Islamic Banks: Genuinely Different or Just Rebranding?
Islamic banking in Indonesia has grown rapidly over the past two decades. From a niche alternative for those wishing to avoid riba (usury), it has become an important part of the national financial architecture, especially after the merger of three state-owned Islamic banks into a single large entity. Yet behind the impressive growth in assets and networks, a fundamental question remains: to what extent is the operational system of Islamic banks substantially different from conventional banks, rather than just different in packaging?
Conceptually, the operational system of Islamic banks is built on a foundation far more humanistic than conventional banking. The prohibition of riba (interest), gharar (excessive uncertainty), and maysir (speculation) should encourage Islamic banks to be more prudent in managing risk and more equitable in sharing profits with customers. Schemes such as mudharabah (profit-sharing), musyarakah (capital partnership), murabahah (sale with a margin), and ijarah (lease) offer a different approach: the bank is not merely an interest-charging lender, but a business partner that shares risk with the customer.
On paper, this is an elegant idea. The bank ceases to be a modern loan shark profiting regardless of the customer’s business fortunes, instead becoming a party that shares in both profit and loss. The principles of justice (adl) and common welfare (maslahah) should be the spirit animating every transaction.
However, practice on the ground often reveals a wide gap between idealistic principles and operational reality. Several issues frequently highlighted by observers and academics of Islamic economics include: First, the dominance of murabahah contracts. The majority of Islamic bank financing in Indonesia—and in many other countries—is dominated by murabahah contracts, which are mechanically very similar to conventional credit. The profit margin set upfront, while legally distinct from interest, is often calculated by referencing market interest rates as a benchmark. Profit-sharing contracts like mudharabah and musyarakah, which should be the main distinguishing spirit of Islamic banking, account for a much smaller portion because they are considered high-risk and difficult to monitor.
Second, risk governance is not yet fully mature. Profit-sharing schemes require banks to deeply understand and monitor customers’ businesses, something that demands capable human resources and robust information systems. When this capacity is inadequate, banks tend to choose instruments that are easier to measure and predict in terms of risk, even if it means moving away from the spirit of partnership that is characteristic of Sharia.
Third, the role of the Sharia Supervisory Board (DPS) is often symbolic. The DPS should be an independent and critical guardian of Sharia compliance. However, in many cases, this position is considered more administrative than functional—approving products already designed by the business team, rather than being involved from the scheme formulation stage. The independence of the DPS is also questionable given that their honoraria are paid by the very bank they supervise.
Fourth, public literacy and perception. Many customers choose Islamic banks solely for reasons of faith (halal-haram), without truly understanding the contract mechanisms they are entering into. Ironically, some customers even consider Islamic banks to be ‘just the same’ as conventional banks, differing only in terminology. This perception, if left unchecked, risks eroding long-term trust in the industry.
This does not mean the situation is hopeless. Criticism of the operational system of Islamic banks does not negate the achievements made. The regulatory infrastructure continues to be strengthened through the Financial Services Authority (OJK) and the National Committee for Islamic Economy and Finance (KNEKS). Product innovations based on pure profit-sharing contracts, green Islamic financing (green sukuk), and the integration of Islamic fintech show that the industry still has dynamic room for growth.
What is needed now is not merely asset growth, but a deepening of operational quality. Islamic banks need to be bold in increasing the portion of profit-sharing financing, strengthening partnership-based risk analysis capacity, and ensuring the DPS truly functions as a substantive supervisor, not merely an administrative formality.
The operational system of Islamic banks fundamentally offers an alternative that is philosophically more equitable than an interest-based system. However, this philosophical advantage will only be meaningful if translated consistently into daily operational practice. As long as contracts that more closely resemble conventional sales still dominate, and as long as Sharia supervision is not truly independent, Islamic banks risk being trapped as ‘conventional banks in Sharia garb’—a label without equivalent substance.
This industry has great potential to become an alternative force in the national, and even global, financial system. But that potential will only be realised if stakeholders—regulators, bank management, scholars, and customers—jointly commit to closing the gap between idealism and implementation. Ultimately, public trust in Islamic banking is built not from the ‘Sharia’ label alone, but from the consistency between the principles spoken and the practices carried out.