Abstract
Indonesia
has good experience in spreading the participation mode of finance. Based on OJK statistic (April 2015), the
share of Musyarakah and Mudarabah is 33.28% of the total financing. The big
total financing has triggered a question whether its revenue sharing mode, net
revenue sharing that applied is aligned with sharia principle. To answer this,
the current practice in Indonesia is shown. Furthermore, it is complimented by sharia
issue analysis. As the result
of the analysis, some recommendations are drawn.
Keywords: Revenue Sharing, net Revenue Sharing, Profit and Loss Sharin
(Musyarakah), Profit and Loss Bearing(Mudharabah)
1.
Introduction
One of the main challenges that face Islamic finance
currently is to implement Mudharabah and Musyarakah concept to
customers, banks, and entrepreneur. Most scholar view that this aqad promote
socio-economic objective because of risk sharing, co-operation, mutual
assistance would reflect the principle of profit-loss sharing (PLS).
Indonesia has good experience in
spreading the participation mode of finance. Based on OJK statistic (April 2015), the share
of Musyarakah and Mudarabah is 33.28% of the total financing. However, the application of Mudarabah dan Musyarakah
is quite unique in Indonesia. It’s not really the same with the PLS/profit and
loss sharing (Musyarakah) or profit sharing and loss bearing (Mudarabah)
as in AAOFI Sharia Standar and IFSB concept.
In Indonesia, Fatwa MUI
15/DSN-MUI/IX/2000 (National Sharia Board) provides two model: revenue sharing and
profit sharing mode. With the consideration of maslahah, MUI also
recommend institution to apply revenue sharing. As a result, all of bank in
Indonesia prefer to use revenue sharing which it yield is based on the
customer’s sales (revenue or net revenue) and not based on the customer’s profit.
Indonesia practitioner view this mode minimizes the issue of high risk in general and multi-faceted business in
particular that associated with participation mode financing contract. Thus OJK charge the risk weighted average (RWA)
for this revenue sharing aqd same as other exposures (0%-100%) because there is no pure risk in the capital.
However this way seems to contradict the
stance of Shariah from few of aspect. Mudharabah and Musyarakah is based-contract; the entrepreneur holds
the capital provider’s fund under the principle of trustworthy, commitment and professionality. Using revenue sharing (not profit loss
sharing and profit and loss bearing) which may contradict the essence of both contract.
In this paper, I will try to cover the operation Mudharabah and Musyarakah in Indonesia, sharia issue in their
application, and concluded by my opinion and recomendation regarding the use of revenue sharing concept.
2.
Operation of Revenue Sharing and Net
Revenue Sharing-Mode in Indonesia
2.1
Sharia Rule in Indonesia: Fatwa MUI
15/DSN-MUI/IX/2000
Revenue Sharing and Net Revenue Sharing, conceptually, is well
known in Indonesia participation-mode.
National Sharia Board (DSN) states that it is permissible to use revenue
sharing (net revenue sharing) and profit sharing method in sharing the return of participation
mode contract. With the consideration of maslahah, it is better to apply
revenue sharing mode (Fatwa MUI 15/DSN-MUI/IX/2000).
The basis for stating revenue sharing is
based on Syafi view that said mudharib cannot use maal (capital)
as expense because he/she already get gain from the managing fund of shahibul
maal. On the other hand, the basis for profit and loss sharing is
based on Abu Hanifah, Malik, dan Zaidiyah’s view that mudharib can use mudhrabah
fund for water expenses, food, clothes, and others. But it is limited to
recognized expenses only and should not be over budgeted.
2.2 Industry Practice
Diagram 1. The Return of Musyarakah and Mudharabah Financing
Source: Writer’s data (*not include islamic windows)
Currently, the playing market in Musyarakah
and Mudharabah is only: Bank Muamalat Indonesia (BMI), Bank Syariah
Mandiri (BSM), BCA Syariah, Panin Bank. Mostly, they offer maximum 1 year-term
(short term financing). From the below figure, it shows those player has gained
more return from Mudharabah, murabahah, Musyarakah
respectively. However the main player that dominates almost 30% market (BSM and
Muamalat) offer the revenue sharing instead of profit loss sharing based.
