There are two types of banking applied in Indonesia, namely conventional banks and Islamic banks (Shari'a). Both offer different service and facility programs. Although formerly Islamic banks have not been so popular, but in line with the growing interest of the Muslim population in Islamic law-based financial services - Islamic banks are now increasingly mushrooming.
According to data from the Financial Services Authority (OJK), the total Sharia Commercial Bank offices as of January 2017 were 1,966 offices with total assets of Sharia Commercial Banks and Sharia Business Units which had reached Rp. 344.2 trillion, as reported by Maxmanroe.
Even so, there are still many Indonesians who do not really understand what distinguishes Islamic banks from conventional banks. Some prefer conventional banks because they want a normal system as usual. So, in order to be considered as one of the two, you should first understand the differences between Islamic and conventional banks that have summarized the following News & Features.
- The transaction processes carried out by these two banks differ depending on the system or the underlying law
All transactions carried out by Islamic banks are carried out based on the provisions issued through the MUI fatwa taken based on the provisions of Islamic law. Many types of transactions are applied such as: al-mudharabah (profit sharing), al-musyarakah (partnership), al-musaqat (farmer cooperation), al-ba'i (profit sharing), al-ijarah (rent), and al-wakalah (agency).
While in conventional banks run based on banking operational standards that have been set by the government through financial institutions and are subject to the rules of law applicable in Indonesia.
- Fund management systems such as credit applications and investments in Islamic banks are more stringent requirements than conventional banks
Submitting credit at Islamic banks is not as easy as the system applied to conventional banks. Islamic banks will refuse credit applications intended for matters that can violate Islamic law. The main requirement is that the proposed credit must be aimed at activities that are lawful and good and in accordance with the existing Islamic economic principles.
Credit distribution to conventional banks can be done on various business lines that are considered safe and profitable. As long as you do not violate the rules and applicable laws and as long as the customer can pay the bills regularly and on time, then the credit application can be fulfilled. This also applies in terms of investment.
- Both Islamic and conventional banks have their own tactics in installment and promotion programs
The installment program on Islamic banks is applied with a fixed amount based on agreed profits between the bank and the customer when the credit agreement. While for the promotion must be conveyed clearly, not ambiguous, and transparent.
Unlike conventional banks, almost every month they offer different promotions to attract customers. Provided that it provides a large profit to be played in the form of other facilities.
- Islamic banks do not know the interest system as applied in conventional banks. Both of these banks have a much different profit system
The application of interest is prohibited in Islamic banks. Questioning the advantages, Islamic banks use a profit sharing system whose amount will be determined based on profit and loss guidelines. If the project is profitable, then both parties benefit together, even if all three lose, it will be borne together as well. As long as you know, Islamic banks are also oriented to the afterlife benefits.
While in conventional banks, it is clearly stated in Law number 10 of 1998 that conventional banks run conventional businesses and provide certain amounts of profits in the form of interest rates for their customers. Determination of interest rates carried out at the time of contract with guidelines must always benefit the bank.
- The relationship between banks and customers in both Islamic and conventional banks is also very different
In Islamic banks, customers are treated like a partner because banks and customers are bound in a 'transparent' contract. No wonder there are many customers in Islamic banks who have a stronger emotional connection with Islamic banks that give them financing facilities.
Whereas in conventional banks, the relationship between banks and customers is more like between debtors and creditors. The bank will provide a smooth statement if the debtor is smooth in paying credit. However, when the payment of bills is constrained, the bank will carry out the confiscation of the assets owned by the debtor. Even so, there are many conventional banks that have established closeness with their customers in various ways.
- The difference is also evident in the existence of the supervisory boards of each bank
Every transaction made by Islamic banks is always under the supervision of the Supervisory Board which consists of scholars and economists who are masters of fiqh muamalah.
Meanwhile, there is no supervisory board in conventional banks. So that every transaction carried out is not monitored by anyone other than the positive laws that apply.
Well, if you already know the clear difference between Islamic banks and conventional banks, hopefully you are more observant to choose which services you will use as needed. Of course, each of them has advantages and disadvantages that can be taken into consideration.