1.

0 INTRODUCTION

Referring to the Section 2, Islamic Banking Act (IBA) 1983, “Islamic banking
business” means banking business whose aims and operations do not involve any element
which is not approved by the Religion of Islam.

Islamic banking refers to a system of banking that complies with Shari’ah law.
Islamic banking basically has two major distinguish features which are; the motive is not
for the profit making solely rather seeking the pleasure of Allah’s mercy in the hereafter.
The second feature is the use of asset backed-up transactions and profit distribution system
as agreed by the contractual parties. These features is demonstrated in the dealings of the
Islamic Financial Institutions (IFIs) established to execute the aims and objectives of Islam
and Muslims as the vicegerent of Allah on earth and one who are bound by injunctions in
all their transactions. Activities that involve interest (riba), gambling (maisir) and
uncertainty (gharar) are prohibited. In order to achieve these objectives, Islamic banks
have moved in an alternative bearing from the conventional banks in practices and brands
of products and services.

Through the use of various Islamic finance concepts such as ijarah (leasing),
mudarabah (profit sharing), musharakah (partnership), financial institutions have a great
deal of flexibility, creativity and choice in the creation of Islamic banking products.
Furthermore, by emphasising the need for transactions to be supported by genuine trade or
business related activities, Islamic banking sets a higher standard for investments and
promotes greater accountability and risk mitigation. There are over 350 Islamic financial
institutions worldwide across 75 countries and the global Islamic finance industry is
experiencing average growth of 15-20% annually.

This paper is an attempt to provide an understanding on the comparative of two

Islamic banking products which is Al-Wadiah and Qard Hassan.

1
2.0 AL-WADIAH

The term wadiah is derived from an Arabic verb wada’a, which means to leave,
lodge or deposit (Al-Farabi, 1987). Legally, Hanafi scholars defined it as an empowerment
to someone for keeping the owner’s property explicitly and implicitly. Whereas according
to Shafi’i and Maliki scholars, wadiah is presentation in keeping possession of respectable
private goods in specific way. Al-Wadiah is a contract (aqad) between the owners of good
and the custodian of the goods. The role of the Custodian (in banking perspective, the
bank) is to protect the goods from damaged, destroyed, stolen etc. Basically, the contract is
entered between both parties to ensure safe custody. This type of contract is used for saving
and current accounts in Islamic banks

The conditions to wadi‘ah for a proper understanding of the conditions to wadi‘ah,

it is crucial to mention the pillars of this transaction in the first place. This is because every
single contract in Islamic law has its own pillars which stipulate certain conditions to be
complied in order to be valid. wadi‘ah has three pillars,namely:

(i) The declaration (offer and acceptance)

The mutual consent as a original rule for every single contract. Thus,
wadi‘ah is not valid until there is a mutual consent between the involved
parties. This mutual consent is expressed by offer and acceptance. The Offer
is an indication of willingness to leave his property to somebody’s custody
for safekeeping. With regard to acceptance, it simply means an act whereby
the trustee agrees or it may be implied through physical receipt and silence.

(ii) The both parties involved (depositer and depositories)

The wadi‘ah contract must have at least two parties involved i.e. the
depositor and the trustee. The depositor and the trustee must be the persons
who have legal capacity. According to the Hanafis, what is intended by
attaining legal capacity here is one who is sane and reaching the stage of
discretion (mumayyiz). Thus, one should not accept the deposit on the part
of a minor or an insane, though one incurs all the obligations of a true
depository if one does so. On the other hand, a minor who has accepted a
2
 deposit is not responsible for it in case of loss, unless that loss is caused by
his own personal fault.

(iii) The deposit itself.

The item of deposit must be a valuable property in Islamic law. What is
meant by this is the deposit property is valuable for a Muslim and subject to
transactions. This is because some property is valuable to non-Muslims but
not Muslims, for example dead animal, unslaughtered cattle, wine, pork and
other forbidden things. The item of deposit also must be a form of property
that can be possessed physically.

2.1 Legality of Al-Wadiah

The concept of wadi‘ah is not specifically mentioned in the Qur’an.

However, as far as trust is concerned in this matter, there are some indications on
this concept which can be observed in the following verses;

(i) “Those who are faithfully true to their trusts (amanah) and to their
covenants. And those who strictly guard their prayers. These
are indeed the inheritors.” [Surah al-Mu’minun 8-10]

(ii) “Verily, Allah commands that you should render back the trusts to
those, to whom they are due”. [Surah al-Nisa’ 58]

In the former Surah, Allah tells us that among those who shall inherit the
firdaus (paradise) and dwell therein forever are who keep their trusts and covenant,
whereas in the latter verse, Allah commands that the trusts be returned to their
rightful owners. This command includes the rights of Allah on His servants such as
praying, fasting, giving zakat, etc, as well as the rights of the servants on each
other, such as what they entrust each other with, including the cases that are not
recorded or documented. Thus, the word trust or ‘amanah’ is used in the above
verses to indicate the importance of fulfilling all types of trusts including that of
safekeeping (wadi‘ah).