Table 1: Main Player in Musyarakah and Mudharabah
Financing
|
Islamic Bank
|
Aqad
|
Calculation
method
|
|
BSM
|
Working Capital Financing
|
revenue sharing principle (; related info is from research
|
|
Muamalat
|
Working Capital, Home
financing
|
revenue sharing(not stated on website; related info is from
research Wahyudi (2014) and Rizqiyah,
2014)
|
|
BCA
|
Working Capital Financing
|
Profit and loss sharing (Mudharabah
and Musyarakah) working capital
|
|
Panin
|
Home Financing
|
Musyarakah Mutanaqisah
|
Source: Writer’s compilation data from related Islamic bank
website and published research
Several reasons from industry to choose
revenue sharing method instead of profit loss sharing based are:
1) Most of expense is difficult to be verified.
2) The calculation approach is simpler because bank does not need an expert
staff to control the expense.
3) The depositor still does not want to bear or share the loss. If bank
should bear/share the loss, it will affect the depositor side.
However, from the illustration of table 2, it can be shown when bank
using revenue sharing, bank shall not bear the loss although in the reality
during the partnership period, mudharib got loss. Bank only shall get
loss only when the business is liquidated and the asset value less than the entrepreneur
liability. By using this method, banks implicitly try to guarantee 100% their
investment. The worst scenario is only getting zero gain.
Table 2: Illustration
of Calculation of Revenue Sharing, Net
Revenue Sharing, PLS
|
Account
|
Example 1
(cost
|
Example 2
(cost>revenue)
Customer revenue (sales)
1000
1000
COGS
(200)
(100)
Net revenue
900
900
customer cost
1000
customer profit (loss)
(100)
Revenue Sharing will be based on
1000
1000
Net Revenue Sharing will be based on
900
900
PLS will be based on
700
(100)
Source: Writer analysis based on study
case on published paper
Figure 1 shows that bank may have a policy to absorb the total loss happened
at the end of contract. In that case, bank may still gain the profit whereas
the customer may get zero.
Figure 1: Illustration
of Calculation of Net Revenue Sharing on Mudharabah (Bank and Customer)
|
At the beginning
30:70
|
|
At the end
|
|
Montly payment
(example: total revenue 1000)
|
Because
the implicit ‘guaranteed-principal` in this Musyarakah and Mudharabah,
The Risk Weighted Average(RWA) for Mudharabah and Musyarakah (based
revenue sharing) is lower than proposed IFSB and BASEL. IFSB 15
proposed RWA (Risk Weighted Asset for Mudharabah (profit and
loss bearing) and musyarkah aqd (profit and loss sharing)/participation mode
financing as 300-400%. However, in Indonesia, OJK (regulator) set RWA for
PLS is 150%. If they use revenue sharing, the RWA is like other debt-financing
mode as 0-100% (based on rating institution). It is clear that in Indonesia, Mudharabah
and Musyarakah mode financing is not like equity financing; but
debt-financing
Table 3: Risk Weighted Asset for Mudharabah
and Musyarakah
|
|
Mudharabah and Musyarakah
|
Using under
subcontract
|
|
IFSB
|
300-400%
|
100% or less (based on rating)
|
|
Indonesia(OJK)
|
150% : profit and loss sharing
100% or less (based on rating): revenue sharing
|
100% or less (based on rating)
|
Source:
IFSB 15 and SEBI (Letter Bank of Indonesia)
3.
Sharia Issue Related to Current Operation
in Indonesia
The biggest issue in revenue sharing mode in
Indonesia is the absent of the essential nature of trust, commitment, professional,
taking risk, profit and loss sharing and bearing which is undivided part from
musyarakah and mudharabah financing.
3.1
Trust is a Key Element on Musyarakah
and Mudharabah Contract: Authorization of Agency
In Mudarabah, the capital provider (rabbul
mal) agrees to make over their funds to the fund manager or entrepreneur (mudarib)
for investment purpose and in Musyarakah the partners are agree to join
their funds. Authorization of agency (tawkil) is the main element; the
entrepreneur acts on behalf of the capital provider and each partner is
authorised to act as an agent for other when they personally conduct
transaction for Musyarakah venture (ISRA, 2013).
The application of revenue sharing likely may show
that bank cannot trust the entrepreneur as bank’s agent.
