By Muhammad Iman Sastra Mihajat
Abstract
Recent global financial crisis has intensified the official sector’s interest in strengthening the macro-prudential orientation of current policy arrangements in particular for Islamic banking and finance sector. The crisis also has highlighted the issues in quality of regulation and supervision in the financial sector, and tested the effectiveness of current regulation and supervision in identifying and mitigating the risks faced by the conventional systems in various jurisdictions. With increasing complexity and the uniqueness of Islamic banking and finance, OJK has to adopt a more macro prudential framework to address systemic risks and Shari’ah risks. The paper proposes a new macro prudential framework by involving a new Shari’ah Board Authority (DPSN) under the Commissioners of OJK to regulate and supervise the Shari’ah matters for Islamic financial institutions in Indonesia. The paper discusses the challenges in adopting this new framework. The paper concludes that the current shortcomings of the macro prudential approach for Shari’ah supervision and regulation require a new Shari’ah Board Authority under the commissioners of OJK who has full authority over Shari’ah matters.
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