- The National Ulema Council of Indonesia, the world’s largest Muslim-majority country, has declared that cryptocurrency is incompatible with Islamic Finance
- The ruling doesn’t make crypto illegal in Indonesia, where there’s an enthusiastic retail market and institutional investment to improve efficiency or remittances, but it might deter some Muslims
Indonesia’s national religious council has declared cryptocurrency to be haram, or forbidden to be used by Muslims, as it is incompatible with Islamic Finance, according to a statement released Thursday. First reported by Bloomberg, the National Ulema Council of Indonesia, or MUI, has declared that cryptocurrency’s speculative nature is to blame.
Asrorun Ni’am Sholeh, head of religious decrees, said that cryptocurrency has “elements of uncertainty, wagering and harm” and therefore is forbidden to be used by Muslims.
Islamic Finance has strict prohibitions against certain types of financial instruments that are otherwise normal in other markets. The two pillars of prohibition are based upon the avoidance of riba (usury) and gharar (deception). For example, interest is heavily regulated; institutions that loan also need to be prepared to bear some of the losses of the borrower should their enterprise go south. Certain types of insurance are also prohibited, as are derivative products.
It should be noted that the decisions coming from the MUI are not legally binding — officially Indonesia is a state where religious pluralism is enshrined in law — but they may deter Muslims in the country from investing in crypto. There’s also some considerable debate on the topic.
“A comprehensive Islamic interpretation, one that sparked a massive rise in Muslim investment in Bitcoin and Ethereum in 2018, was provided by Sharia advisor Mufti Muhammad Abu-Bakar (former advisor to Blossom Finance) who argued that Bitcoin is permissible under Shariah law,” wrote UK-based Islamic equity crowdfunding platform Qardus earlier this year. “He considered arguments that crypto itself was speculative, but his view was that all currencies have a speculative element and this did not automatically deem crypto as haram.”
Officially, the Indonesian government is quite supportive of the development of digital assets and blockchain technology.
The Rupiah Token, a stablecoin backed by the country’s local currency, the Indonesian Rupiah, has been given a regulatory green light. As Blockworks previously reported, major Indonesian banks are working on reducing friction and costs for the billions of remittances the country’s migrant workers send back every month. BRI Ventures, a subsidiary of Bank Rakyat Indonesia, is an active investor in Ripple’s xCurrent and is working with Singapore-based FinTech Nium to develop an API that can be deployed to the nation’s smaller, regional banks.
PT Bank Negara Indonesia, a state-backed bank, has been working with J.P. Morgan on Confirm, a blockchain-based tool to expedite wire transfers, and has deployed it on a payment corridor between Taiwan — where 250,000 Indonesian migrant workers reside — and Indonesia.
MUI did not respond to Blockworks’ press queries about the compatibility of stablecoins and DeFi with Islamic Finance by the time of publication.
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