Abstract
Islamic banking was introduced in Indonesia in 1992 with the long-term objective of having a full-fledged Islamic banking system running parallel with the existing conventional banking system. To be competitive in the dual banking system, the basic strategy that Islamic banks should have offer Shariah-compliant services which match those offered by the conventional banks. Since interest is prohibited in Islam, Islamic bank services are based on profits and other interest-free Islamic principles. Hence, Islamic banks accept demand and savings deposits based on safe-keeping (wadiah) while investment deposits based on profit sharing (mudarabah). Islamic bank financing is offered varieties of principles such as credit sale (bai bithamin ajit), profit sharing (mudarabah, musyarakah), leasing (ijarah) and hire-purchase.
Highlights
Islamic banking is an activity based on Islamic Syariah principles, which does not allow the paying and receiving of interest and promotes profit sharing in the conduct of banking
In the dual banking system where Islamic banking system operates in conjunction with the conventional banking system, such as in Indonesia, there will be a substantial relationship between the two systems
The purpose of this paper is to investigate the influence of the rate of return and the interest rate on total time deposits mudharabah in the Islamic bank in Indonesia
Summary
Islamic banking is an activity based on Islamic Syariah principles, which does not allow the paying and receiving of interest and promotes profit sharing in the conduct of banking. The most important difference between Islamic and conventional banking is the prohibition of interest in Islamic banking [1]. Changes in interest rates can have a pressure on the rate of return or profit-sharing in Islamic banking. [3] stated that when the interest rate in the conventional system increases, the Islamic banks need to increase their rate of return. The purpose of this paper is to investigate the influence of the rate of return and the interest rate on total time deposits mudharabah in the Islamic bank in Indonesia. This paper investigates whether the interest rate in conventional banks and the rate of return in Islamic banks in Indonesia are different significantly
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