3.2
How This Mode Works: Professional
Business Partner
Said (2015) said that partnership is one of the main
transactions in all societies since the advent of Islam. In companions’ era, it is not only based on trust, but
also the commitment and professional based. All partners already knew the skill
of entrepreneur. In this modern form of corporations, this commitment and
professionality can be managed by imposing the procedural system relating to
representation of partnership companies and bureaucratic, administrative and
accounting procedures. As stated in AAOFI, this is an essential way to attempt maslaha
(public good), and an acceptable source for validating human actions provided
and moreover it is employed in line with the principles of Sharia.
The reason of revenue sharing used because of difficulty
to verifying the expense and the simplicity on calculation may lose this
professionality-essence in both contracts.
3.3
Facing Risk: The Essential Nature, but It
Comes After The Existence of Trust, Commitment, and Professionality.
The element of facing risk is crucial to
the capital provider’s entitlement to profit in both Mudharabah and Musyarakah.
Therefore the risk that accompanies investment is an essential aspect of both
contracts. It is permissible, to stipulate certain condition to mitigate the
risk, however, not to make the entrepreneur liable in the event of loss.
The evidence of widespread dishonesty in the society cannot also be used as an
excuse (ISRA, 2015). Because of that the trust, commitment, and
professional-based is come up first before all risks.
The application of revenue sharing may
likely stipulate certain condition to mitigate the risk, by making the entrepreneur liable for cost
and expenses that may higher the revenue.
3.4
Sharia Rule and Requirement Relating
To Profit and Loss
Profit
The fundamental principle, under both
contracts, is profits are shared at a predetermined ratio and it should be
dependent on actual profit realized by enterprise. As result, it is
impermissible if both of them stipulated that one of them shall certain ratio
and also certain amount (al-Kasani, 2000)[1]. The basis for earning a share of profit
in Sharika is the required capital contribution of all parties, whether in the
form of cash, commodities, services, or liability in the case of reputation
partnership and that the subject of the contract is based on single element,
i.e capital. The basis for earning a profit in a Mudharabah, on the
other hand, comes from two elements. The first element is the existence of
capital that is subject to, and similar to, the condition of Sharika capital.
The second element is the work done by the mudharib that is different
from the capital of the venture (AAOFI, 2010)
Loss
In common practices, loss shall be beared
100% by rabb mall while the mudharib just loss his effort (al-Kasani,
2000). The contemporary scholar view such losses are limited only not due to
the mudarib’s misconduct (ta`addi), negligence (taqsir) or breach
of specified terms (mukhalafah al-shurut). It is clear that basicly the mudharib
loss is restricted to his labour which has gone in vain without bringing any
fruit to him. On the other hand, all
scholar view that all partner in musyarakah should bear the loss in proportion to
their capital contribution (al-Kasani, 2000).
Examine the Revenue Sharing Model Using AAOFI Sharia Standard
AAOFI stated the way to allocate of
profit between partners as below:
AAOFI 31/5/6 It
is not permitted to start allocation of profit between partners unless
the operating cost, expenses, and taxes are deducted in calculating the profit and the capital of Sharika is maintained
intact (AAOFI Sharia Standard No 12 Musyarakah)
The basis for not allowing final
distribution of profit before deduction of expenses and expenditure is that
there is no profit unless the capital is maintained inact
AAOFI 8/7 No profit can be recognised or
claimed unless the capital of the Mudharaba is maintained intact. Whenever a
Mudharaba operation incurs losses such losses stand to be compensated by the
profits of future operations of the Mudharaba. The losses brought forward
should be set against the future profits. All in all, the distribution of
profit depends on the final result of the operations at the time of liquidation;
the balance (net loss) must be deducted from the capital. In this case, as he
is a trustee the mudharaib is not liable for the amount of this loss, unless
there is negligence or misconduct on his part. If the total
Mudharaba expenses are equal to the total Mudharaba revenues, the capital
provider will receive his capital back without either profit or loss, and there will be no profit in which mudharib
is entitled to a share. If profit is realised, it must be distributed between
the parrties as per the agreement. Intact (AAOFI Sharia Standard No 13 Mudharaba)
The basis for stating that profit is not
realised unless the capital is recovered or maintained intact is the hadith in
which the Prophet(pbuh) said: The instance of a Musali ( a person who
performs solat) is that of a businessperson who will not secure profit unless the capital is secured.
