Constitutional Justice Wahiduddin Adams reading out the Court’s legal considerations at the ruling hearing of the judicial review of Law No. 21 of 2008 on Sharia Banking, Monday (10/31/2022). Photo by MKRI/Bayu.
Monday, October 31, 2022 | 14:56 WIB
JAKARTA (MKRI)—The Constitutional Court (MK) rejected the entire judicial review petition of Law No. 21 of 2008 on Sharia Banking at a ruling hearing on Monday, October 31, 2022. The petition was filed by PT Bank Pembiayaan Rakyat Syariah Harta Insan Karimah Parahyangan (BPR Syariah HIK Parahyangan).
Constitutional Justices Suhartoyo and Wahiduddin Adams took turns reading out the Court’s legal considerations in Decision No. 32/PUU-XX/2022, in which the Court asserted that that BPRs (microcredit banks) and BPRSs (sharia microcredit banks) can participate in payment traffic through cooperation with commercial banks. Not only that, they can also optimize payment traffic transactions through other financial service institutions and other IT-based financial service providers by taking into account their own characteristics.
In this case, Justice Wahiduddin added, if the Petitioner wishes to carry out direct payment traffic business activities, the BPRS can upgrade its institution to become a sharia commercial bank (BUS) so that the bank’s soundness level is maintained, the liquidity mismatch risk and other risks can be mitigated, and it has reliable information technology to maintain public trust. This means that the a quo articles are not intended to give preferential treatment to commercial banks, but rather as a precautionary principle in the management of public funds. Thus, the argument that Article 1 point 9, Article 21 letter d, and Article 25 letter b of Law No. 21 of 2008 restricted the Petitioner’s constitutional right to provide services to customers, leading to discrimination against limited liability company BPRSs, and hindered BPRSs’ development was legally unreasonable.
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Sharia Microcredit Banks Requests Equality in Payment Financial Traffic Services
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Public Offering
Justice Wahiduddin explained that normatively, based on Article 13 of Law No. 21 of 2008, sharia commercial banks can conduct an IPO (initial public offering) as long as the requirements do not conflict with sharia principles and laws and regulations in the capital market sector. As such, when conducting an IPO, sharia commercial banks must first meet the requirements to become a public company, one of which is to provide transparency as per in Article 1 point 25 of Law No. 8 1995 on the Capital Market.
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BPRS Ownership
However, Justice Wahiduddin added, Law No. 21 of 2008 prohibits BPRSs from conducting IPO, thus, removing the word ‘public’ in Article 13 of Law No. 21 of 2008 as argued by the Petitioner would not necessarily make BPRSs able to do so, because Article 9 paragraph (2) of Law No. 21 of 2008 stipulates that a BPRS can only be established and/or owned by: (a) Indonesian citizens and/or Indonesian legal entities whose owners are all Indonesian citizens; (b) local government; or (c) two or more parties as referred to in letters a and b. Thus, when a BPRS conducts an IPO, it could be owned by foreign citizens and legal entities. If the word ‘public’ is removed, as requested by the Petitioner, the prohibition on ownership by foreign parties as stipulated in Article 9 paragraph (2) of Law No. 21 of 2008 cannot be imposed. Whereas the purpose of a BPRS is to offer public financial transactions, serve MSMEs, and allow BPRS ownership only by Indonesian citizens and legal entities.
“Therefore, the capital for BPRSs is deliberately designed to come from founding shareholders, other local investors outside the capital market, as well as merger and consolidation. If the proceeds from the IPO are used to strengthen the BPRS capital as requested by the Petitioner, debt securities and/or sukuk is not allowed, following Article 5 paragraph (2) letter d of the Financial Services Authority Regulation No. 66/POJK.03/2016 on Minimum Capital Adequacy Requirements and Fulfillment of Minimum Core Capital for Sharia Commercial Banks,” Justice Wahiduddin said.
Also read: Ban Against BPRSs in Payment Traffic Affects Services to Customers
BPRS Capital
The limited BPRS capital, Justice Wahiduddin explained, does not necessarily cause the BPRS business to slowly disappear. “Referring to the empirical facts as explained by the OJK, until May 2022, BPR and BPRS assets grew by 9.5% with BPRs having a capital adequacy ratio (CAR) of 32.47% while BPRSs 23.35%. In addition, year-on-year there was an increase in third party funds for BPRs and BPRSs by 10.7% and lending/financing by 8.6%. Likewise, as a community bank, the distribution of credit and financing by BPRs and BPRSs to MSMEs reached 50.6%. From this fact, the capital ratio of BPRs and BPRSs is resilient and able to support credit and financing risks, which show an increasing trend,” he explained.
