CONCEPT OF ISLAMIC CAPITAL MARKET IN INDONESIA

By:
FIKRY RAMADHAN SUHENDAR

Lecturer STIE Miftahul Huda Subang

mail: fikry@stiemifda.ac.id

Abstract

Capital Markets Shariah is a capital market (place) that implement Islamic principles
in the activities of economic transactions so that apart from the things that are
prohibited according to Islamic Shari'a, such as treasure usury, gambling, and
gharar, as well as speculation, the kinds of things that the Islamic capital market
traded essentially does not violate Islamic law. There are two elements that are
always inherent in any investment activity, the results (returns) and risk (risk). The
development of the Islamic capital market, especially in Indonesia has entered a new
era with their online system to purchase shares of Sharia, the system makes it easier
for investors to purchase the desired stock in accordance with the provisions to be
completed by ISSI,

Key Word:
Islamic capital market, ISSI.

PRELIMINARY

Capital markets in general that a financial system that tersetuktur, and

organized, including the banks and all plantar in the financial field and all securities
outstanding. In terms of the history of the capitaplantarin Indonesia is the extent to
which the development of capital markets in Indonesia in terms of its inception that
today in the era of resolute industry 4.0, in a certain sense be in the know about the
stock market is a market (place) thresoluterepared in order to trade stocks, bonds, and
another types of securities with the services of perarntara securities or securities
 2

traders. Briefly so that can be interpreted as a place to bring together the parties who
require long-term funds to the parties who have the funds.

METHODOLOGY

In this study, the authors used the methodology of qualitative descriptive by

analyzing how capital market development in Indonesia by way of research libsafeties
literature journals and web and literature other either in the form of primary data and
secondary and tertiary, data regarding processed into the history of the development of
Islamic capital market in Indonesia.

DISCUSSION:

HISTORY OF ISLAMIC CAPITAL MARKET IN INDONESIA

At first it was born in Indonesia capital market with a very long history.

Exchanges in Indonesia has been established since 1912 AD, ahead of a

newborn singapore stock exchange in 1930 AD, the development of stock

exchanges in Indonesia can not be separated from the ebb and flow of political

climate, economy and finance. Indonesia stock exchanges have experienced a

setback in 1940, when the Dutch nation is attacked and occupied the German

nation. But then bounced back on August 10, 1977 AD Since 1977, the capital

markets are supervised and carried out by bapepan (agency execution of

capital market) is in the body within the Ministry of Finance.(Fahmi, 2014)

Capital market participants in addition to Bapepam, company-perisahaan

effects, which become pelantara between companies that need funds (issuer)

and the owner of the funds (investors or investors).

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Capital markets, according to Law No. 8, 1995 the activity concerned with the
public offering and trading of securities, companies associated with diterbitkamya
effects, as well as institutions and professions related to securities issuance, as well as
institutions and professions related to the effect. The capital market also has a sense
abstract that brings prospective investors (investors) to issuers who require long-term
funds are transferable) The role performed by the capital markets is to provide
facilities for transfer of funds, particularly those earmarked for long-term financing, of
which have the funds or known as lenders to companies that need funds or borrower.
Usually in carrying out their activities using the capital markets brokerage and
underwriter.(Fahmi, 2014)

BEGINNING OF THE RISE OF ISLAMIC CAPITAL MARKET

Milestone early awakening of Islamic Capital Market occurred on April 18,

2001, for the first time National Sharia Council of Indonesian Ulema Council (DSN-
MUI) issued a fatwa which is directly related to the capital market, namely Fatwa No.
20 / DSNMUl / IV / 2001 on Guidelines for Implementation of Investment for Syariah
Mutual Fund. In the MUI Fatwa_DSN already mentioned criteria Islamic stocks,
especially in the quantitative aspect, ie financial ratios. However, the MUI's Fatwa
DSN has not been absorbed by the Capital Market and Financial Institution to be the
rule in the Islamic capital market. So it is not binding on market participants
(investors). References used in investing investor during the period of Islamic stocks
are still issuers into the Jakarta Islamic Index (III), which amounted to 30 issuers.

