MBB8014: ISLAMIC FINANCIAL

INSTITUTUIONS AND MARKET

ISLAMIC BANKING OPERATION :DEPOSIT

PREPARED BY:
ZUL AIZAT BIN HAMDAN
3160227
AGENDA
 UNDERSTAND ISLAMIC BANKING OPERATION:
DEPOSIT
 LANDSCAPE DEPOSIT IN MALAYSIA
 EXPLAIN DEPOSIT IN THE ISLAMIC BANKING
OPERATION: DEPOSIT
 SHARIAH ISSUES ON DEPOSIT
 COMPARE OF ISLAMIC AND CONVENTIONAL
OPERATION : DEPOSIT
 UNDERSTAND ISLAMIC BANKING OPERATION:
DEPOSIT

a. Money b. Invests

Depositors Islamic Entrepeneur

Bank

d. Hibah or Return c. Return

As shown in diagram the mechanism in offering al-Wadi’ah current account can be explained as follows:
a. The Islamic bank receives money from depositors.
b. The Islamic bank, then invests in a Shariah-compliant investment.
c. The Islamic bank receives earned income from their investment.
d. The returns gained from the investment will then be used to pay depositors as a discretionary “hibah” or a
return based on Mudharabah.
 LANDSCAPE DEPOSIT IN MALAYSIA

•According to the Malaysia Economic Report 2017 (BNM), it shows the total deposit in
Islamic Banking is increase from year to year (2013-2017)
•In 2017, Islamic deposits and account investments expanded 11.7% (2016: 9.4%) to
RM672.6 billion. Of this amount, account investment increased by 6.9% to RM78.7
billion. This reflects an increasingly customer account investment as an alternative
investment of instruments and diversification of funding sources of Islamic banks.
(National Bank)
LANDSCAPE DEPOSIT IN MALAYSIA

 Type of deposit product offered by Islamic bank in Malaysia

generally (according Book Islamic Banking-A Practical
Perspectives):
 Wadiah Current account
 Wadiah Saving Account
 Mudharabah Investment Account
 Mudhrabah General Investment Account
 Mudharabah Specific Investment Acount
 LANDSCAPE DEPOSIT IN MALAYSIA
INSTITUSI PERBANKAN PRODUK
ISLAM DI MALAYSIA DEPOSIT
Akaun Simpanan Akaun Semasa Deposit PelaburanTetap/Berjangka

Bank Islam Malaysia Berhad Al wadi’ah yad dhamanah Al wadi’ah yad dhamanah Tawarruq

Affin Islamic Bank Qard Qard Hybrid Wakalah-Mudarabah

Bank Muamalat Malaysia Tawarruq Tawarruq Komoditi Murabahah

Berhad
Maybank islamic Al wadi’ah yad dhamanah Al Wadiah Yad dhamanah Tawarruq

RHB Islamic Al Wadiah yad dhamanah Al Wadiah yad dhamanah Tawarruq

Hong Leong islamic Bank Tawarruq Tawarruq Komoditi Murabahah

AmBank Islamic Berhad Komoditi Murabahah Komoditi Murabahah Komoditi Murabahah

Public Islamic bank Al wadi’ah yad dhamanah Al wadi’ah yad dhamanah Hybrid Murabahah-tawarruq

Cimb Islamic Bank Hybrid Wakalah-Mudarabah Al Wadiah yad dhamanah Hybrid Tawarruq- Murabahah

OCBC Al-Amin Bank Berhad Qard Qard Komoditi Murabahah

Kuwait Finance House Qard Qard Hybrid Murabahah & Tawarruq

(Malaysia) Berhad
HSBC Amanah Malaysia Al Wadiah yad dhamanah Al Wadiah yad dhamanah Murabahah
Berhad
Standard Chartered Saadiq Al Wadiah yad dhamanah Al Wadiah yad dhamanah Murabahah
Berhad
Asian Finance Bank Berhad Al Wadiah yad dhamanah Al Wadiah yad dhamanah Komoditi mudarabah

Alliance Islamic Bank Berhad Al Wadiah yad dhamanah Al Wadiah yad dhamanah Hybrid Murabahah- tawarruq