In line with this, he added, the liquidity and profitability ratios of BPRs and BPRSs were also maintained well. Furthermore, following the OJK’s testimony, in 2016 to 2022, more BPRs/BPRSs recorded more capital, showing their strength in developing business and mitigating risks. Even those whose business licenses were revoked, did not experience it due to insufficient capital but due to mismanagement and business not following prudent and sound banking principles and due to fraud by employees.
Therefore, based on the legal considerations, the Court disproved the Petitioner’s argument that the word ‘public’ in Article 13 of Law No. 21 of 2008 had led to limited source of capital or financing for a BPRS, which made it difficult for it to maintain its financial health.
Also read: BI: Not BPUG, BPRs and BPRSs Cannot Offer Payment Traffic Services
Protection for BPRSs
Article 1 point 3 of the OJK Regulation No. 36/POJK.03/2017 on Prudence in Equity Participation Activities states that equity participation is the investment of bank funds in the form of shares in companies engaged in finance, including investments in the form of mandatory convertible bonds or mandatory convertible sukuk or certain types of transactions that result in the bank owning or will own shares in said companies. Therefore, Article 25 letter e of Law No. 21 of 2008 prohibits BPRS from investing in capital except in institutions established to address liquidity difficulties.
The Court believes the prohibition was not intended to limit the BPRSs as assumed by the Petitioners, but rather to protect BPRSs from high risks to business continuity as a result of capital allocation that is not in accordance with the direction of its development. Equity participation is the state’s effort to create a safety net for banks when experiencing liquidity problems. If the prohibition is removed, laws and regulations related to BPRS capital must be adjusted. In addition, Article 25 letter e of Law No. 21 of 2008 is an effort to protect BPRSs’ sustainability, the customers, and other parties who have a legal relation with the BPRSs. Thus, the Petitioner had misunderstood the intent of the norm. Within reasonable reasoning, especially for community banks, the prohibition was not the state’s attempt to prevent BPRSs from obtaining capital from other BPRSs, but rather an effort to protect both the BPRSs and its customers. Moreover, the norm does not rule out the possibility for a BPRS to obtain capital from other parties, including sharia commercial banks, as long as it fulfills the requirements in accordance with the laws and regulations.
The Petitioner’s argument that the phrase ‘in an institution established to overcome liquidity issues’ in Article 25 letter e of Law No. 21 of 2008 had hindered BPRSs from meeting capital requirements and had resulted in discrimination between BRPS and sharia commercial banks, was unjustified. This is because the a quo norm is regulated by following the unique nature of the BPRSs and aims to provide protection to BPRS and its customers. Thus, the Petitioner’s argument was legally groundless. Thus, based on all of the legal considerations, the Court asserted that the petition on the constitutionality of Article 1 point 9, Article 13, Article 21 letter d, and Article 25 letters b and e of Law No. 21 of 2008 had in fact not caused legal uncertainty, did not hinder self-development, and did not limit access to equal opportunities nor prevent BPRSs from achieving national economic goals. Therefore, the Petitioner’s entire arguments were legally groundless.
Also read: OJK Asks BPRSs to Collaborate with Others in Fund Transfer
The Petitioner alleged that Article 1 point 9, Article 21 letter d, and Article 25 letter b of the Sharia Banking Law had had restricted or prohibited sharia microcredit banks from offering payment traffic services. Article 21 letter d stipulates that sharia microcredit banks cannot transfer money, either for their own interest or for the benefit of customers independently, but only through their accounts at sharia commercial banks, conventional commercial banks, and sharia business units (UUS).
The Petitioner asserted that restrictions and prohibitions on providing payment traffic services had kept sharia microcredit banks from optimally providing banking services to the public, especially to micro and small businesses to encourage sustainable national economic growth. Furthermore, Bank of Indonesia (BI) had established a National Payment Gateway (GPN) policy aimed at smooth, safe, efficient, and reliable national payment system, and at taking into account the increasing, competitive, and integrated developments in information, communication, technology, and innovations. However, Article 1 point 9, Article 21 letter d, and Article 25 letter b of the Sharia Banking Law have resulted in sharia microcredit banks unable to be directly connected to the GPN policy system. Therefore, the Petitioner requested that the a quo articles be declared unconstitutional.
Writer : Utami Argawati
Editor : Lulu Anjarsari P.
PR : Fitri Yuliana
Translator : Yuniar Widiastuti (NL)
Translation uploaded on 11/2/2022 15:10 WIB
Disclaimer: The original version of the news is in Indonesian. In case of any differences between the English and the Indonesian versions, the Indonesian version will prevail.
Monday, October 31, 2022 | 14:56 WIB 188