ISLAMIC BANKING – ACCOUNTS

Deposit products
• Deposit accounts play a key role, not just for banks, but for
the economy in general. Much of the wealth kept within the
trust of a bank is utilized in investments, financing businesses
etc. This in turn helps the workforce and stimulates
productivity via a number of PLS and debt-based modes of
financing. Islamic banks therefore, with deposits from
customers, utilize these modes of financing to provide a
sustainable service to the community.
• While mobilizing in a Shari’ah compliant manner, other issues
such as risk, return, liquidity, maturity, safety, and stability are
considered before offering the right deposit account that
would satisfy customers’ needs.
 Current accounts
• It is attractive for customers to leave their deposits in banks
for safe-keeping and to have easy access to liquidity. These
accounts allow money to be withdrawn by card access to
automated teller machines (ATM). The deposits are held with
the bank as an Amanah (Trust).

• Current account deposit may be structured on various

mechanisms. Two of the most common are:
1. Wadiah-wad-Dhamanah (Guaranteed deposits)
2. Qard (benevolent loan)
 Current accounts (cont)
• Wadi’ah (Safekeeping) – Customers deposit money in Islamic
banks under the principle of Wadi’ah wad Damanah. ‫وديعة‬
Wadi’ah means Deposit or Trust. ‫ ضمانة‬Damanah means
Guarantee. Wadi’ah is like an Amanah (trust), yet under a
trust there is no total guarantee (due to theft, catastrophe
etc). Therefore the word Damanah is added. Under such an
account the customer is able to safely deposit their money on
the basis of trust, knowing that they can withdraw all or part
of their funds when they desire.
• Since there are no conditions for deposits and withdrawals,
funds kept by the bank as a trust may be utilized at the banks
own risk. Depositors do not share any risk, so, any profit or
loss is passed only to the bank.
 Current accounts (cont)
• Qard Hasan (Benevolent Loan) – Another way current
accounts may be described is with the use of Qard Hasan. The
deposit by the customer is seen as an interest free loan given
to the bank. The account bears no profit for the customer.
• As was the case with a Wadiah account, the bank may utilize
the funds at its own risk. Any benefit to the lender under this
mechanism is seen as riba and against the spirit of the qard
account.
• The main motive for a customer to have a current account is
to keep excess liquidity available in demand. The objective to
earn profit is not the priority. These accounts are operated
for the safe custody of deposits, and for the convenience of
customers.
Example:* Islamic Bank of Britain:
Features and Benefits
Interest-free bank account: receive no interest, pay no interest
Deposits may be made by cash, cheque or direct account
transfer
Withdraw funds at our branches through an ATM, or by direct
account transfer to another bank account
Funds deposited will be administered in accordance with Sharia
Principles.
Standing order and Direct Debit facilities
International payments
Access to our foreign currency and travellers cheque services
Automatic access to your account via our automated telephone
banking service 24/7 or online
*http://www.islamic-bank.com
 Saving accounts
• Deposit products that are modeled on Wadiah/Mudaraba
mechanisms, are known as savings deposits. Their function is
to safeguard deposits whilst providing a modest return on the
capital. In that sense it is similar to the savings account with a
conventional bank.
• This form of deposits is very popular in South East Asian
countries, as customers have a degree of convenience in using
and accessing their funds. Banks must request the permission
of depositors before utilizing the funds for investment. The
bank however claims ownership over the profits and at times
rewards the customers. Withdrawal facilities are provided by
the banks to the customer, such as passbook, ATM cards and
so on.
 Investment Accounts
• Investment accounts follow the principle of Mudaraba
(investment partnership). The investor is the Rabb-ul-Mal who
deposits money in the bank under an investment account.
The bank in this case acts as the Mudarib who will manage
the funds. The bank will find Shari’ah compliant investments
such as projects, sukuk (certificates), financing transactions,
property etc. The profit will be according to a pre-determined
ratio agreed upon by both parties. As it is based on the
success of investments, the rate of return cannot be fixed.
 Investment Accounts (cont)
• The investor will receive weightages which are profit ratios
according to each investment. Inevitably, the depositor (Rabb-
ul-Mal) risks the loss of funds if the investments fail. Although
bearing loss is not common, this is how a Mudaraba contract
works. However, some banks may guarantee the principle of
the deposit if investments fail.
 Types of Investment accounts
• Mudaraba Muthalaqa (General Investment Account) – Under
this account, the depositor does not stipulate where they
want their funds invested. They leave the bank with the
flexibility to manage the funds how it deems fit.
The funds may be placed in a pool of funds from other
investors for a fixed period. Likewise, the funds may be used
for a combination of investments with different maturities.
• Mudaraba Mudayyaqa (Special Investment Account) - This
account allows the depositor to specify what type of
investments they prefer. This may require a certain level of
funds to qualify for this account. The bank therefore only
utilizes the funds to invest in a company, project, venture etc,
where both parties mutually agree.
 Debit and Credit Facilities
Debit Cards
• As offered by conventional banks, the debit card is a useful
alternative to credit cards. The card is merely a prepaid card
and therefore does not assist users by falling into debt and
most importantly, paying interest. Debit cards fulfill the same
purposes of credit cards like online purchases (such as airline
tickets). The major difference is that customers must upload
their own money to use the debit card. Likewise, debit cards
also allow cash withdrawals from ATMs worldwide. Some
banks charge a monthly or annual access fee, while some
banks charge no fees.
In 2010 a ‘Halal-approved MasterCard’ was officially launched in
Canada. It is known as the iFreedom Plus MasterCard.
Although it is only a prepaid card, it was endorsed by a
number of Muslim scholars and likewise it offers a range of
discounts when used (such as 10% discount
with Etihad Airways).
Other Shari’ah Compliant Cards
• Other cards function for the purpose of providing the
customer with the means to purchase, however they incur a
debt that must be repaid. Islamic Charge cards for example,
function according to Al-Eenah or Tawarruq where the bank
makes a profit through the transactions. It is an attempt to
replace the credit card by means of supplying credit for
customers. Yet it bears the hallmarks of a real credit card and
for that reason it finds much criticism.
• Some banks promote Shari’ah compliant credit cards. These
are advertised as bearing no interest and no hidden costs. The
customer pays an annual fixed fee which can be paid monthly.
This fee is seen as ijarah for the services provided (or Ujrah).
There is a grace period like a conventional credit card
contract, thereafter penalties apply for late payments.
• Late Fees
According to Taqi Usmani, to incur a fee for the late payment
resembles Riba An-Nasee’ah (Riba of Debt) where the lender
would say, “pay up or pay riba (increase)”. However, some
scholars may tolerate a fee for overdue payments providing
the fee does not go to the bank, lessor, lender etc. It should
be stipulated that the fee will be given to a charity. This may
act as a deterrent for the debtor to delay payments.