Issues in negotiable certificate of deposit (NCD) Shariah of Islamic bank: a case study from Indonesian Islamic banks

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The development of Islamic banking industry in Indonesia has experienced a significant growth. The new instrument of Negotiable Certificate Deposit Shariah has been launched in the last 4 years. It is expected to increase the market share and liquidity for Islamic banking. However, market demand of this instrument by Islamic banks has not been encouraging. This study investigates reasons for the poor use of Negotiable Certificate Deposits (NCD) Shariah by Islamic banking institutions in Indonesia although the product is deemed permissible from a fatwa issued by the National Shariah Board of Indonesia. This study also seeks to examine the common feature of Negotiable Certificate Deposit (NCD) Shariah in Indonesia as well the trends of Negotiable Certificate Deposit (NCD) Shariah in recent years. Qualitative methods using semi structured interview is employed to meet the objective of the study. The respondents of this research are selected from Islamic banking practitioners and regulatory officers in Indonesia to identify issues on NCD Shariah. The finding of this study confirmed that the demand of the NCD Shariah product has been adversely affected by several issues such as operational, regulatory and Shariah compliant issues. On the operational issues, it was found that tradability, risk and return, high cost of the product, less active Islamic money market as well as the lack of financial literacy are the main problems that caused the low demand for the product. On the regulatory issues, less efficient regulation on the issuance and tradability of the product was the main concern for Islamic banks to offer this instrument. On the Shariah issues, the mudarabah contract with underlying project to secure Shariah compliance possess great challenge to Islamic banks. NCD Shariah is said to be based of mudarabah which is an equity contract but it is still a deposit fund such that bank must hold capital against asset funded based on the alpha factor. In this way, the application of mudarabah contract to solve liquidity issue is still not settled. Therefore, some alternatives arrangements are needed to address these issues such as reducing the risk-weights of assets funded by NCD Shariah.
Negotiable certificate deposit (NCD) Shari'ah , Islamic banks , Indonesia , Project paper (MSc) , Islamic banking
Umam, F. N. (2021). Issues in negotiable certificate of deposit (NCD) Shariah of Islamic bank: a case study from Indonesian Islamic banks (Master dissertation). INCEIF, Kuala Lumpur. Retrieved from

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