3
 Al-Qur’an also states that Allah Almighty does not like those who do not
fulfill the trust. This is shown in the following verses, namely:

“And argue not on behalf of those who deceive themselves. Verily,

Allah does not like anyone who is betrayer, sinner.”
[Surah al-Nisa’ 107]

In addition to the evidence from the Quran and Sunnah, all Muslim scholars
unanimously agree on the permissibility of wadiah. This kind of transaction is
necessity and a requisite for protecting mankind and such should be allowed
(Zuhaily, 1985). The proprietor of the thing is known as mudi (depositor). The
person entrusted with is known as the wadi or mustawda’ (custauda’) and deposited
asset is wadiah. It is encouraged for anyone who has trust in himself to take the
wadiah to help others.

2.2 Types of Al-Wadiah

There are two types of Contemporary Wadi‘ah In terms of application of

wadi‘ah, it is of two kinds, namely Wadi‘ah Yad al-Amanah (Guarantee Safe
Custody) and Wadi‘ah Yad al-Dhamanah (Safekeeping with Guarantee).

2.2.1 Wadiah Yad Amanah

Wadiah Yad Amanah basically can be defined as safe custody based

on trust. Originally term of deposit is an amanah (trust) where it is
charitable and divinely rewarded. It is basically a trust to keep. So, the
custodian shall keep the deposit as his keeping and taking care as his own
property. He is not responsible for any damages except due to his
negligence. He does not gain any profit from the contract thus need
permission from the owner if he wants to use the property. Finally, he must
return the property at any time upon demand of the owner.

Wadi`ah yad amanah is a contract based on fiduciary relationship

(aqd al-amanah) where it involves trust especially with regard to the
4
relationship between a trustee and a beneficiary. Any of the contracting
parties may terminate the contract unilaterally.

2.2.1.1 Requirements of Wadiah Yad Amanah

(i) The asset placed in custody is a trust given to the

custodian for safekeeping. The custodian shall return the
asset placed in custody to the safekeeping depositor upon
the request of the safekeeping depositor or according to
the agreed terms of the contract;

(ii) The custodian shall ensure proper management and

protection of the asset placed in custody and shall act in
the interest of the safekeeping depositor of the asset;

(iii) Methods of safekeeping may be determined by the

contracting parties or may be based on customary business
practice (`urf tijari) and the nature of the asset placed in
custody;

(iv) The custodian shall not be entitled to any revenue or any

income from the asset placed in custody. Any benefits
accrued from the asset placed in custody belong to the
asset owner;

(v) In the case of loss or damage to the asset placed in

custody, the custodian shall not be held liable except for
the loss or damage which is a result of custodian’s
misconduct (ta`addi), negligence (taqsir), or breach of
specified terms (mukhalafah al-shurut);

(vi) The custodian shall not entrust the asset placed in his
custody to a third party without the permission of the
safekeeping depositor. Without the permission, the

5
 custodian shall be held liable for the asset placed in
custody;

(vii) The custodian may entrust the asset placed in his custody
to a third party with the permission of the safekeeping
depositor and, consequently, the third party is the new
custodian of the wadi`ah asset. The permission to entrust
the asset placed in custody to a third party may be
expressed by appropriate documentation or by any other
methods accepted by customary business practice (`urf
tijari) which do not contravene the Shariah principles;

(viii) All costs related to the asset placed in custody shall be

borne by the asset owner. Pursuant to paragraph 12.9, the
safekeeping depositor may bear the costs subject to the
agreement of the asset owner. The contracting parties may
agree to specify the period of the wadi`ah contract.

2.2.1.2 Dissolution of Wadiah Yad Amanah

A wadi`ah yad amanah contract is dissolved under the

following circumstances:

(i) any of the contracting parties unilaterally terminate the

contract;
(ii) both contracting parties mutually agree to terminate the
contract; or

(iii) any of the contracting parties unilaterally terminate the

contract due to misconduct (ta`addi), negligence (taqsir)
or breach of specified terms (mukhalafah al-shurut) of the
contract by the other.

2.2.1.3 Completion of Wadiah Yad Amanah

6
 A wadi`ah yad amanah contract ends under the following
circumstances:

(i) upon the maturity date agreed by the contracting parties;

(ii) demise or dissolution of either the custodian or the
safekeeping depositor;
(iii) loss of legal capacity by any of the contracting parties;
(iv) the owner of the asset placed in custody transfers
ownership of the asset to a third party; or
(v) the custodian entrusts the asset placed in custody to a
third party with the permission of the safekeeping
depositor.

