The Most Complete Functions of Islamic Banking and Their Purposes – What are the functions of Islamic banking? If you don't know about it, see the article that we have provided below so that you get complete information.

One of the fastest growing financial institutions is Islamic banking, which includes conventional banks. Nations from around the world, including the West, England and Denmark have been crowned frontrunners in the race to become the Center Finance World Sharia, they compete for honor.

This is done so that people have more confidence in Sharia banks and can use banking services that are in line with the principles of Sharia law.

In other words, banks function as intermediaries between savers and other people who need to borrow money. Banks can play a role in bridging the gap between those with extra cash and others who are short on funds.

Therefore, the bank collects excess cash (surplus units) from its customers and distributes it to those in need.

Definition of Islamic Banking

Banking that complies with Sharia law is known as Syariah banking or Sharia Banking (sharia). Sharia prohibits the practice of usury, or charging interest on loans, and the establishment of this system is based on a prohibition on investing in certain types of (haram) businesses.

Conventional banking cannot ensure that its investments do not support or promote activities that violate Sharia law, such as the manufacture of alcohol, non-halal food, or the dissemination of propaganda contrary to Sharia teachings.

Despite these ideas, however, Islamic banks started to apply these concepts to private or semi-private commercial entities serving the world's Muslim population until the end of the 20th century.

The Purpose of Islamic Banking

The ultimate goal of Islamic banking is to help achieve national development that promotes social justice, unity and a fair distribution of wealth. We can restate the mission of the bank in terms of its main objectives, namely:

  1. This also has a negative effect on the economic life of the community to direct the economic activities of the Ummah towards Sharia muamalat, especially muamalat related to banking, in order to avoid usury practices or other types of business or trade that contain elements of gharar (fraud), in which this type of business prohibited in Sharia.
  2. The aim of economic justice is to narrow the wealth gap between those who have excess capital and those who need money by encouraging both to participate in investment activities.
  3. To raise the people's standard of living by encouraging more people to start their own businesses, especially among the poor, and helping them build financial autonomy.
  4. The main goal of most countries' development plans is to eradicate poverty. Efforts by Islamic banks to eradicate poverty include brokerage coaching, consumer development programs, work mode development programs, and joint business development initiatives, which aim to attract and retain customers with a wider range of interests and needs across the spectrum of the business cycle. .
  5. For the sake of maintaining monetary and economic order. Avoiding inflation caused by inflation and the uneven playing field among financial institutions is made possible by the operation of Islamic banks.
    One of the newest goals of Islamic banking is to reduce the dependence of Islamic adherents on conventional financial banks.

Sharia Banking Functions

There are a number of uses for Islamic banks that you should know, as follows:

Sharia Banks to Collect Community Funds

First, it serves to pool resources from those who have more than they need.

Deposits are accepted using an al-wadiah contract, while investments are received using an al-mudharabah contract, both of which are used by Islamic banks to obtain cash from the general public.

The community, on the first hand, al-wadiah, entrusts their money to the bank, and the bank, on the second hand, accepts the deposit so that they can use the money for transactions that are permissible in Sharia.

The parties to the al-mudaharah agreement are the first party who owns the financial resources and the second party who accepts these resources for use in accordance with Sharia law.

Islamic Banks as Channels of Funds to the Community

Second, Islamic banks help those who are more in need to have access to credit. As long as they comply with the standard requirements, Islamic bank customers can get funding.

Islamic banks place a premium on their ability to cash out. There will be financial benefits for the Islamic banks as a result of this money transfer. The profit of Islamic banks from this money transfer is determined contractually.

Sharia Bank Provides Bank Services

Islamic banks not only offer banking services to their customers, but are also involved in collecting funds and channeling these funds directly to the community.

People can rely on Islamic bank services to help finance their daily business. Customer service is the third and final goal of Islamic banking.

Islamic banks can provide a variety of services, including money transfers, bookkeeping, securities billing, and more.

When we talk about service activities, we are referring to activities that Islamic banks hope will increase service fee revenue.

Certain financial banks use state-of-the-art IT to provide services that exceed their clients' expectations.

Fast and accurate service is more likely to be appreciated by their clients. Punctuality and accuracy in bank services are two qualities valued by customers.

Competing Islamic banks are always developing new superior service offerings. Fee-based income is the incentive received by Islamic banks for providing these services.

Sharia Banking Principles

Islamic banking is based on various Sharia principles, including:

Avoid Riba

Avoiding usury is the main benefit of using an Islamic bank for financial operations. means you can let go of usury when making financial transactions.

