Indonesia’s top clerical body has declared that cryptocurrencies are forbidden under sharia law, alarming millions of crypto investors in the world’s largest Muslim population. Putro Harnowo reports

Cryptocurrencies have been catching on quickly around the world, and Indonesia has been no exception. According to data from the Ministry of Trade, crypto trading is booming in the country, with daily transactions in July 2021 reaching IDR2.3 trillion (USD161.7 million). All it needs to get started is a smartphone, an internet connection and a localised crypto trading app.

In November, the trend was set to change as the Indonesian Ulema Council, a top body of religious clerics, ruled that cryptocurrencies are haram (forbidden) due to their uncertainty and capacity for potential harm.

Although it is not the first time the council has issued a controversial fatwa (a ruling on a point of Islamic law by a recognised authority), the ruling raises an alert for the more than 235 million Muslim population in the country.

Those unfamiliar with Islamic finance principles may not be surprised to learn that, as per any doctrine based on religious thought, certain morals are involved, a little like socially responsible investing that has become popular in the West for those not absorbed completely in personal gain.

The World Bank describes Islamic finance as “equity-based, asset-backed, ethical, sustainable, and environmentally and socially responsible”, adding it espouses these key principles: (1) prohibition of interest on transactions (riba); (2) financing must be linked to real assets (materiality); (3) engagement in immoral or ethically problematic businesses is not allowed (e.g. arms manufacturing, gambling or alcohol production); and (4) returns must be linked to risks.

In addition, each jurisdiction that adopts Islamic finance will have different interpretations.

“Before assessing the impact of the fatwa from the Ulema Council, we note that Indonesia’s legal system is based on legal pluralism, in which multiple legal systems are recognised including civil law, traditional or adat (local customary) law, and Islamic sharia law,” says Denny Rahmansyah, partner at SSEK Legal Consultants in Jakarta and an Islamic law specialist.

“Typically, fatwas can be seen as positive law, but they are not always legally binding on all individuals, so there is no legal obligation to abide by issued fatwas.”

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.