research paper on Investment system of Bangladeshi Bank
J.KAU: Islamic Econ., Vol. 16, No.1, pp. 45-52 (1424 A.H / 2003 A.D)
Guaranteeing Investment Deposits in Islamic banking System
MUHAMMAD FAHIM KHAN
Islamic Research & Training Institute
Islamic Development Bank
Jeddah – Saudi Arabia
ABSTRACT: For developing a viable Islamic banking system, protection of depositor’s money is a basic and crucial question. A depositor wants both security and growth for his saving but Islamic banking provides him only one. This would have led the majority of household to shy away from the system which no country can afford.
So there is genuine “need” – a darurah to provide such guarantee. It is also necessary to maintain social justice. Until this need is recognized by shariah experts,
‘murabahah’ and concept of ‘tabarru’ (voluntary donation) may be used by Islamic banks to guarantee the principal amount of depositors. In this regard al-Tegani’s arguments make Shariah as well as economic sense. Such a practice will also be conducive to reducing the possibility of moral hazard on the part of the bank in the use of the depositors’ money. To guarantee the deposit as an act of tabarru’, banks may keep a fraction of the annual income of shareholders in a special account of shareholders which could be used to compensate the depositors for any loss of their principal amount that may occur when doing business with their money.
Guarantee of deposits is at the core of the contemporary “banking” business. If we are talking of “banking” and if we are talking in the context of open economy then protection of depositor’s money will remain a basic and crucial question in developing a viable Islamic banking system. This issue may not be very important at the level of individual institution. The issue is, however, very important in the context of a country intending to change entire financial system to conform to Shari’ah.
“Banking” is a contemporary need of individuals/households of small means and small savings who
Guaranteeing Investment Deposits in Islamic banking System
MUHAMMAD FAHIM KHAN
Islamic Research & Training Institute
Islamic Development Bank
Jeddah – Saudi Arabia
ABSTRACT: For developing a viable Islamic banking system, protection of depositor’s money is a basic and crucial question. A depositor wants both security and growth for his saving but Islamic banking provides him only one. This would have led the majority of household to shy away from the system which no country can afford.
So there is genuine “need” – a darurah to provide such guarantee. It is also necessary to maintain social justice. Until this need is recognized by shariah experts,
‘murabahah’ and concept of ‘tabarru’ (voluntary donation) may be used by Islamic banks to guarantee the principal amount of depositors. In this regard al-Tegani’s arguments make Shariah as well as economic sense. Such a practice will also be conducive to reducing the possibility of moral hazard on the part of the bank in the use of the depositors’ money. To guarantee the deposit as an act of tabarru’, banks may keep a fraction of the annual income of shareholders in a special account of shareholders which could be used to compensate the depositors for any loss of their principal amount that may occur when doing business with their money.
Guarantee of deposits is at the core of the contemporary “banking” business. If we are talking of “banking” and if we are talking in the context of open economy then protection of depositor’s money will remain a basic and crucial question in developing a viable Islamic banking system. This issue may not be very important at the level of individual institution. The issue is, however, very important in the context of a country intending to change entire financial system to conform to Shari’ah.
“Banking” is a contemporary need of individuals/households of small means and small savings who
References: Al-Tegani, Abdulgader A., (1423H/2003), Guaranteeing of Investment Deposits in Islamic Banks (Arabic), Journal of King Abdulaziz University: Islamic Economic, (This issue), Vol. Khan, M. Fahim, (1412H/1991), “Comparative Economics of Some Islamic Financing Techniques, Islamic Research and Training Institute, Islamic Development Bank, Jeddah.