MIP Landing Page

Why should switch to a Sharia Bank? Here are the reasons why …

Why should switch to a Sharia Bank? Here are the reasons why …

Many people think that sharia banks and conventional banks are much the same when sharia banks and conventional banks show in fact striking differences, deserving a closer look. The following are the differences between sharia banks and conventional banks:

1. In Terms of a Contract

In sharia banking a contract leads to worldly and otherworldly consequences as the contract is executed under the Islamic law. Every contract in sharia banking must, in terms of goods, parties, transactions or other policies, meet the following requirements:

  • Goods and services must be halal and any haram transactions of goods and services become void by operation of sharia law.
  • The price of goods and services must be clear.
  • Point of delivery must be clear so as not to pose an impact on the transportation costs.
  • Goods in transaction must take full ownership and one shall not sell something they don’t own, as occurring in the short sale transaction in the capital market.

Meanwhile in conventional banks, transactions of goods and services offered by a bank include halal and haram transactions, and the short sale transactions are permitted in the capital market.

In sharia banking every contract must, in terms of goods, parties, transactions and cost terms, meet the pillars (rukun) and requirements.

2. Investment

Projects financed by Sharia Banks are by definition projects with several points, such as

  • Project financed are halal projects.
  • Projects that benefit the public.
  • Projects financed are one that benefits the bank or its partner.

Conventional banks, by contrast, contemplate no type of investment, and the funds are distributed for profitable companies even though it is, according to the Islamic law, classified as a non-halal product. For example, a liquor company project may be financed by a conventional bank if the project is profitable. In sharia banking, however, despite profit, as a liquor factory is a non-halal product, a sharia bank will not finance it.

3. Returns

The returns given by sharia banks to investors are calculated by a profit sharing system, so it is fair for both parties. In terms of third party fund collector, if a sharia bank earns large incomes, then the investor customer will also receive a large profit share, and if a sharia bank gets small profits, the profit sharing distributed to investor customers will, in return, also decline. Returns given or received by sharia banks always fluctuate, heavily depending on the proceeds earned by the business partners both banks and customers. In conventional banks, conversely, returns given or received are calculated on the basis of interest. Interest is applied to the loan principal or fund placement principal, and the proceeds remain. It is likely that with this system, any of the parties will be harmed, while the bank keeps being profitable.

4. Orientation

The orientation of sharia banks in providing financing is success (falah) and profit-oriented. Sharia banks provide financing solely not only based on profits earned from the financing provided, but also considering the prosperity of the people. Social aspects of the people are taken into consideration by sharia banks in channeling funds to the fund users. Meanwhile, conventional banks will provide credits to customers if the customer’s business is profitable regardless of the prosperity of the people.

5. Relationship between banks and customers

The relationship between sharia banks and customers using funds is partnership in nature. Banks do not act as creditors, but partners in joint ventures between sharia banks and debtors. Both parties have an equal position. The proceeds from the partnership with the customers using funds will be shared with the sharia banks in a mutually-agreed ratio, as set forth in the contract.

6. Supervisory Board

The supervisory board of sharia banks includes several parties such as: commissioners, Bank Indonesia, the Capital Market Supervisory Board (Bapepam) and the sharia supervisory board. All undertake their own functions. The sharia supervisory board has, in particular, the following duties:

  • To supervise the operation of sharia banks in order to comply with the sharia principles.
  • To provide advice and recommendation to the board of directors and supervise the activities of sharia banks in order to comply with the sharia principles.
  • To be appointed as a shareholder on the recommendation of the Indonesian Ulema Council (MUI).

7. Dispute Resolution

Problems arising from sharia banks will be resolved by deliberation. If, however, the deliberation fails to resolve a problems, such a problem between sharia banks and customers will be resolved by the court within the jurisdiction of the religious court. Conventional banks will resolve the disputes by negotiation. If the negotiation is impracticable, the resolution will be referred to the local district court.

Sharia banks are in reality in stark contrast to conventional banks, particularly, in terms of their principles. There are yet, however, sharia banks in Indonesia adopting the conventional system, and just varying the terminologies. That’s why it is important for us to know the differences between the real sharia banks and conventional banks. This way we can be more careful in choosing sharia banks that utterly apply the sharia principles. With knowledge of these differences we now know the reason why we have to switch over to sharia banking, especially for a Muslim.

All that aside, the financial management of sharia banks has also proven to be safer. To quote a case, sharia banks became resilient to the impact of the global economic crisis in Indonesia that occurred in 1998. The global economic crisis back then resulted in almost all the conventional banks going bankrupt, just leaving Bank Muamalat, as the only sharia bank, to be relatively strong to hold back the crisis. So, what are you waiting for?? Let’s turn to sharia banks.

Source: https://www.kompasiana.com

BSM Editor