Why is Sharia Bank Pricing More Expensive?

Bank Syariah Indonesia was established to make the pricing of Islamic banking more competitive

REPUBLIKA.CO.ID, JAKARTA — Islamic banks are said to have pricing which is more expensive than conventional banks. Sharia Business and Finance Observer, Ronald Rulindo said that there are at least three things that cause pricing Islamic banks can be more expensive.

“First, this has been conveyed a lot, namely the scale of the economy,” he told Republika, Saturday (24/7).

He invites to compare sharia banks with other banks with more or less the same total assets, then pricing more or less will not be much different. The case is different when comparing the assets of Islamic banks whose assets are Rp. 20 to Rp. 30 trillion with their parent, which is Rp. 200 trillion or even Rp. 1,000 trillion.

“If it has to be the same it doesn’t make sense,” he said.

Therefore, Bank Syariah Indonesia was established in order to achieve the required economies of scale, so that pricing more competitive. But that’s just BSI, while there are still many other smaller-scale Islamic banks.

“Just simple logic, it’s expensive where to buy at the shop in front of the house, the same hypermarket? Generally it must be in a smaller shop,” he said.

The second reason, could be the influence of the contract, especially the murabaha contract or buying and selling which has a fixed price. No matter how much inflation occurs, the price will not change. Different from conventional banks or Islamic products that can offer flat rate value is more flexible.

This is because in finance, the longer the duration of the investment, the higher the risk. Then expectations return long-term financing will also be high. Therefore, the murabaha contract becomes relatively more expensive.

“The third, because of the structure of the product and the provisions of sharia itself, well, this one many people do not know,” he said.

He explained how profit can be lawful and usury to be unlawful. This is because, in order to make a profit, there must be an iwadh, aka countervalue, or justification for why we are entitled to these profits.

It is different from usury, which sits on its feet but earns money by lending the money to other people. Regardless of the use of these funds.

“Yes, if they try and make a profit, if they lose? Moreover, for example, borrowing to pay for a hospital will only add to the difficulty, right? That’s why usury is forbidden,” he said

Iwadh as a condition of profit itself there are several kinds. There may be an effort to be made, an additional obligation to be carried out, or a risk to be accepted. Of these three, it is clear that there is an additional cost to making this profit.

“Unlike usury, from an efficient point of view, it is definitely more efficient, doing nothing but also making a profit,” he said.

Therefore, it is actually only natural that Islamic banks are expensive because there are things that must be done to get these benefits. This can also be a material for introspection for Islamic banks whether they have done iwadh earlier.

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