What is the Difference between Sharia and Conventional Loans?

Actually, the Islamic and conventional loan system is the same where the bank provides a number of funds to the customer to be used as an urgent need that must be resolved immediately.

But there are still differences between conventional Islamic loans. At least in terms of money receipts as well as the transfer system the refund remains the same. In addition, the conditions given are the same starting from full identity and additional documents.

Credit card issuance


Even the credit card issuance remains the same where both Islamic and conventional have annual fees. Although not clearly visible, both are different and the first factor is seen in terms of the contract and also the level of legality. This is the main key why conventional is so different from sharia.

When applying for a loan, there is a system of agreements that involves a financial institution with you as a customer. However, the agreement was named with the contract and through certain signatures.

The contract made by both parties must be halal, such as profit-sharing rent, sale, and purchase and there is no usury system in it. Usury is interest. In a conventional system.

Every loan whether using collateral or not will be charged interest that must be paid every month with the nominal loan funds. Interest often burdens borrowers of funds because they have to pay more than the actual amount. But in the sharia system, there is no interest at all.

Borrowers will not be charged a calculation of the amount of interest that must be paid together with the nominal debt.


Interest in the sharia system is considered haram because it is difficult and burdensome to the borrowers so that in Islamic law, interest in loans is called haram.

As a substitute for interest, a profit-sharing system is obtained from the borrower to the bank as the provider with an initial agreement on the amount of funds to be shared by both parties. Here all decisions are made purely by two bound parties without the slightest coercion.

Furthermore, differences also exist in the organizational structure of the bank where the sharia bank is overseen by the DPS or Sharia Supervisory Board in each structure so that there is no misuse of funds. All products released including the operating system are fully supervised by DPS to comply with sharia principles.

DPS is placed on a par with the board of commissioners and determined by the GMS or general meeting of shareholders and renewed annually. DPS like this cannot be found in conventional bank systems because it uses the services of financial authorities to oversee without the existence of sharia principles.

Types of businesses to be financed by conventional and sharia banks


The types of businesses to be financed by conventional and sharia banks as lenders are also different. If the conventional bank will provide a loan for any purpose as long as the requirements of the customer are complete, this is different from the Islamic bank which provides a rule that loans can only be used for business that is lawful and does not violate religious and legal norms.

So if for example, you want to open a business that is identical to bad things from the immoral house, offline gambling and so on, then the bank will not pass your submission.

Another difference is the work environment around the bank where if you visit the location of the Islamic bank, then you will feel a different feel from before. Islamic nuance will be felt starting from the way employees dress, behave, be ethical even to customers.

All services to be obtained adhere to spiritual principles so that customers feel highly valued and appreciated for credit applications.

In the sharia system that is carried out, both parties do prioritize profits but it applies to happiness as well as prosperity in the world and the hereafter so as to create a sense of kinship that is so close even though it still has their respective responsibilities. While conventional banks only make or form a partnership with the debtor and creditor systems.

By knowing the difference between conventional and Islamic loans, you can add a reference to choosing to apply for a conventional or Islamic loan.

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