Likewisse, a superegoratory solat (prayer) is not acceptable unless the
obligatory sholat is performed (The hadith is reported by AlBayhaqi in his sunan
and was narrated by Ali bin Abi Thalib). This hadist shows that distribution of
profit prior to recovery of the capital, or unless the capital is maintained
intact, is invalid. Moreover, profit is an addition to the capital and such an addition
cannot be recognised or realised unless the capital that is the source of the
profit is maintained.
Revenue Sharing is not well known in AAOFI
term. In my view, although it is not stated, Revenue Sharing is clearly not
aligned with this shariah standard.
4.
The Preferred Application: A Recommendation
Two aspects have to be addressed to
come up with a correct and precise opinion. The two aspects are:
First: The source (Usuli)
issue with regard to taking revenue sharing for Musyarakah and Mudharabah
contract.
1.
The first is the lack of explicit evidence from Qur;an and Sunnah,
or from the general principles derived from
them, prohibiting revenue sharing mode.
2.
Hadits: “It should not harm itself and
other self.
3.
The Basic shariah principle of muamalah says
that all forms of muamalah are permissible, as long as there is no dalil that
prohibits”. and: “Where there is maslahah, there is Allah’s law.”
Second: The practical approach to
scenario of revenue sharing mode, and each of them having its own situation and
consequences
1. The first scenario is when business completely unsecured and the mentality
of customer when come to the bank is to apply for loan and not seeking to
conduct a business with bank, and they cannot prove their professionality. In
this situation, the bank is allowed to apply Revenue Sharing and Net Revenue
Sharing, for the temporary model on participation mode to understand the
business and industry. It is not wise to provide Musyarakah or Mudharabah
financing otherwise bank assure the quality and professionalism of businessman
and bank capability to have a controlling mechanism to visit and check the
partner (in the period of partnership agreement).
However, Bank should take into
consideration the condition of entrepreneur if in the case bank find this mode
harm entrepreneur.
2. The second scenario is when business is secured either by ‘trusted, commit,
and professional entrepreneur’. In this situation, accounting treatment and
budgeting tool should be used as alert to detect any fraud in expense. The rationale for such approach is professional
businessman will not due negligence in their expenses (recorded accounting)
because it will affect their reputation in environment business.
However, surely to achieve the second
scenario, there are several steps to do:
1. Central bank (OJK) should provide
the Partner Performance Track Record Centre Data for client using Musyarakah and
mudhrabah financing. It will record their profit and loss sharing data history. It will be alert if they are bad in
controlling the business.
In writer view, the need to protect people’s wealth
(hifz amwal alnas) in an environment in which greed (tama’) has become
widespread is major reason for allowing ‘Partner Performance Track Record`. It becomes circumstantial evidence and
customary practice to be treated as evidence in disputes arising from
trust-based contracts. In case the actual cost/expense which over the revenue
is detected ‘abnormal’ based on the data, the fiduciary party would be obliged
to offer evidence to explain why the shortfall is not his/her fault. The
central bank track record control this central data to prevent a trick (hilah) to consume riba or
does not transform the contract data into another kind of riba sensitive contras.
There is a need for further academic research and regulator initiatives
to prepare the possibility such tools and the partner (financing client)
comment regarding whether they are more cautious when they have to come up with
data/evidence, to support this recommendation
2. As part of efforts to promote greater regulatory alignment with sharia
principle, MUI and OJK (regulator) should mandate islamic bank to clearly apply
profit loss sharing based for certain client which already fulfilled
requirement ‘‘trusted, commit, professional on business’. The rationale for such approach is to
strengthen the focus on Sharia by segregating revenue sharing and PLS modes that
reflects the specificities of Sharia contract.
3. Islamic Bank in Indonesia should take an
opportunity from lower RWA in PLS system in Indonesia (just 150%; compared to
IFSB and Basel standard as 300-400%). This such incentives is trigger to
implement profit loss sharing in dual banking system country that does not come
twice.
However writers made
its preference with regards the application based on two above scenario,
writers consider that:
1.