Then further developments on July 5, 2002, PT. AAA Sekuritas sent a letter to
the DSinMUI No. Ref: 08 / IB / VII / 02 on Petition Fatwa Islamic Bonds. This letter
became one of the things considered by DSN MUI to issue a fatwa DSN MUI No. 32 /
DSN-MUI / IX / 2002 regarding Sharia Bonds and DSN MUI Fatwa No. 33 / DSN-
MUI / 1X / 2002, on Mudharabah Sharia Bonds on September 14, 2002. Armed with
this fatwa PT AAA Sekuritas be a pioneer in delivering PT Indosat, Tbk issued the
first Islamic Bonds in Indonesia on September 2002. This first instrument Islamic
Bonds use mudharabah with a value of Rp 175 Billion
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Islamic Capital Market in Indonesia was officially launched on 14 March 2003

by the Minister of Finance at the time Boediono. So the history of Islamic Capital
Markets can also be traced to the institutional developments involved in setting up the
Islamic Capital Capital Market. The development started on the MOU between
Bapepam and DSN-MUI on that date.(Yoyo, 2017)

CAPITAL MARKET DEFINITION AND ISLAMIC CAPITAL MARKET

The general stock market is a place where various parties, especially

companies selling shares (stocks) and bonds (bond) with the purpose of the sale
proceeds will be used as additional funds.(Zamir Iqbal and Abbas Mirakhor, 2011) or
to strengthen the company's capital. (Askari, Iqbal, and Mirakhor, 2014)
Definition of Islamic capital market is a stock market or (places) that
implement Islamic principles in the activities of economic transactions so that apart
from the things that are prohibited under the provisions of Islamic Shari'a, such as
usury, gambling, and gharar, as well as speculation and the kind of goods traded that
nature does not violate Islamic law. So that all aspects of existing and being run based
on Islamic principles, by the call because it was in the Islamic capital market.(Yoyo,
2017)

The purpose of the principles of sharia capital market, according to POJK No.
15 / POJK.O4 / 2015 on the Application of Sharia in Chapter I General Provisions
Article 1 paragraph 2: "Sharia Principles in Capital Market is a principle of Islamic
law in the Islamic Capital Market Activity National Sharia Board fatwa by the
Indonesian Ulema Council, along fatwa is not contrary to the Regulation of the
Financial Services Authority or Rule This and Other Financial Services Authority,
which is based on the National Sharia Board fatwa-Indonesian Ulema Council. "

The role of the Islamic capital market in promoting efficient financial system
is essential. Because of the financial system that has been developed can; making a
positive contribution to economic development, as well as the existence of a vibrant
Islamic capital market is a must for every economy. Syraiah capital markets facilitate
long-term financing for the businessman and entrepreneur by attracting deposits from
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investors. These markets provide long-term capital to entrepreneurs through a series of

contracts (securities) of short-term investors can enter and exit at will own. Efficient
Islamic capital market is expected to carry out various functions of the
following:(Zamir Iqbal and Abbas Mirakhor, 2011)

1. Presenting the resource mobilization mechanisms that lead to an efficient

allocation of resources in the economy.

2. Provide liquidity in the market with the most convenient price, ie the lowest
transaction costs or low offer spreads in securities (stocks) are traded in the Islamic
capital market.

3. To ensure transparency in the pricing of securities (shares) by determining the

premium price risk (risk premia), which reflects the level of risk of these securities.

4. Provide opportunities to develop their portfolio that terdeversifikasi properly and to

reduce the level of risk thatrough diversification across geographic boundaries and
across time.(Zamir Iqbal and Abbas Mirakhor, 2011)

In general, the capital market consists of primary and secondary markets. The
prthe primary market is important to obtain new capital and depend on the supply of
funds, while the secondary market made a significant contribution to facilitating the
trading of securities/shares that already exist. The secondary market was instrumental
in ensuring liquidity and fair pricing in the market and provide valuable signals related
to those securities. In other words, the secondary market is not only providing
liquidity and low transaction costs but also determines the price of securities and risk
on an ongoing basis, and incorporate new relevant information when the information
appears.

As capital markets play an important role in the conventional financial system,

their role in the Islamic financial system is also equally important. If the conventional
capital market has a solid record and long history, the Islamic capital market is still in
the early stages of development. The conventional capital market has two main
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streams: the market for trading debt securities and securities markets for equities
trading. As we have discussed earlier, raising capital through debt is not allowed in the
Islamic system because there is the prohibition of interest. Although borrow and lend
on the basis of debts is a common practice in conventional markets for modern
Muslims can not participate in the debt market so membutukhan space for the Islamic
capital market.

EQUITY MARKET DEVELOPMENTS

The Islamic economic system depends on the equity-based securities market.

