4 Fundamental Differences in Sharia Cash Loans and Conventional Loans – Even though they have been around for a long time in society, there are still many people who do not understand the difference between Islamic cash loans and conventional bank loans.
This is indeed not surprising considering that many people still do not understand the principles used in Islamic banks compared to what is used by conventional banks.
Islamic cash fund loans
It must be recognized that the presence of Islamic banks provides more financial product options to the public. As with conventional bank financing, Islamic cash fund loans can be accessed by anyone who needs an injection of funds, both for business purposes and to meet consumptive needs.
In addition to banks that are specifically built with sharia foundations, now many well-known banks in Indonesia have also opened special sharia-based branches, which means that people no longer need to worry about the level of professionalism and services provided.
However, people should still learn to understand what are the differences between Islamic cash loans and conventional bank loans. This can be taken into consideration when wanting to apply for a loan.
4 Fundamental Differences in Sharia Cash Fund Loans and Conventional Loans
In conventional loans, a loan or credit is given on a loan agreement and thus the debtor or borrower is required to return it together with interest.
However, in Islamic principles, interest is not permitted at all because it is considered usury. Therefore, in sharia cash fund loans do not recognize the principle of the interest contract, but using a capital sharing or sale and purchase agreement, ijarah wa iqtina or lease with changes in ownership and or capital sharing.
In a capital sharing contract, the bank acts as the purchaser of the object desired by the debtor or customer. Then, the bank will sell the object to the customer at a certain price margin. Example: a customer wants to buy a car with a price of USD 150 million.
By the bank, the car will be purchased which will then sell it back to customers who want it at a price of USD 155 million. The amount will be paid in installments by the customer within a certain period. The difference in price or profit is the profit of the bank.
In ijarah wa iqtina, the bank will buy the goods desired by the customer. Here, customers only have to rent the object for a certain period. However, after the item is used for a certain period, the customer can decide to buy it.
In the mutanaqishah principle, both banks and customers put capital in a matter, for example, a bank provides financing of 60% of the purchase of a car and the customer is subject to 40%. In the future, customers can buy a portion of bank ownership that makes the car as their own property.
Share the Risk
In a conventional financing system, the customer fully bears the risk if he cannot return the loan. In sharia principles, the bank as a creditor also bears some of the risks.
Example: a customer borrows USD 100 million with conventional credit for business capital. Here, customers as creditors are required to repay the loan principal with the specified interest even though the business only generates USD 75 million.
With an Islamic cash loan, if the customer borrows USD 100 million for business capital, the bank will also bear some of the loss if it turns out that the business only generates USD 75 million.
In Islamic financing, funds must be channeled for halal interests. Therefore, customers must include the intended use of the funds and their use must also not deviate from this.
In terms of documents, both Islamic cash loans and conventional loans are not much different. One thing that makes a difference is that Islamic loans offer products that can be used for certain purposes that are not contained in conventional loans, for example for education, Hajj and Umrah financing, and so forth.
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