Islamic Savings Accounts based on different Islamic structures
The term wadiah is derived from a verb form that means to leave, lodge or deposit. In practice, wadiah is a method of leaving valuable properties in the custody of another. It is based on trust (amanah) that the custodian performs his best to keep and duly return the items to their rightful owners. According to the Hadith narrated by Sunan Abu Dawud which says “Discharge the trust to the person who entrust it to you, and do not betray the one who betrays you.”
Although the concept of wadiah is not explicitly mentioned in the Quran, there are verses which are indicative of this concept. For example in Surah An-Nisa [4:58], Allah said: “Verily, Allah commands that you should render back the trusts to those, to whom they are due.” The Prophet (s.a.w.) himself practised wadiah as illustrated during his emigration to Madinah. The Prophet (s.a.w.) told Ali ibn Talib about his departure or emigration to Madinah and ordered Ali to stay behind in Makkah in order to return goods which men had deposited as deposits with the Prophet (s.a.w.); for anyone in Makkah who had property, which he was anxious about, left in with the Prophet because he was well-known for his honesty and trustworthiness. Scholars agreed on the permissibility of the contract of wadiah since it is also a societal norm for people to require others to safe keep their belongings at some point in time.
Application of Wadiah in Islamic banks
The modern application of wadiah in Islamic banks is for the purpose of accepting deposits in both savings and current accounts. The contract of wadiah is between the customer and bank to safeguard the deposited asset, in this case cash, on behalf of the customer. From the onset, the customer is aware that the banks will utilize the deposits and as a result, it guarantees refund of the amount whenever customers wish to withdraw. Banks utilize the deposits at its own risk, meaning it enjoys the entire profits earned but also must bear all the losses incurred. Nevertheless, banks are commercially motivated to share some of these profits with the fund owners or customers as a token of appreciation. Hence, at the absolute discretion of the banks, hibah or gift is rewarded to the customers from time to time. It has to be clearly treated as a hibah (gift) since customers, who bear no risk in the usage of funds, are not entitled to taking any returns from it.
The word Mudharabah derives from the word dharaba, which means sharing. It refers to a partnership in profit between capital and work. It is an arrangement between a capital provider i.e. who provides the funds and an entrepreneur who mobilizes the funds for its business activity.
There is no explicit Quranic injunction on the practice of mudharabah. But verse in Surah Al-Baqarah [2:198] : “There is no sin on you that you seek bounty or increase (fadhl) from your Lord” has underlined the general permissibility to gain wealth through capital that belongs to others. As for its permissibility from Sunnah, the Prophet s.a.w has said: ”There are three things which have the blessings of Allah, deferred payment sale, Muqaradah (Mudharabah) and mixing barley with wheat for the home consumption not for sale”.
Application of Mudharabah in Islamic banks
Mudharabah (profit-sharing) structure can also be used in Islamic savings accounts. This structure will benefit entrepreneurs or fund managers i.e. banks and also the capital providers i.e. depositors and consumers. Thus, reflect the just system as discussed earlier based on Maqasid Shariah.
Mudharabah Investments Accounts
The Products of Islamic Financial Institutions are different from those by conventional banks due to Shariah Compliant contracts attached to Islamic banking products. Even though on the surface, an Islamic Bank offers a similar range of financial solutions as found in conventional bank such as leasing and deposits account, the foundation and legal structure of these contracts are in effect cleansed against prohibitions mentioned by Shariah.
One significant product is investment account based on mudharabah principles. This is a deposit mobilization product, which is meant to be an alternative to the conventional Fixed Deposit product but is significantly different by its contractual nature.
In mudharabah investment account, customers become equity holders for contributing their capitals to the bank. The bank acts as investment manager and has a role to ensure maximization of the returns to these customers who are not the typical depositors. This is because the consumers would assume all losses that results from the investments returns while profit will be shared between the customers and the bank as the manager on a pre-agreed profit sharing ratio.