Al Rajhi Banki Malaysia Qard Qard Hybrid Murabahah-Wakalah bil ujrah

EXPLAIN DEPOSIT IN THE ISLAMIC
BANKING OPERATION: DEPOSIT
QARDHUL HASAN IN MIDDLE EAST AND EUROPE PRACTICE
 As defined by AAOIFI sharia standard No. 19 qard is the transfer of
ownership in fungible wealth to a person upon whom it is binding to
return wealth similar to it. The essence of qard is to provide on loan the
wealth or property to one who will gain from this act By giving, the
receive party will employ and consume it in pursuit of his aims and then
return back its equivalent value (Irsyid, 2007).
 The qard structure is predominantly used by Islamic financial institution
in the Middle East and Europe. Essentially, the aim is to provide the
depositors with guaranteed safe-keeping of the amount deposited, and
the same time allows banks to utilise it for their banking and business
activities.
 DEPOSITOR ACT AS LENDER
 BANK ACTS AS BORROWER
CONTINUE….
 MALAYSIA PRACTICE:
 The contract of safe custody Wadiah
Literally:
 Al-wadiah it means to leave, quit, abandon etc
Technically:
 A thing or commodity committed to the trust and care of a
person
 A contract whereby a person leaves his property for safe
protection to another person
 Al-wadiah is the commission given by the depositor to the
depositary for holding his property in safe custody; al-amanah
 CONTINUE
 Evidence of Wadiah

 Hadith:
 “Discharge the trust to the person who entrust it to you, and do not betray the
one who betrays you”

 Pillar of Wadiah

Al – Muwaddi’
 Depositor, Owner of the property
Al –Wadi’
 Depositee, Custodian of the property
Al-Wadiah
 Property for safe keeping
Sighah
 Offer (Ijab)
 Acceptance (Qabul)
 CONTINUE….
Classifications of Wadiah
WadiahYad Dhamanah and WadiahYad Amanah
TYPES DESCRIPTION

Wadiah Yadd al-Amanah Act of Trust

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.

Wadiah Yadd al-Dhamanah Act of Guarantee

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

The conditions of Wadi’ah

1) The contracting parties: mumaiyyiz, puberty and mature
2) Wadi’ah: can be delivered
 CONTINUE..
 The modern application of Wadiah to Islamic banking
products
Responsibility of an Islamic Bank is considered as Yad
Dhamanah when:
 Bank imposes certain fee on the safe keeping of the items and provides a
special place for the safe custody of these items.
 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.
 Bank uses the cash money for business purposes. In this case, the bank is
obligated to fully return the al-Wadiah 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–Wadiah money.
 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
CONTINUE..
 Al-Wadiah Current Account
 Islamic Bank mobilizes customers’ deposits in Current Account under
the principles of Al-Wadi’ahYad Dhamanah (guaranteed custody).
 It is based on the combination of contract of custody (al-Wadi’ah) and
guarantee (Yad Dhamanah).
 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.
 The bank then will ask permission to utilize their funds. However,
the customers may withdraw their saving any time they desire.
 All the profit generated by the bank from the use of funds belongs to
the bank.
 The bank provides cheque books and other services provided by
conventional bank to the current account.
CONTINUE…
 Al-Wadiah Saving Account
 Islamic Bank mobilizes customers’ deposits in Savings Account under
the principles of Al-Wadi’ahYad Dhamanah (guaranteed custody).
 It is based on the combination of contract of custody (al-Wadi’ah) and
guarantee (dhamanah)
 Bank accepts deposits from its customers who want to make a safe
custody of their fund
 Profit generated by the bank from the use of such funds belong to the
bank.
 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.
 Bank provides its customers with saving passbook and other usual
services provided for saving accounts by the conventional banks.).
EXPLAIN DEPOSIT IN THE ISLAMIC
BANKING OPERATION: DEPOSIT
MUDHARABAH DEPOSIT
 A mudarabah deposit is a form of investment account.
 Under this principle, the depositor who acts as rabbul mal (wealth/property
owner) deposits his money into the bank which acts as mudarib (fund manager)
that will subsequently use the money for investments purposes.
 The distribution of profit between the bank and the depositor is in accordance
to a mutually pre agreed profit sharing ratio. This must be disclosed and agreed
upfront by both parties at the time of opening of the account.
 According to the mudarabah principle, the capital of depositor cannot be
guaranteed since any financial loss shall be borne entirely by depositor as the
capital provider unless proven negligent or there is breach of the terms of the
mudarabah contract on the park of the bank.
 This is striking difference between a mudarabah deposit and a wadiah yad
damanah deposit where the latter entails capital guarantee while the formers
does not allow banks to guarantee capital return to the depositor.
 EXPLAIN DEPOSIT IN THE ISLAMIC BANKING OPERATION:
DEPOSIT

Continue…
 The mudarabah deposit can be divided into two types. It is the
restricted mudarabah (mudarabah muqayyadah) and the
unrestricted mudarabah (mudarabah mutlaqah). In the first one, the
actions of the mudarib (fund manager) are restricted. However, it
should not be in a way what would unjustifiably constrain the
actions of the mudarib in his operations. While the second one, the
mudarib can employ his own good judgment and has complete
authority on the management of the capital entrusted to him for
any type of investment activities
(ISRA, 2013).
 EXPLAIN DEPOSIT IN THE ISLAMIC
BANKING OPERATION: DEPOSIT
Mudharabah