A formal model of the stock market in accordance with Islamic principles not yet
formulated, but there have been several attempts to identify the range of issues that
differentiate the Islamic capital market of the conventional capital market. In this case,
there are at least three major structural issues that must be solved.(Zamir Iqbal and
Abbas Mirakhor, 2011)

1. Limited liability

And the first question most often asked is what best represents the contractual
agreement part in a joint-stock company with limited liability. This limited liability
raises the issue of how to handle the legal entity such as a corporation, which has legal
personality and needs to be treated as a Juridical Person. Some people argue that the
limited liability contrary to basic moral and legal principles of Islam, because these
obligations-if any-can not be canceled except with forgiveness creditors. In this
regard, the scholars of fiqh have to learn some critical issues such as acceptance of the
corporation as a partnership (with the base Musharaka) or some similar contracts.
Other than that, what happens to the liability in case of default conducted judicial
person (such as a company)? Some experts argue that there is a precedent of sharia
could be the basis of the concept of Juridical Person through inference in Islamic
Jurisprudence.(Zamir Iqbal and Abbas Mirakhor, 2011)

2. Contractual Structure of Equity Shares

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The second issue relates to the type of contract that is most appropriate for
mcrepresentasikan common shares as a partner in a joint-stock company. Islamic
principles identified two general categories Musharaka contract is established because
of the contract and loss of ownership, which gives partners the ownership of certain
real assets and loss because of the contract, which gives partners the ownership of the
asset value without any special relationship to real assets. It is very important to
understand the differences between them. For example, if a stock is represented as
milk Musharaka, the purchase and sale of these shares will be equal to the purchase
and sale of real assets that can be identified and therefore be subject to the rules
applicable to the bay (buying and selling)

3. Negosiabilitas and Tradabilitas

The third structural issues that must be solved is the most important and
related to the negotiability, transfembility, and tradability of shares in primary and
secondary markets. Islamic law encourages trade and market in all commodities and
the corresponding property, but the law also restricts trade financial interest that leads
to another element of the forbidden usury. Islamic law prohibits trading in a monetary
bond (like dayn (debt), currency, or the same as the currency), the bonds are restricted
in generic goods (for example, certain grain quality), or even contingent rights or
future entitlements. For example, the rule of sharia is followed at present is a stock
company can be negotiated only if the company has assets nonliquid.(Zamir Iqbal and
Abbas Mirakhor, 2011)

CAPITAL MARKET SUPPORTING INSTITUTIONS

1. Dealer

In addition to buying and selling securities for themselves, stockbroker also serves to
create a market for securities tertentu'dan maintain price stability and liquidity
memelihan securities by buying and selling of certain securities in the secondary
market.

2. Securities Trading Intermediaries (Brokers)

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Brokers charge of receiving orders to buy and sell orders from investors for later
offered dl exchanges in this regard BEI. On these intermediary services, brokers
charge a fee or reward to investors. This is where a broker or securities of a profit
even if the advantage is different from some of the existing securities in Indonesia.

3. Securities company

The securities company or securities company (securities company) can run such or
some activity, both as underwriters (underwriter), securities broker. investment
manager, or investment advisor.

4. securities administration Bureau

Namely the parties under the contract with the issuer on a regular basis and provides
services of bookkeeping, transfer, recording, payment of dividends, the distribution of
option rights, emission certificates, or annual reports for listed companies.
provide(Budisantoso & Sigit Triandaru, 2006)

RISK OF INVESTMENT

One thing that distinguishes investments with savings is the existence of risk in
investment. Often we hear that word imagine the risk of direct investment. And
sometimes so see the eyes of the investment. Actually, any time, any activity we are
always followed by a risk. Risk is not to be avoided. because it is not possible to do
so, but the risk for us to manage. Thus, in its run sayriah capital market investors
should be observant when buying shares so that the risks can be in such a minimalist
sedemilian.

There are two elements that are always inherent in any investment activity, the
results (returns) and risk (risk). The relationship between these two elsements is
always directly proportional, the greater the risk of the investment, the greater the
chances of getting a high yield, and vice versa. So we often hear selogan in
 9

investments "High Risk High Return". A person who expects aat high level of profits
may not disassociate ourselves from the name of risk.(Yoyo, 2017)

PRODUCTS TRADED IN CAPITAL MARKET

Shares become the main product traded in the capital market. and indeed the main
purpose of a country where the stock market to trade stocks. Besides, apart from the
stock, also dipcrdangangkan in the capital market are variant high of other securities
(other securities), as follows:?

1. Promissory Notes
2. Securities Commercial (Commercial Paper)
3. Bonds
4. Evidence of Debt
5. Units Collective Investment Contract
6. Futures of Securities
7. Any derivatives of securities, such as Proof of Right, Warrant, and Options.
8. Asset-Backed Securities &
9. Serfikat Custody of Securities Indonesia.

