ADPARA>The fifth World Islamic Economic Forum (WIEF) opening in Jakarta on Monday is indeed a great opportunity to convince investors and sovereign funds from the Middle East that Indonesia is quite an attractive place for both direct and portfolio investments, after the crumbling of the financial markets in the developed world.

The enactment last year of the laws on sukuk (Islamic bonds) and sharia banking is strengthening the legal foundation for Islamic financial services. On top of that, our rich natural resources provide greatly viable business opportunities for direct investments from the oil-rich countries in the Gulf which have a long-term horizon.

The global financial crisis has made Asia, notably Indonesia with the world's largest Muslim population, far more attractive to Middle Eastern investors than developed economies.

Indonesia, the largest economy in Southeast Asia, has the potential to become the largest indigenous Islamic financial market, and in particular the largest Islamic debt capital market, in the world.

The government's first issue of three-year retail Islamic bonds last month raised more than Rp 5.5 trillion (US$450 million) or more than three times as much as originally targeted.

Islamic financial services at present account for only a negligible 3 percent of the total assets of the banking industry. There are now only three full-fledged sharia banks already operating, but most major commercial banks, including foreign ones, have opened sharia windows to serve the increasing number of customers who are not comfortable with the conventional financial system that does not comply with Islamic laws.

The crash of the financial market in the developed world due to what Malaysian Prime Minister Abdullah Ahmad Badawi termed, in his speech at the opening of the WIEF, as unbridled greed has increased the popularity of Islamic financial services as an alternative financial system.

Under sharia-compliant finance, as Badawi said, people cannot trade what they do not own, because Islamic banks only lend to borrowers who can offer security or collateral for the loan.

Hence, sharia-compliant banks are unlikely to lend to such sub-prime borrowers who have been blamed largely for the global financial crisis. And most Islamic scholars agree that derivatives and hedge funds as well as speculative financing are forbidden (haram).

Islamic banking complies with sharia by using returns on assets to pay investors instead of interest. Most Islamic scholars also agree that financial derivatives and hedge funds are haram.

Under the new Sharia Banking Law, the penultimate authority on sharia for the industry rests with the National Sharia Council, and all products and services in the industry must be approved by this council through the central bank, Bank Indonesia.

What this means is that all sharia principles, as interpreted under any and all sharia schools of law, are acceptable to be practiced within the Islamic financial market.

The council therefore should minimize the risks of endless debates and widely different interpretations of Islamic laws. The council's scholars should take into account the parameters that exist within particular markets, otherwise, the variety of sharia banking and investment products available will remain severely restricted.

At the end of the day, though, the fundamental requirements to woo capital inflows, either from the West or the Middle East are the same: Legal certainty and reasonable returns.

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