activities, namely capital
participation with the right of profit sharing.
Thus, shares do not conflict with sharia principles, because shares are proof of capital
participation from investors to companies, which then investors will get dividends.
However, not all shares can be directly categorized as sharia shares.
There are three (3) scheme of screening on Islamic securities in the form of shares:
1. Business Screening
The business activity not conducting any kind of activity that forbidden by
Sharia, as follows: Gambling, forbidden trading, ribawi financial services, risk
 trading that consist gharar or maisir, haram production and/or distribution,
bribery transaction.
2. Financial Screening
Total debt interest based compared to total asset are not more than 45%. Non-
Halal (Haram) earning are not more than 10% of total earning.
3. Finalization
Administrational needs, then sharia shares are able to trade/own.

b) Sukuk
Sukuk are sharia securities in the form of certificates or proof of ownership that have
the same value and represent an inseparable or undivided part of the underlying asset.
Underlying Asset itself is an asset that is used as an object or basis for issuing sukuk.
The underlying assets can be in the form of tangible goods such as land, buildings,
development projects, or intangible assets such as services, or benefit rights to assets.
Main differences between sukuk and bonds
Description Sukuk Bonds
Main Group Ownership of an asset/ the Debt transaction between
Principles benefits of asset/ services/ project/ bond issuer and investor
specific investment
Use of Funds Funding only for business activity Unlimited. Any kind of
that not contracy to sharia principles business are able to access
funding
Underlying Necessary Not Necessary
asset
Table 1 Differences between sukuk and bonds

c) Sharia Mutual Fund

Sharia Mutual Funds is one of the collective investment containers managed by
Investment Managers by investing in managed funds to Islamic securities in the form
of Islamic stocks, sukuk, or other sharia instruments.
Main differences between Sharia Mutual Fund and Conventional Mutual Fund
Description Sharia Mutual Fund Conventional Mutual Fund
Management Managed based on sharia Managed without regard to
principles sharia principles
 Portfolio Sharia Securities such as sharia Non-Sharia securities such as
shares, sukuk etc. shares from emiten that
produces haram product
Mechanism There are cleansing mechanism There is no cleansing
from haram property mechanism
The Exist Not Exist
Existence of
Sharia
Supervisory
Board (DPS)
Table 2 differences between Sharia Mutual Fund and Conventional Mutual Fund

Types of Islamic mutual funds

i. Sharia Mutual Funds Money Market
Mutual funds that only invest in domestic sharia money market instruments and
/ or fixed income Islamic securities are issued with a period of not more than 1
(one) year and / or the remaining maturity is not more than 1 (one) year.
ii. Sharia Mutual Fund Fixed Income
Mutual funds that invest at least 80% of Net Asset Value in the form of sharia
securities have a fixed income.
iii. Sharia Mutual Fund Shares
Mutual funds that invest at least 80% of Net Asset Value in the form of sharia
securities are equity.
iv. Mixed Sharia Mutual Funds
Mutual funds that invest in equity sharia securities, fixed income sharia
securities, and / or domestic money market instruments that each do not exceed
79% of Net Asset Value, wherein the mutual fund portfolio must have an equity
sharia effect and the effect of sharia is fixed income.
v. Protected Sharia Mutual Fund
Mutual funds that invest at least 70% of the NAV in the form of sharia securities
have a fixed income and a maximum of 30% of the NAV in the form of sharia
shares and / or sukuk traded on foreign stock exchanges.
vi. Sharia Mutual Fund Index
Mutual funds that invest at least 80% of the NAV in sharia securities which are
part of a sharia index are the reference. The investment in sharia securities is at
least 80% of all sharia securities in the index. The weighting of each of the
sharia securities in the sharia mutual fund index is between 80% and 120% of
the weighting of each sharia effect in the reference index.
vii. Sharia Exchange Traded Fund (ETF)
 Sharia Mutual Funds in the form of KIK whose participation units are traded
on stock exchanges (ETFs)
viii. Sharia Mutual Funds are in the form of KIK Limited Participation
ix. Mutual funds that are only offered to professional investors and are prohibited
from being offered through Public Offering and / or are prohibited from being
owned by 50 parties or more. Professional investors are investors who have the
ability to buy participation units and carry out risk analysis.
x. Sharia Mutual Funds Based on Foreign Sharia Securities
Mutual funds that invest at least 51% of the Net Asset Value of Sharia Mutual
Funds in Foreign Sharia Securities contained in the List of Sharia Securities
issued by the Sharia Securities List Issuer.
xi. Sharia Mutual Funds Based on Sukuk
Mutual funds that invest at least 85% of Net Asset Value in the form of:
Sukuk offered in Indonesia through Public Offering; State Sharia Securities;
and / or Sharia commercial securities with a maturity of 1 year or more and
included in the investment grade category
The Islamic mutual funds are prohibited from investing in securities based on real
sector activities abroad.
2) Services in the Islamic Capital Market
a. Capital Market Sharia Experts
The Capital Market Sharia Expert or commonly referred to as ASPM is a new
profession arranged in detail in 2015 since the issuance of the Financial Services
Authority Regulation (POJK) Number POJK No.16 / POJK.04 / 2015 concerning
Capital Market Sharia Experts. This ASPM is a Party that acts as an advisor and or
supervisor related to the welfare aspects of the company's business activities including
providing conformity opinions on sharia principles for Islamic products / services in
the capital market.
b. The Issuer Register Sharia Securities
Since the enactment of the Financial Services Authority (POJK) Regulation Number
19 / POJK.04 / 2015 concerning the Issuance and Requirements of Sharia Mutual Funds
in 2015, the Sharia Securities List Issuer is one of the rapidly expanding Islamic capital
market services. The Sharia Securities List Issuer is the party that gets approval from
the OJK to issue a List of Sharia Securities, where the List of Sharia Securities contains
Islamic securities issued abroad and in addition to the List of Sharia Securities that
have been issued by the OJK.
c. Sharia Online Trading System (SOTS)
The Sharia Online Trading System or commonly called SOTS is a system prepared by
Exchange Member Securities Companies for those used by investors to transact in
stocks that are included in the Sharia Securities Register by using an online-based
transaction system.
The development of this SOTS is expected to increase the base of sharia investors in
the capital market due to an easy and convenient system.
d. Investment Manager Managing Sharia Mutual Funds
The Investment Manager is a party whose business activities manage securities
portfolios for customers or collective investment portfolios for a group of customers.
Securities traded by the Investment Manager can be either sharia or non-Islamic
securities.
Investment Managers who manage sharia securities must have a Sharia Supervisory
Board whose duty is to supervise whether sharia mutual funds are issued in accordance
with sharia principles and carry out cleansing in accordance with the regulations of the
Financial Services Authority.
Based on POJK No. 61 / POJK.04 / 2016 concerning the Application of Sharia
Principles in the Capital Market to Investment Managers, every investment manager
who manages sharia securities is obliged to establish a sharia investment management
unit (UPIS) with a time limit of 1 (one) year from the enactment of the said regulation,
20 December 2016.
In addition, with the issuance of POJK No. 61 / POJK.04 / 2016, encouraging the birth
of Islamic investment managers. At present there are investment managers whose
entire activities and management are based on sharia principles in the capital market.
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