From some of the shares traded in the stock market do not all sell the shares that
adheres to Shariah system so that an issuer or investor should be careful in choosing
stocks that terdaptar on the Stock Exchange so that only shares listed on the ISSI is an
Islamic stock.(Yoyo, 2017)

ISLAMIC CAPITAL MARKET DEVELOPMENTS IN INDONESIA

Capital market in a country has to be used as one measure to see reciprocation

of the business dynamics that exist in the country.(Fahmi, 2014)And the government
has a central role in mbentuk and encourage a capital market which h is the hope of all
 10

parties, especially a Muslim, including creating elements driving the formation of the
Islamic capital market that is growing and developing according to expexpectations of
various parties. between the element that creates the growth of the Islamic capital
market. namely:

1. The existence of public awareness about the benefits and opportunities available in
Islamic capital markets as well as other benefits of ownership;

2. The development of the Islamic capital market infrastructure such as advances in

information technology that drives the growth of electronic trading systems. clearing,
stock registration, and others;

3. The development of legislation in order to create public trust. investor protection

and independence; and

4. The existence of the privatization program that encourages supply and demand for
stocks.(Fahmi, 2014)

FUNCTIONS AND BENEFITS OF ISLAMIC CAPITAL MARKET

Islamic capital market as one of the supporters in the national economic

system. certainly have a Function, Role, and Benefits of strategic importance.
Function, role, and benefits of Islamic capital market can be described including the
following:

Islamic Capital Markets in a system supporting the national economy has several
functions, including:

1. Long-Term Funding Sources

Islamic Capital Markets become a source of long-term funding for companies that
need funds but constrained in the debt ratio. At a certain debt ratio, usually, the bank
 11

was not willing to give loans. One alternative is to sell company stock to the public so
that the company can still get cheap and fresh funds for expansion.

2. Alternative Investments

Menyedialan Islamic capital market alternative to function primarily of the parties so

that they can invest surplus funds to get the profit level more attractive than other
investment instruments. On the other hand, the Islamic capital market could also be an
alternative investment with risks that can be managed compared to instrument high-
risk investments such as foreign exchange, futures, and commodities.(Yoyo, 2017)

3. Restructuring Capital Tool Company

The function is no less important to the company is as a means of restructuring the

company, where the floor on the Indonesia Stock Exchange a few companies that had
plagued Capital can be resolved even be able to develop its business. So that this
company can be saved from the threat of bankruptcy.(Yoyo, 2017)

4. Tools for Conducting Divestment

In other cases, some Financiers also able to divesting of the company after receiving a
considerable advantage with the release of its shares to the public at large with
considerable ease. The process of the release of shares to the public is very easy if
capitalization and stock liquidity in the market is quite good.(Yoyo, 2017)

5. Benefits for the state

With the capital chapter syriah especially Integration sharia blue-chip listed on the
ISSI can directly drive the economic strength of a country so that investors from
within and outside the country give support to the economic growth of the country in
this regard in Indonesia.(Yoyo, 2017)
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SHARI'A ONLINE TRADING SYSTEM (sots) OR KNOWN IN THE ONLINE

SYSTEM WITH ISLAMIC CAPITAL MARKET

Technological advances online in the Islamic capital market system provides

various features news and financial information, to be a solution in providing
convenience in carrying out capital market transaction activity. Thus, all transactions
in the capital market with a network-based Internet and online systems to facilitate
investors in the purchase of shares on the Stock Exchange. So in this case, the ease
perceived by market participants to take advantage of the online trading system allows
more and more people who invest capital (money) in the capital market, especially the
Islamic capital market.

With the application of sots is one of the online trading service designed
system based on Islamic principles derived from DSN-MUI fatwa 80.(DSN-MUI
Fatwa No. 80 / DSN-MUI / III / 2011 on the Application of Sharia in Equity
Securities Trading Mechanism in the Regular Stock Exchange. 2011)Standard features
in the shariah online trading system in general feature buying and selling transactions
in shares, share price development update every time, indicators to analyze the
movement of stock prices, news relating to the company and the company's financial
features. Typically these systems are given by the securities in facilitating investors in
the purchase of his efforts in, therefore, the development of the Islamic capital market,
the development of the online trading system is also based on the principles of Islamic
Shari'a, among only presents stocks that have met the criteria of sharia and registered
in ISSI. And will automatically be refused if investors buy the stock that is not sharia,
It aims to facilitate investors in select stocks Shariah compliance.(Yussi Septa
Prasetia, 2017)

