Over the past decade, Islamic (sharia) finance has emerged for financing development worldwide. World bank notes that sharia finance has potentially helped address the challenges of ending extreme poverty and boosting shared prosperity. Sharia is equity based, asset backed, ethical, sustainable, environmentally and socially responsible finance. The following key principles guide sharia system are: prohibition of interest on transaction, financing must be linked to real assets, prohibition of “haram” business (such as alcohol and gambling), and return must be linked to risk.

We adopt sharia system in our financial ecosystem by establishing sharia cooperative as micro financial institution in every pesantren. This sharia cooperative called as Baitul Maal (BMT). We name our financial technology system as “Mobisaria”. As the biggest moslem country in the world, we believe sharia system will be success to be implemented to this ecosystem. Combining sharia system with modern high technology is good for moslem in Indonesia who majority are moderate, open minded and technology adaptor.

One of the main principles of the sharia system is the prohibition of the payment and the receipt of “riba” (interest) in a financial transaction. The key point to bear in mind is that Islamic law doesn’t recognize money and money instruments as a commodity but merely as a medium of exchange. Hence any return must be tied to an asset, or participation and risk-taking in a partnership.

Following are type of services in sharia system:

Murabaha – Trade with markup or cost-plus sale. The purchase of an asset is financed for a profit margin, with the asset purchased on behalf of client and resold at a pre-determined price. Payment could be in lump sum or in installments and ownership of the asset remains with bank till full payments are made.

Ijara – Operational or financial leasing contracts.  Bank purchases asset on behalf of client and allows usage of asset for a fixed rental payment. Ownership of the asset remains with the financier but may gradually transfer to the client who eventually becomes the owner (ijara wa iqtina).

Mudaraba – Trustee financing contract.  One party contributes capital while the other contributes effort or expertise. Profits are shared according to a predetermined ratio and the investor is not guaranteed a return and bears any financial loss.

Musharaka – Equity participation contract.  Different parties contribute capital and profits are shared according to a pre-determined ratio, not necessarily in relation to contributions, but losses are shared in proportion to capital contributions. The equity partners share and control how the investment is managed and each partner is liable for the actions of the others.

Sales contracts.  Deferred-payment sale (bay’ mu’ajjal) and deferred-delivery sale (bay’salam) contracts, in addition to spot sales, are used for conducting credit sales.  In a deferred-payment sale, delivery of the product is taken on the spot, but delivery of the payment is delayed for an agreed period.  Payment can be made in a lump sum or in installments, provided there is no extra charge for the delay.  A deferred-delivery sale is similar to a forward contract where delivery of the product is in the future in exchange for payment on the spot market.