Rate of Profit as a Benchmark to Create Islamic Financial Stability

At the micro level, nowadays Islamic Banks in the financial center around the world are still using the LIBOR (London Inter-Bank Offered Rates) which is the average lending rates of the largest banks in London as a benchmark in quoting rate of profit as a replacement of rate of interest to their products. The application of the rate of profit concept is often facing a problem because there is no yardstick (benchmark) in determining the profit margin. In this book, the author develop an analytical case for the inherent Islamic Financial System stability based on the rate of profit concept on sale based, equity financing and risk sharing of Islamic Banking Product. At the macro level, the application of the rate of profit concept for example can be seen in central bank policy in countries that have implemented Islamic economic system either the dual banking system or Full Islamic economic system (single economic system). The differences in the use of monetary instruments are due to the differing views on the effectiveness of monetary policy to regulate the money supply. Instruments with a predetermined rate of profit are considered more effective in attracting money in circulation.

DR. T. SUPRIYANTO received his Doctor inIslamic Economic and Finance Study from Islamic StateUniversity of Syarif Hidayatullah Jakarta, Indonesia in2015. He has extensive experience with Banking, joinedBank of America as a Vice President in 1996, includingIslamic Banking until his retirement in 2007 as a SeniorVice President of Bank Danamon Islamic Division in Indonesia.