With a system sots, investors should take advantage of online trading in

offering the sale and/or sales requests. When investors through online trading
transaction order then the whole system of instruction will be stored in the enterprise
server or securities, then the portfolio provided by the broker submitted to the Stock
Exchange as proof of purchase of shares by investors, it is used as valid evidence for
the company and also a broker. And evidence of investors after making an order to
 13

buy and/or sell then he will get the order ID and Trade ID in the Stock Exchange in
the enterprise server data can also be accessed throughgh the online trading investors.
Data transactions conducted investor orders are valid as legal evidence and bind the
customer so that it does not require the customer's signature for a user ID, password
and trading PIN serves as your electronic signature (account opening form of Islamic
capital markets) .Transaksi occurring through online systems trading, then when the
transaction has been fulfilled by the company (broker) will be confirmed via email.
Aside from the above investors can also access the online trading with their status in
the column match transactions, within two working days of the security will pay the
shares which have been bought by investors. then when the transaction has been
fulfilled by the company (broker) will be confirmed via email. Aside from the above
investors can also access the online trading with their status in the column match
transactions, within two working days of the security will pay the shares which have
been bought by investors. then when the transaction has been fulfilled by the company
(broker) will be confirmed via email. Aside from the above investors can also access
the online trading with their status in the column match transactions, within two
working days of the security will pay the shares which have been bought by
investors.(Yussi Septa Prasetia, 2017)

IMPLEMENTATION OF ISLAMIC CAPITAL MARKET REGULATIONS BY

APPLICATION (sots)

The Sharia Online Trading System (sots) is one of the conveniences provided
by the members of the exchange to the customer. Sots so that in itself is a platform run
by investors in bridging desire untukmelakukan investors buying and selling shares in
the Islamic capital market in particular stocks sharia products. Sebeb by the various
regulations and prohibitions on the capital market at the top is addressed to investors
when buying shares.conventionalnational(Yussi Septa Prasetia, 2017)

There are some specific regulations that can run by sots as a form of obedience
to the DSN-MUI. Sots have differences with conventional online trading
systsots’lthough both will lead to the system as the Jats BEI transaction center. The
difference is this:
 14

First, the sot’s system will show you stocks that entered the Indonesian Sharia Stock
Index (ISSI) only.

Second, do not give a margin originating from usury goods. So in sots account
investors will only display the investor's own financial data without any loans.

Third, not implement the existing system of interest on the funds were deposited in
the account sots so that there is only the result of Islamic banking designated when
making a securities account or RDN.

fourth, DSN-MUI their certificates to members of the exchange who published sots. It
is thus clear bahwasannya sots have fulfilled the transaction system in Islam.(Yussi
Septa Prasetia, 2017)

In order to realize a pure Islamic capital market free from usurious transaction
types are not only supported by the existing online trading system. And it is also
important to be known by investors abandon illicit activities precedence over
regulation in the online trading system. By because it investor controllers and actors
actually, while sots only as a means to meet investor activity. In addition to their
awareness that investors abandon illicit transactions will increase investor rationality
in decision-making in menenamkan capital in the Islamic capital market.

CLOSING

Capital Markets Shariah is a capital market (place) that implement Islamic

principles in the activities of economic transactions so that apart from the things that
are prohibited according to Islamic Shari'a, such as usury, gambling, and gharar, as
well as speculation and the kind of goods are traded that nature does not violate
Islamic law. There are two elements that are always inherent in any investment
activity, the results (returns) and risk (risk). The relationship of these two elements is
always directly proportional, the greater the risk of the investment, the greater the
 15

chances of getting a high yield, and vice versa. So we often hear the slogan in
investments "High-Risk High Return".
REFERENCES

Askari, H., Iqbal, Z., & Mirakhor, A. (2014). Introduction to Islamic Economics:

Theory and Application (first edition). Wiley.

Budisantoso, T., & Sigit Triandaru. (2006). Banks and Other Financial Institutions.

Jakarta: Four Salemba.

Fahmi, I. (2014). Banks and Other Financial Institutions: Theory and Applications.

Taken from https://openlibrary.telkomuniversity.ac.id/pustaka/98909/bank-

lembaga-keuangan-lainnya-teori-dan-aplikasi.html

DSN-MUI Fatwa No. 80 / DSN-MUI / III / 2011 on the Application of Sharia in

Equity Securities Trading Mechanism in the Regular Stock Exchange. (2011).

Yoyo. (2017). Invests law and Islamic Capital Markets. Bandung: Mitra Syariah

Indonesia.

Septa Yussi Prasetia. (2017). Implementation of Islamic Capital Market Regulation In

Sharia Online Trading System (sots). al-tijary journal, Vol 02.

Zamir Iqbal and Abbas Mirakhor. (2011). An Introduction to Islamic Finance: Theory

and Practice. Singapore: John Wiley and Sons.