The Legal Reform on Dispute Resolution Mechanism in Islamic Banking and Finance in Indonesia: Issues and Challenges

Nearly fifteen years after the establishment of the first Islamic bank Indonesia, a new law was introduced in 2006 that in effect empowers the Religious Court in the country to oversee, hear and decide on disputes relating to matters of Islamic finance and Islamic economics. In its way to the enactment, the Parliament preferred the word ‘Islamic economics’ than the word ‘Islamic banking’ which was initially put in the draft law. This law (which amends the older 1989 Act on the Religious Court) has resulted in two things: first, depriving the power of conventional courts over disputes relating to Islamic economics activities and, secondly, expanding the jurisdiction of a considerably inferior Religious Court that was restricted on areas of Muslim matrimonial and personal property matters. While many applauded the passing of this new law, the Law No. 3 of 2006 may have at the same time raised the eye-brows of many in the industry and campuses. When Islamic banking professionals and schol