Mudharabah Mudharabah
Mutlaqah Muqayyadah

•The Mudharabah Mutlaqah principle is an agreement whereby the owner of the

account or the fund (the customer) does not restrict the management of funds in any
way. The Bank is empowered to manage the funds without limitation such as timeframe,
type of business, place of business or type of service
•Prinsip Mudharabah Muqayyadah adalah perjanjian dimana pemilik akaun atau
dana mengehadkan pengurusan dananya. Bank hanya dibenarkan untuk menguruskan
dana dalam batasan tertentu mengenai masa, jenis perniagaan, tempat perniagaan atau
jenis perkhidmatan
EXPLAIN DEPOSIT IN THE ISLAMIC
BANKING OPERATION: DEPOSIT
 Wakalah unrestricted investment deposit ,It is an agency
concept whereby the mutawakkil (depositer) will appoint the bank
as his wakil (agent) with respect to the investment of the
mutawakkil funds in sharia-compliant transactions.
 Based on unrestricted wakalah, the wakil will use the invested
funds for its general corporate purposes; mainly investment in any
of the assets on the bank balance sheet. The investment will be full
discretion of the wakil.
 The wakil will notify the mutawakkil on the profit expected to be
generated upon the placement of funds. However, any profits
exceeding the quoted expected profits will be retained as
incentives by the wakil. This based on the principle of tanazul
whereby certain rights of claim will be waived in favour of another
party in a contract.
a. Money c. Invests

Custom Islami Mudhari

er c b
Bank

c. Ujr and d. Returns

reward
MECHANISM of WAKALAH DEPOSIT
 As shown in diagram the process in offering al-wakalah saving
account involves the following steps:
a. Customer deposits money in the Islamic bank. In this case,
Islamic banks and customers act as fund trustee and depositor,
respectively.
b. Islamic banks charge an agency fee or Ujr which means wage or
commission imposed on a delivered service. Islamic banks also
provide rewards to consumers with ‘gifts’ as a token of
appreciation for permission to utilize their deposits.
c. Islamic banks allow mudarib to utilize the funds for business and
investment activities.
d. If there is profit from this joint venture, it shall be share with the
Islamic bank and any loss will be borne by Mudarib.
 SHARIAH ISSUES: WADIAH

1. Adaptation (Takyif) of Wadi`ahYad Dhamanah as Qard:

 The SAC was referred to on the issue as to whether the
SHARIAH ISSUE
ruling applicable ON
on qard may alsoWADIAH
be adapted or
applied in wadi`ah yad dhamanah.

Resolution The SAC, in its 6th special meeting dated 8 May 2008, has resolved that
the ruling on wadi`ah yad dhamanah which involves money may also apply the rules
of qard in terms of its parameters (dhawabit) and its subsequent effects.
SHARIAH ISSUES: HIBAH
 The SAC, in its 8th meeting dated 12 December 1998, has
resolved that the practice of giving hibah by the investee financial
institution to the investor financial institution that amounts to a
guaranteed profit (‘r’ rate) in Interbank Mudarabah Investment
contract is not allowed.
 Basis of the Ruling .The practice of giving hibah in a contract
based on mudarabah is not allowed because mudarabah is
based on profit sharing. If the practice of offering hibah is .
allowed, it may adversely affect the nature of the mudarabah
contract since the mudarib is. Deemed as guaranteeing the
mudarabah profit. Besides, the practice of giving hibah is also
. Contradictory to the objective of mudarabah contract since
it denies the elements of profit. Sharing and loss bearing (if
any) by the rabbul mal.
 Shariah Issue on Wakalah
 Resolution The SAC, in its 2nd special meeting dated 18 June 2007,
has resolved that the proposed deposit account which is based on
wakalah bi al-istithmar contract is permissible, subject to the
following conditions:
 i. If the Islamic financial institution has breached any terms of
agreement or has negligently invested in an instrument which has no
potential to generate profit at the minimum rate (for example 5%
per annum), the Islamic financial institution will have to pay
compensation as much as the principal sum of investment plus the
actual profit (if any); and
 ii. If the Islamic financial institution invested in an instrument that is
expected to generate profit at the rate of at least 5% per annum but
failed to reach the targeted rate due to problems which are not
attributable to the negligent conduct of the Islamic financial
institution, such loss shall be borne fully by the customer.
 COMPARE OF ISLAMIC AND
CONVENTIONAL OPERATION : DEPOSIT
CONVENTIONAL BANKING ITEM ISLAMIC BANKING

fixed and predetermined Reward Variable and based bank

performance/gift/token
total risk is born by the bank and sharing of risk risk and reward both are shared with
total reward belongs to it after and reward depositors
servicing the depositors at fixed
rate
Through interest based Earning Profit based /trading

Operates based on Country's Sources of Law Operates based on Shariah, the

banking laws and financial Islamic principle.
practices.
Thank you…