2.2.2 Al-Wadiah Yad Dhamanah

Al-Wadiah Yad Dhamanah basically can be defined as safekeeping

with Guaranteed Custody. It means that goods or deposits entrusted
to the care of a person, who is not the owner, for safekeeping. The
depository becomes the guarantor, thereby guaranteeing repayment
of the whole amount or any part of the deposits that is outstanding in
the account of depositors, when so demanded. The depositors are not
entitled to any share in the profits but the depository may provide
returns to the depositors as a token of appreciation.
2.2.2.1 Important Features of Al Wadiah Yad Dhamanah

(i) The custodian is entitled to use the deposited property

for trading or any purposes
(ii) The custodian has a rights to any income derived from
the utilization of the deposited item and liable for any
damages or loss

7
 (iii) The custodian owns the profits and under his discretion
to give some portion of it as a gift (hibah) to the depositor.
The gift cannot be in the form of a pre-agreed agreement
(iv) The custodian must return the deposited property to the
owner at any time upon the request of the depositor

2.2.2.2 Application of Al Wadiah Yad Dhamanah

Responsibility of Islamic bank is considered as Yad

Dhamanah when:

(i) Bank imposes certain fee on the safe keeping of the

items and provides a special place for the safe custody of
these items

(ii) 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

(iii) 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 backto the owner, regardless of
wheter the bank had made profit or even loss from the
business venture using the Al Wadiah money

(iv) This means that any profits would be owned by the

bank and they have the right to give all or the parts of
proceeds back to the depositors based on their discretion
as a gift or token which are not promised earlier

2.3 Issues on Hibah for Al Wadiah Yad Dhamanah

8
 Most Islamic banks (particularly in Malaysia) required the depositors to
give their consent for the bank to use the depositors' money but for some Islamic
banks, they kept it silent i.e. no consent is required. It may be considered as loan to
the bank.

It seems, BNM National Shariah Council (NSC) had made

decision disallowing payment of profit or "hibah" for Al-Wadiah deposits.
However, in practise, Islamic banks in Malaysia (except the International Islamic
banks or IIB) are giving "hibah" in monetary form (as gesture of appreciation by
the bank to the Depositors) and somehow, the Shariah Committee (SC) of the
individual Islamic bank does not prevent but kept silent about this "hibah" issue.
Perhaps, the SCs allow payment of "hibah" due to "maslahah" (public interest) in
order for Islamic banks to compete as alternative to the conventional savings
deposit account where paying "interest" is standard for all types of savings deposit
accounts.

In our opinion, as long as the Islamic banks maintain this view, we may
not be able to clearly differentiate between the Islamic from the
conventional savings deposit. We have to make a stand when it comes to Shariah
compliant issue.

2.4 Islamic vs Conventional Wadiah Saving Account

The differences between Islamic and conventional savings account are

shown is Table 1 as follows:-

ISLAMIC BANK (MALAYSIA) CONVENTIONAL BANK

Principal amount is fully guaranteed Saving deposit & interest not

9
 guaranteed

No profit sharing Interest is fixed at predetermined

rate but subject to revision

At discretion, local Islamic bank will Interest is paid on all savings

give “Hibah” or gift as gesture of deposit placed
appreciation

Can withdraw deposit on demand Can withdraw deposit on demand

Bank cannot offer any inducement in Bank can offer promotional items
the forms of gifts/promotional items to attract new depositors
etc to attract new depositors

In Malaysia, both types of deposit are guaranteed via PIDM up to

RM60K per account. Cost borne by the bank. This also applied to Islamic
Bank i.e. it cannot deduct the cost from profit before distribution

Table 1: Differences Between Islamic Bank and Conventional Bank

It is interesting to note that although payment of "hibah" is somehow

practise in Malaysia, NSC decision that no free gifts or inducement items (e.g. free
umbrella, coin box etc) should be given to new depositors is being strictly adhered
by Islamic banks. So, unlike conventional banks where new savings depositors are
given free gift such as an "umbrella with the bank's logo", new Al-Wadiah savings
depositor normally do not enjoy such gift.
There is a Shari’ah opinion allowing Islamic banks to give gifts to loyal
depositors whom have maintain their accounts with the bank for example, more
than 6 months. If such gifts are given, it should be given without any differentiation
or category such as special gift to those whom maintain deposit amount of more
than RM10,000.00 and the like. It should be given to all depositors whom meet the
same criteria irrespective the balances in their accounts.

As for CURRENT ACCOUNT, it is also offered under the principle of Al-Wadiah

Yad Dhamanah. Unlike savings account holders whom are given passbooks,

10
 Current Account depositors are given cheque books where it can be issued to pay
third parties or withdraw cash for own use.

