Indonesia in nature comprises of a lot Muslim religion and therefore adopted some Muslim principle for business, such as interest free. Hence, riba or debt usury, as an unjustified increment arrangement in loan, paid above the amount of loan is prohibited. In this case will the Sharia banking actually provide loan without any interest rate and how do they survive then?
Some of us might have known in regards to the profit participation arrangement. This is the type of arrangement used in Sharia Bank or any other business dealing, whereby the convertible loan is in the type of profit participation, thus the amount of loan is not subject to any interest rate instead, the lender is considered to participate in helping the borrower in the capital therefore in return if there is any profit, the lender will obtain the profit distribution. Following the article Shares Convertible Note 2, all of the others apply the same however the interest is to replaced into profit participation. If there is any profit unpaid then the amount of conversion shall be calculated from the total outstanding loan and unpaid but declared profit.
How do we calculate the profit distribution then? This is commonly asked question, and thus this kind of profit distribution needed to be negotiated and discussed thoroughly, if you have any question in regards to this please do not hesitate to contact us further.