Basicly any imposition of liability on the
entrepreneur in the Mudharabah contract transform the contract to a
debt-based contract, i.e conventional financing, murabahah financing. The first scenario is may lead to
this model. However, it is important to note that from the sharia
perspective, it has allowed both debt and equity modes of financing and there
is no indication showing that one is preferred over the other. It all depends on the need of the market to
determine which mode is to be utilised. Having said that, there are general
principles in the sharia which state that harm shall be prevented and if the
over usage of one mode might adversely affect the market or the society at
large, than certain control mechanisms must be put in place in order to prevent
the harm.
Moreover, current revenue sharing practice, at the moment, show there is no clear
indication showing that it definitely leads to harm. However, further studies
are needed to ascertain this fact. It is good to balance between the two as
each has its own role to play in the current financial system. If any shift is
to be proposed in order to balance them, it should be done gradually as the
drastic change might affect the market and the industry adversely.
2.
Introducing more PLS instruments in the
financial system will make both financial institutions and entrepreneurs
(borrowers) more responsible as they will assess the risks more carefully and
efficiently. As a result, this will bring about stability and justice in the
market.
This would be a system where the risk-sharing,
justice, fairness and stability would prevail. In the long-run, the real
investors would be better off, with the overall economy benefiting as well,
while the effects of unproductive speculation and gambling would be reduced.
4.
Conclusion
Fatwa MUI 15/DSN-MUI/IX/2000 in Indonesia permits
revenue sharing, net revenue sharing and profit loss sharing. Although MUI may argue that in period of companion
there is no evidence that what the approach that use ‘revenue sharing’ or
profit sharing, we should understand the essential nature of both this
contract. Applying net revenue sharing to calculate the profit is permissible.
But when that way do not consider any loss, it becomes the issue.
Pofit loss sharing its inherent nature is meant for
investment and the principles of Shariah support the notion of not capital
guarantee and sharing loss on such contract. The fundamental objective is
likely modest and higher return expected. Because the risky in nature
embeded in both contract, we understand that the Mudharabah and Musyarakah
contract only proper to be executed to trusted and professional entrepreneur. Should a bank have such capability, highlights the respective risk to bank
itself. It is now up to the Islamic Bank in Indonesia to create a mass supply
for real profit sharing. And is a lesson for other country to take first
step in increasing their Mudharabah and Musyarakah based on revenue
sharing before move to the profit-loss sharing in nature.
References
AOOFI (2010) Sharia Standar. Manama: AAOFI
Asmadi Mohamed Naim et.al (2013). Issues of
Taqsir, Ta’addi, Guarrantees and Managing Moral Hazard in Mudharabah and
Musyarakah Contract. ISRA Research Paper No 58/2013
Fatwa 15/DSN-MUI/IX/2000 : Prinsip
Distribusi Hasil Usaha Dalam Lembaga Keuangan Syariah
Fatwa No NO:
08/DSN-MUI/IV/2000 Musyarakah
IFSB 15: (December 2013) Revised Capital Adequacy Standard for
Institutions Offering Islamic Financial Services [Excluding Islamic Insurance
(Takāful)
Peraturan Bank Indonesia No 7/46/PBI/2000
Pedoman PAPSI 2013 ((Standard Accounting for Islamic Bank in Indonesia)
PSAK 105 (Standard Accounting in Indonesia): Musyarakah
PSAK 106(Standard Accounting in Indonesia): Mudharabah
Ario Wahyudi. (2013) Analisa Penerapan Bagi Hasil Pembiayaan Musyarakah
pada PT Bank Muamalat Indonesia Cabang Makassar. Universitas Hasanuddin.
Anan Dwi
Saputro, Moch. Dzulkirom. A.R. Sistem Perhitungan Bagi Hasil Pembiayaan Mudharabah
pada PT Bank Syariah Mandiri Jurnal Administrasi Bisnis (JAB). Vol. 21 No. 2
April 2014
Siti Fitri Rizqiyah. (2014) Analisis Penerapan PSAK No.
106 Terhadap Pembiayaan Musyarakah pada PT. Bank Muamalat Indonesia,
Tbk. Universitas Pamulang,
Said Bouheraoua. Sharia Rule in Islamic Finance Material. INCEIF lecture
class. Nov 2015
[1] ISRA Research
Paper (Issue of Taqsir, Ta’addi, Guarantees andd Managing Moral Hazard in
Mudharabah and Musyarkah Contract
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