The Legality of Sharia Financing in Indonesia: The Roles of OJK and DSN-MUI

As more sharia financing products are offered to the public, it becomes increasingly important for business owners to confirm that the product they're using is genuinely legal, rather than simply claiming to follow sharia principles. Unfortunately, not every product carrying a "sharia" label automatically meets the legality standards that apply in Indonesia.

Understanding what makes sharia financing legal, and which parties have the authority to determine that, is an important step before deciding to use a particular financing product.

Two Elements That Establish the Legality of Sharia Financing

The legality of sharia financing in Indonesia rests on two complementary elements. The first is business legality, meaning an official license from the Financial Services Authority (OJK) that shows the financing provider is supervised and meets applicable financial management standards. The second is sharia legality, meaning a compliance fatwa from the National Sharia Board–Indonesian Ulema Council (DSN-MUI) confirming the product has been reviewed and declared consistent with sharia principles.

A sharia financing product can only be considered fully legal once it satisfies both elements at the same time. A product that only holds a business license without a DSN-MUI fatwa isn't necessarily sharia-compliant, while a product that claims to be sharia-compliant without an official OJK license risks lacking adequate legal protection for its users.

OJK's Role in the Legality of Sharia Financing

OJK acts as the authority that grants a business license to a sharia financial institution before its products can be offered to the public. Beyond issuing licenses, OJK also publishes various OJK Regulations (POJK) that serve as the technical legal umbrella for sharia financing products and activities, such as POJK No. 24/POJK.03/2015 on Sharia Bank and Sharia Business Unit Products and Activities.

Beyond issuing licenses and regulations, OJK also carries out ongoing supervision of an institution's financial health and governance, so an institution's legality isn't a permanent status obtained just once, but something continuously monitored for as long as the institution operates.

DSN-MUI's Role in the Legality of Sharia Financing

Where OJK ensures legality from the business and institutional side, DSN-MUI ensures legality from the sharia compliance side. Every sharia financing product, from murabahah, mudharabah, and musyarakah contracts to ijarah, needs to reference a relevant DSN-MUI fatwa as the basis for its sharia compliance.

That fatwa is then translated into an institution's day-to-day operations through the Sharia Supervisory Board (DPS), a body that must be established at every sharia financial institution to ensure products and daily transactions genuinely comply with the applicable fatwa, not just on paper.

How to Verify a Product's Legality

For business owners who want to confirm the legality of a sharia financing product before using it, there are a few simple steps worth taking. First, check whether the provider is registered and supervised by OJK through OJK's official channels. Second, confirm the product being offered names a clear contract and references a specific DSN-MUI fatwa number. Third, check for the presence of a Sharia Supervisory Board in the institution's public reports, which are typically accessible through its annual report or official website.

These three steps are relatively simple, but effective enough to distinguish a product genuinely grounded in law and sharia principles from one that only uses the term "sharia" as a marketing hook.

The Risk of Using a Product with Unclear Legality

Using a sharia financing product without verifying its legality can create a few risks. From a legal standpoint, a user may not receive the protection they'd otherwise be entitled to if a dispute arises, since the provider isn't under official supervision. From a sharia standpoint, there's a chance the product isn't actually free of riba, gharar, or maysir, even though it's marketed with a sharia label.

Ultimately, the legality of sharia financing in Indonesia is built on the collaboration of two authorities with distinct roles: OJK, which safeguards business legality and institutional health, and DSN-MUI, which safeguards sharia compliance. Understanding both roles helps business owners make funding decisions that are safer, both legally and in terms of the principles they hold.