Economical rights versus God’s rights: criticising of the implementation Shariah economic in Indonesia

Abstract

Purpose

This study aims to evaluate the impact of Law No. 11 of 2018 on Islamic Financial Institutions in Aceh, Indonesia. It also aims to understand the balance between the economic rights of individuals under Shariah law and the broader concept of God’s rights, as interpreted by this legislation. In addition, the research argues that the implementation of Law No. 11 of 2018 is untimely, with a focus on examining its influence on the cumulative abnormal return (CAR) of Shariah banks and its slight contribution to the direct economic impact.

Design/methodology/approach

This study adopts a mixed-methods approach that integrates qualitative and quantitative analyses. The qualitative aspect uses a black-letter law approach for legislative scrutiny, whereas the quantitative aspect assesses economic indicators and firm performance using an event study analysis. The study also includes a two-tailed assessment to test hypotheses related to the law’s direct impact on institutional performance.

Findings

The study reveals that Law No. 11 of 2018 had minimal impact on national-scale corporate performance and a notable increase in poverty indices in Aceh, indicating a potential misalignment between the law’s intention and its economic consequences. The results also show the law’s ineffectiveness in significantly influencing the CAR of Islamic banks, highlighting a clash of norms and a lack of substantial economic substance in the implementation of Shariah compliance.

Research limitations/implications

This research is geographically and legally focused on Aceh, Indonesia, with a short-term analysis that may not fully capture the long-term impacts. It primarily considers the stock price performance of specific institutions for quantitative analysis and identifies potential clashes and disharmony-in-law implementation from a qualitative perspective.

Practical implications

The findings suggest the need for legal frameworks that better comply Shariah principles with economic realities. Regional governments should consider modifying policies to balance religious values and economic objectives.

Social implications

This research highlights the importance of balancing religious obligations with economic rights, indicating that strict interpretations of religious law can lead to adverse socioeconomic effects.

Originality/value

This study is unique in its comprehensive analysis of the convergence between religious law and economic rights, offering insights into the challenges faced in implementing Shariah-based economic policies in diverse economies, such as Indonesia.