This article is a theoretical article that attempts to clarify the inherent meanings of the concepts of profit and interest, i.e. two important concepts in finance, particularly Islamic Finance. These are age-old concepts in economics that still draw confusion among people. Profit comes from trade and interest comes from lending and borrowing activities. While the former is much encouraged in Islam, the latter is strongly forbidden. Nonetheless, in today’s monetary and financial circumstances, the market interest rate is being used as a benchmark for the Islamic profit rate, drawing criticisms from many quarters that both are indeed one and the same. Using the fundamental economic concept of marginal utility, this paper attempts to clarify the fundamental difference in these two concepts and their implications for modern finance, particularly Islamic finance. Indirectly in the process, the paper also clarifies the concepts of money and riba.

Islamic banking has achieved remarkable growth that has surpassed the growth of the conventional banking system. Yet, studies show that the performances of Islamic banks (IBs) seem to be trailing behind the conventional banks (CBs). Is the poor performance of IBs the result of mismatch between their objectives and their performance measurement criteria or it is a reflection of their true performances? The objectives of Islamic banking had not been formally addressed. Mustafa and Taib (2009) derived the objectives of Islamic banking from Abu Zahara’s theory of the objectives of Shari’ah (Maqasid al-Shari’ah) and, based on these Shari’ah objectives, developed a model of Islamic banking performance measures. They named it as Performance Measures based on Maqasid al-Shari’ah framework or the PMMS model. This paper has tested the PMMS model on a sample 24 banks (12 IBs and 12 CBs). The twenty four banks were also evaluated using the traditional conventional financial measures. Mann-Whitney U-Test results show IBs faring well in their performances when measured using the PMMS model than when they are measured using the conventional banking performance yardstick. Policy prescriptions and recommendations for further studies are provided at the concluding section of the paper.

The action of one person will affect the others and then the action of one country will affect other countries. Financial crisis is like a contagious disease, which spreads everywhere. The failure in capturing systemic risk is the interconnected market events (’network externalities’) can produce self-reinforcing cycles then create the harmful situation. What happened in the banking regulation particularly Basel II? In reality, Basel II did not work completely in 2008. Since the implementation of risk management based on Basel II has been a prerequisite for a bank, it is supposed to make a positive impact. Misplaced reliance on mathematical model and statistics in managing risk could one of the problems in the decision making process. Using system thinking, system dynamics paradigm and theory of feedback system, this paper tries to see the risk management from different perspective and to enrich the understanding of how financial systems work: what drives them and causes the behavior. Many lessons can be learnt from this financial contagion since Islamic banking and finance system has inevitably been a part of the international financial systems.

Indonesian Islamic banking market share projected by Bank Indonesia is an integral part in developing the industry in the country. By setting a projection which will then be used as a benchmark / target, Islamic banks can make a necessary program to attract new customers which eventually increase its asset. If the increase of the asset is significant,the Islamic bank market share may increase. The problem is that the current projection by Bank Indonesia seems to be off target. It means that the projection is pretty much above the actual value. This paper attempts to utilize two projection methods namely Spline and Auto-ARIMA which we think can provide a better result. This study uses the monthly data covering period since January 2006 until December 2012. The result shows that our projections, especially using Spline method, are closer to the actual value of the Islamic banking industry market share. It means that the gap between the projection and the actual value of market share is lesser than the gap on the Bank Indonesia calculation. Moreover, this study argue that, the projection of the Islamic banking market share made by BI will not be achieved unless with government support. So far, government has not made any policy which deposit some of the national budget in the Islamic bank. This study calculates that if government regularly depositing 1% of total National Government Budget in Islamic banks, the projection of Islamic banking market share made by BI will be acheived. As a conclusion, the role of government is very significant in developing the Islamic banking industry in Indonesia.