Given that, according to Islam, the practice of usury is immoral and must be stopped. You can avoid the sin of usury by keeping your savings in an Islamic bank.

Based on Islamic Sharia

The second advantage of keeping your money in an Islamic bank is that it helps in realizing the implementation of sharia and you have been involved in sharia-based muamalah. People who achieve this will definitely be rewarded.

Benefits Provided Based on Profit Sharing

The benefits provided by Islamic banks are centered on profit sharing rather than interest payments.

Deposit Insurance Corporation (LPS)

Indeed, this is an Islamic bank, but that does not mean your savings are at risk. Even though the Deposit Insurance Agency (LPS) insures deposits at Islamic banks of up to IDR 2 billion, there is still a danger of losing customer money.

Sharia Bank Equipped with Clean Banking Facilities

Islamic banks in Indonesia are currently adjusting to the presence of the widespread use of modern technology.

Islamic banks also provide the added benefit of being able to perform online banking transfers and other financial operations.

A Fairer and More Transparent Sharing System

Revenue sharing is an effective way to prevent interest from turning into usury. Customers who conduct banking transactions with Islamic financial institutions will also benefit from the profit sharing mechanism.

Apply Low Savings Balance

Almost all national Islamic banks apply low interest savings balances to their customers, that is also one of the benefits of saving in Islamic banks.

Those of you who want to open a savings account with a small amount can enjoy a lower required opening deposit.

Savers or Customers are Bank Partners

When compared to more conventional banks, online banks are more likely to see savers as borrowers and treat them as creditors.

When a saver opens an account with an Islamic bank, the bank treats them as partners and gives them a share of the bank's investment profits.

Customer Funds Used in accordance with Sharia

The money that you deposit in an Islamic bank will only be used for activities permitted by sharia law.

Conventional bank customers do not know where their deposits will be invested or used, but those who practice usury will benefit.

There is an Early Warning of Danger due to its Transparent Nature

If you choose to use a more conventional bank, you may not be able to take advantage of this bonus.

When there is a problem in an Islamic bank, this will be communicated to customers. With this knowledge, customers will be able to plan ahead what they need to do to save costs.

Funds Intended for the Interests and Benefits of the People

The money you save in Islamic banks will be used for the benefit of society. That is, these resources come from the community, and will be returned to the community.

Types of Islamic Banking

There are three different types of Islamic banks, each based on a different set of guiding principles:

Sharia Commercial Banks

Commercial Islamic banks are a type of Islamic bank that operate in providing cross-border monetary services and offer a variety of banking services. For example, PT Bank Syariah Mandiri, PT Bank BNI Syariah, PT Bank Muamalat Indonesia, and PT Bank BRI Syariah.

Sharia Business Unit

The sharia business unit is the department within the head office of a traditional commercial bank that is responsible for supervising and executing all business operations according to sharia law. So, for example, the State Savings Bank (BTN), Bank Danamon Indonesia, PT Bank CIMB Niaga, and others.

Sharia People's Financing Bank

As a result, the banking operations of Islamic community financing banks do not include collecting public money in the form of demand deposits.

As a result, these banks cannot issue current accounts such as checks and demand deposits. To mention a few of them: PT BPRS Amanah Rabbaniah, PT BPRS Buana Mitra Perwira, and others.

Islamic people's financing banks are not involved in banking that accepts current accounts from the general public. That's why these banks can't issue checks or money orders, they don't have checking accounts. Some examples are, PT BPRS companies are PT BPRS Amanah Rabbaniah and PT BPRS Buana Mitra Perwira.


Sentences of questions and answers about the function of Islamic banking, as follows:

What are the Roles and Functions of Islamic Banking in the Monetary System?

Syariah banking plays an important role in today's economy. Islamic banking, like conventional banking, acts as a conduit between the financial economy and the real economy. The banking industry contributes to the stability and expansion of the economy's monetary base.

What are the attractions of Islamic banks?

The attractiveness of the Islamic banking system stems from its benevolence towards customers. In the case of deposits, the depositor always receives a larger share of the bank's profits than the bank receives from depositors, say, 65% to 35%.


The goal of economic justice is to narrow the wealth gap between those who have excess capital and those who need money.

The efforts of Islamic banks to eradicate poverty take the form of broker coaching, consumer development programs, work mode development programs and joint business-related initiatives.

That's the information we can convey, I hope you understand it easily!

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