Report Al Wadiah
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1.0 INTRODUCTION Deposits and investments from depositors and investors are the main sources of funds especially for Islamic commercial banks. In the case of Islamic banks there are a number of deposits and investment facilities created using Islamic contractual arrangements. Among the categories of Islamic bank’s deposits are as follows: i.
Current Account (Al- Wadi’ah) Deposits
Savings Account (Al- Wadi’ah) Deposits
Savings Account (Mudharabah) Deposits
Investment Accounts (Unrestricted Mudharabah)
Investments Accounts (Restricted Mudharabah)
Al- Wadi’ah is one of the most commonly used principles in the Islamic banks. It is used for the acceptance of deposits in the saving and current accounts work under the principle. 2.0 AL- WADI’AH Literal Meaning Al- Wadi’ah literally means “the thing left with a person who is not its real owner for the purpose of safekeeping”.1 Al- Wadi’ah is a contract for the safekeeping of property between the owner of the property and another party.2 Al- Wadi’ah comes from the word of Al- Wad’ means: to leave something, and the word of AlWadi’ah give us the meaning of leaving something under the charge of someone (not the owner) for safekepping.3
Abdul Rahim Abdul Rahman, An Introduction to Islamic Accounting Theory and Practice, page 75, 2010. Securities Commission Malaysia, Islamic Commercial Law (Fiqh Al- Muamalat), page 119, 2009. 3 Wahbah Zuhaili, Al- Fiqh Al- Islami Wa Adillatuhu, page 27. 2
Evidences The jurists of all schools of Islamic Law ( mazahib) agree that Al- Wadi’ah is a form of trust. The evidence of Al- Wadi’ah is recommended based on the Al- Quran, As- Sunnah, and Ijma’. a) Al- Quran; i.
Surah An- Nisaa’ 4: 58
Which means: “ Verily Allah command you to render back your trust to those to whom they are due” ii.
Surah Al- Baqarah 2: 283
Which means: “Let the trustee (faithfully) discharge his trust. b) As- Sunnah;
أد المانة إلى من ائتمنك ول تخن من خان Which means: Fulfill the trust of those who has given you the trust and do not betray those who had betray you” Pillars of Al- Wadi’ah According to the Hanafees as in all other contracts Al- Wadi’ah has two pillars of offer and acceptance. The majority of Fiqh Schools state that it has three pillars of expression (Ijaab and
Qabul), the parties, and the deposited property. Offer and acceptance can be both verbal or by indication.4 Briefly here the pillars of Al- Wadi’ah is 1. Al – Muwaddi’ •
Depositor, Owner of the property
2. Al – Wadi’ •
Depositee, Custodian of the property
Property for safe keeping
4. Sighah •
The Process of Al- Wadi’ah
Al- Muwaddi’ (Depositors or owner of the property)
Al- Wadi’ah (Property of Safekeeping)
Al- Wadi’ (Depository or custodian of the property)
Dr. Muhammad Yusuf Saleem, Fiqh for Economst, page 43, 2008- 2009. 3
Types of Al- Wadi’ah TYPES
1. Wadiah Yadd al-
Act of Trust
Amanah Bank acts as a trustee to the fund. If the money under custody is accidentally lost or destroyed, the custodian is not obliged to replace or compensate it. 2. Wadiah Yadd al-
Act of Guarantee
Dhamanah Bank’s responsibility is in form of guarantee If the deposits are pooled together and are utilized, it is compulsory for the bank to return the fund as when requested by the customer
Profit Gained from the Usage of Money under Al- Wadi’ah 1. Al–Malikiah , Abu Yusof, Al-
The profit is for the depositaries who traded the cash
Laiths and Sufyan REASON: 1.
The agent (depositaries) is the guarantor and custodian of the
money until it is returned back to the real owner. 2.
The depositors do not essentially enter the contract of Wadi’ah
with the intention of gaining any profit but with the purpose of safe guarding their deposited property. Hence, they should be given their original property without any amount of profit. 2. Abu Hanifah
The depositaries should donate the profit without benefiting from the proceeds
The revenues were earned through an illicit gain.
If it is forbidden to sell the Wadi’ah property, the acquired
profit would be considered as an illicit gain which could only be purified through donation and charity. 3. The profit will be shared and split between the depositors and depositaries on the basis of Mudharabah contract. Modern Application Responsibility of an Islamic Bank is considered as Yad Dhamanah when: a. Bank imposes certain fee on the safe keeping of the items and provides a special place for the safe custody of these items. b. The bank will be held responsible for the replacement of these items in cases of loss, damage or destroy even if these disaster occur unintentionally or due to negligence. c. Bank uses the cash money for business purposes. In this case, the bank is obligated to
fully return the al-Wadi’ah money that has been used back to the owner, regardless of whether the bank had made any profit or even loss from the business venture using the al–Wadi’ah money. d. This means that any profit would be owned by the bank and they have the right to give all or part of the proceeds back to the depositor based on their discretion as a gift or token which are not promised earlier Al-Wadi’ah Current Account: a. Islamic Bank mobilizes customers’ deposits in Current Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody). 5
b. It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (Yad Dhamanah). c. Bank receives deposits from its customers who want to make a safe custody of their funds and utilizing the services provided under the scheme of a current account. d. The bank then will ask permission to utilize their funds. However, the customers may
withdraw their saving any time they desire. e. All the profit generated by the bank from the use of funds belongs to the bank. f. The bank provides cheque books and other services provided by conventional bank to
the current account.
Al-Wadi’ah Saving Account: a. Islamic Bank mobilizes customers’ deposits in Savings Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody). b. It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (dhamanah) c. Bank accepts deposits from its customers who want to make a safe custody of their fund d. Profits generated by the bank from the use of such funds belong to the bank.
e. Bank may at his discretion reward the customer by returning a portion of profits generated from the use of their funds from time to time. f. Bank provides its customers with saving passbook and other usual services
provided for saving accounts by the conventional banks.
Differences between deposit under Islamic and Conventional Banking
CONVENTIONAL Saving contract Depositor – Depositary Depositaries are entitled to
Al- Wadi’ah (safe-keeping) contract
RELATIONSHIP Depositor – Depositary INCOME
receive interest from their
Depositaries are not entitled to any income
deposit saving account. Conventional banks must give
Islamic banks may give the depositaries a
the interest payment to their
share of the profits generated at their
Deposits are liability products of a bank
Deposits are either a trust or guarantee products of a bank