Definition of Sharia Bank

Definition of Sharia Bank

In Law number 10 of 1998 article 1 which is a refinement of Law Number 7 of 1992, it provides an understanding of banks by:

Business entity banks that collect public funds in the form of deposits and distribute them to the public in the form of credit and or other forms in order to improve the lives of many people. Whereas the definition of a Commercial Bank is a bank that conducts business activities conventionally and or based on sharia principles which in its activities provide services in payment traffic.

Whereas what is meant by sharia principles are explained in article 1 point 13 of Law No. 7 of 1998 by:

Sharia principles are rules of agreement based on Islamic law between banks and other parties for depositing funds and / or financing business activities, or other activities that are declared in accordance with sharia, including financing based on profit sharing principle (mudharabah), financing based on the principle of equity participation (musyarakah) , the principle of buying and selling goods by obtaining profits (murabaha), or financing of capital goods based on the principle of pure rent without choice (ijarah), or by having the choice of transferring ownership of goods leased from the bank by another party (ijarah wa iqtina).

So, it can be concluded that Islamic banks are financial institutions whose main business is providing financing and other services in the payment traffic and the circulation of money whose operations are adjusted to the principles of Islamic law (Muhammad, 2005).

In Indonesia, Sharia Banks are divided into three types, namely Sharia Commercial Banks (BUS), Sharia Business Units (UUS), and Sharia People Financing Banks (BPRS).