A COMPARISON BETWEEN MALAYSIA AND INDONESIA IN ISLAMIC BANKING INDUSTRY

Abstract

Purpose- This paper aims to compare Malaysia and Indonesia in terms of current circumstances in the Islamic banking industry. This is very interesting because of several factors. Firstly these two countries are neighbors. Secondly, both countries have expressed their aspiration to be the center for the Islamic banking industry not only in the region but also in the world. Thirdly, both countries have significant differences in demographics and economic conditions. It is therefore very interesting to see which country is in a better position than other in the Islamic banking industry at present. This will help researchers to predict which country will achieve the target first if it occurs. Methodology- The comparison will focus on five selected items in Islamic banking institutions ie legal framework, court jurisdiction, capital growth, products offered and shariah governance. For legal frameworks, court jurisdiction and shariah governance analysis will be made on the basis of provisions in legislations and statutes in both countries. Comparison of the products offered will be analyzed based on the list of products and the amount involved. However, since profit sharing activities are regarded as a key feature of an Islamic banking system as argued by many authoritative scholars in this area, the involvement of Islamic banking institutions in profit sharing based products in both countries will be the main focus in the analysis. Capital growth is chosen because according to Sula (2011) the development of a bank, should be seen from the market share because the market share reflects the portion from the sale of industrial goods or services carried out by an industry. Prior to that, Shaffer (1993) reported that market share is important, because it reflects the performance associated with bank's competitive position in the banking industry. Findings- T he study shows that although both countries are making good progress in the Islamic banking industry, no country is far ahead of another. While Malaysia is ahead of Indonesia in some items, Indonesia is ahead of Malaysia in some other items.  Conclusion- This paper concludes that both countries have advantages and disadvantages of others in the Islamic banking industry. Hence both should overcome their weaknesses and continue to build from their strengths to make their aspirations a hub in the Islamic banking industry as a reality