Sharia Compliance in Sharia Mutual Funds: A Qualitative Approach

Abstract

Purpose: This study aims to describe the elements of Sharia compliance found in Sharia mutual funds, according to the fatwa of the National Sharia Board or Dewan Syariah Nasional (DSN)the Indonesian Ulema Council or Majelis Ulama Indonesia (MUI) and some regulations which were issued by the Financial Services Authority or Otoritas Jasa Keuangan (OJK) in Indonesia. Design/Methodology/Approach: This study applied a qualitative approach using documentary and secondary data including fatwa and regulations which are needed to explore the Sharia compliance of Sharia mutual funds. This study highlighted and identified the elements of Sharia compliance using a hierarchy map. Findings: This study shows that Sharia mutual funds are Sharia compliant since they are obey Islamic principle including non-interest transaction, offering the halal product, no uncertainty (gharar) and no element of gambling. The OJK's regulation and fatwa from the DSN-MUI emphasised other Islamic principles, including the prohibition of margin trading, short selling, and insider trading in Sharia mutual fund investments. They permit to payment of compensation (ujrah) for the service which are provided by the investment managers. Practical Implications: This study notes that economic activities (mu'amalah) should be conducted based on Islamic law. Due to the limited number of Islamic banks that being permitted to act as custodian banks in Indonesia, the mu'amalah of the Sharia mutual funds is conducted through conventional banks. This finding means the policymakers need to create more Islamic custodian banks for Sharia mutual fund investments. Originality/Value: The study has a contribution in identifying the elements of Sharia compliance in Sharia mutual funds in Indonesia.

Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

“…19/POJK.04/2015. According to the POJK, investment in Sharia mutual funds must meet the attributes of Sharia law as explained by Widyastuti et al (2020) such as that it does not contain gambling, usury, gharar or uncertainty and that the offered products are halal. Based on the POJK, the instruments used to measure market discipline had the following point: I am attracting Sharia mutual fund investments because the products offered by the investment managers contain an element of uncertainty.…”

Shariah Stocks, Sukuk, and Shariah Mutual Funds on the Economic Growth of Indonesia: The Role of Exchange Rate

“…Shariah stocks represent ownership in companies adhering to Shariah principles, while sukuk are valid documents representing equity participation or debt ownership of long-term assets (Ahmed et al, 2018). Shariah mutual funds serve as investment vehicles following Shariah principles (Al Rahahleh & Bhatti, 2022; Widyastuti et al, 2020). The exchange rate indicates the value of domestic currency needed to obtain foreign currency, varying across different currencies (Mirchandani, 2013).…”

Sharia Financial Institutions Compliance Towards Islamic Principles in Performing Intermediation Functions

“…As an intermediary institution, IFIs has several characteristics. First, IFIs must be able to improve the economic welfare of the community through real sector financing activities that provide broad employment opportunities for the community; thus the rate of economic growth will grow optimally (Widyastuti et al, 2020). IFIs must pay attention to the concept of economic welfare in the Islamic economic system, not to the high growth rate.…”

“…The various systems of obtaining these benefits result in the various contracts performed by each IFIs, and customers have many options in choosing transaction contracts that are appropriate to the needs and goals of the IFIs's customers. Customers who want their funds to be stored safely and not exposed to any risk are offered savings products shaped like clearing accounts or deposits based on the wadī'ah principle (deposit of assets by a customer with an IFIs) (Widyastuti et al, 2020). Meanwhile, if the customer wants his funds to be saved to pursue economic benefits, then a savings product is offered to him based on the profit-sharing principle ('aqd almuḍārabah) (Miah & Suzuki, 2020).…”

“…The presence of IFIs has actually existed since 1991 (Kristianti, 2020). However, its presence is formally marked by the stipulation of a dual banking system in Indonesia through Law Number 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning Banking (Widyastuti et al, 2020). During this period, the practice of financial contracts in IFIs was widely questioned by the public regarding their halalness.…”