3.0 AL-QARD AL-HASAN

The word “qard” is derived from Arabic “qirad” literally means to cut. It is
called qard as it cuts certain part of the lender’s property by giving loan to the
borrower. Hasan is also an Arabic word which originates from “ihsan”, which means
kindness. Hasan is an act which benefits persons other than those from whom the act
proceeds without any obligation. Perhaps the word hasan, understood in the context
of ihsan, is meant to imply that the transaction is possible only when a person is fully
aware that he or she is making a loan to someone in need without expecting anything in
return from him, but only in order to please Allah s.w.t.

Therefore, technically, the term “al-qard ul-hasan” means beneficial loan or

benevolent loan or gratuitous loan or beautiful loan. It is a loan which is returned at the end
of the agreed period without any interest or share in the profit or loss of the business.
Under al-qard ul-hasan contract, a borrower or a debtor can voluntarily give extra amount
more than the loan principal provided that it is not stated in the contract, it has not agreed
upon and not predetermined by any manner by both parties.

The difference between al-qard ul-hasan and sadaqah (charity), is that al-qard ul-
hasan has to be repaid, although the borrower specifies the time of repayment,
while sadaqah is pure charity. It is reported from the Prophet s.a.w. that the reward by
Allah s.w.t. for sadaqah is ten times and that of al-qard ul-hasan is eighteen times, thus
underlining the importance of al-qard ul-hasan.

3.1 Legality of Al-Qard Al Hasan

In many places of the Holy Qur'an, Allah has mentioned and encouraged
His creature for al-qard al-hasan by assuring better reward in this world and in the
Hereafter. In the Qur'an Allah says “If you loan Allah a goodly loan, He will
multiply it for you and forgive you. And Allah is Most Appreciative and
Forbearing.” [Surah Al-Tagabun 64:17]
11
Other places in the Holy Quran, Allah says;

(i) Who is he that will lend to Allah a qard hasan so that He may multiply it
for him many times? And it is Allah that decreases or increases (your
provisions), and unto Him you shall return. [Surah Al-Baqarah 2: 245]

(ii) And give Allah qard hasan. [Surah Al-Maidah 5: 12]

(iii) Who is he that will give Allah qard hasan? For Allah will increase it
manifold to his credit. [Surah Al-Hadid 57:11]

(iv) Those who give Allah qard hasan, it will be increased manifold to their
credit. [Surah Al-Hadid 57: 18]

(v) Establish regular prayer and give regular charity and give Allah qard
hasan---. [Surah Al-Muzzammil 73: 20]

The sunnah of the Prophet (s.a.w) is also very clear on this issue. Ibn
Hisham & Ibn Majah reported that the Prophet (saw) said, "in the night of the
journey, I saw on the gate of heaven written, 'reward for sadaqah is ten times and
reward for qard al-hasan is eighteen times'. So, I asked the angel, how is it
possible? The angel replied, "Because beggar who asked had already had
something but a loanee did not ask for loan unless he was in need."

12
 Al-qard al hasan also clearly stated in hadith by Abu Rafi who says “The
prophet (s.a.w) borrowed a young camel and then the camels from the zakat to him.
He ordered me to repay the man his young camel. I said I can only find a good
camel in its seventh year among the camels. The prophet said “Give it to him, the
best of people are those who discharge their debts in best manner”.

3.2 Objectives of Al-Qard Al-Hasan

Islam emphasizes to make brotherhood among the Muslims. The main

principle of brotherhood is to care and share each other. Qard al-hasan being a
gratuitous loan can help the fellow Muslim brothers who need money but they do
not have. Thus, qard al-hasan enhances brotherhood among the Muslims. The main
objectives of qard al-hasan are:

(i) To help the needy fellow people , believing that there is a great reward in
the Hereafter for giving qard al-hasan.
(ii) To establish better relationship among poor and the rich in building a
caring society
(iii) The mobilization of wealth among all people in the society so that it
can remove social and economic discrimination from the society
(iv) To perform a good deed that is encouraged and appreciated by the
Almighty Allah and His messenger
(v) To strengthen the national economy and eradicate unemployment
problem from the society
(vi) It can be also a missionary work for daw'ah activities by giving qard
al-hasan to the non-Muslims, who might be attracted by knowing the
beauty of Islam

3.3 Rules and Characteristics of Al-Qard Al-Hasan

Like any other Islamic contracts, al-qard al-hasan also requires the same
principles as a contract (aqd) between two parties. The requirements are as follows;

(i) Both parties should be legally capable to enter into the qard contract
- to enter into a contract, parties must be baligh, aqil and Rashid

13
 (ii) Ijab (offer) and qabul (acceptance) of the qard must be clearly made
before entering into the loan contract
- in the loan agreement, there should be clear expression, collation
and conjunction of the ijab and qabul between the parties so as to
prevent dispute in future.

(iii) The date of payment must be specified

- the date of payment of the loan should be mentioned in the loan
agreement. If no such date is specified, the transaction may lead to
ambiguity and dispute among the lender and the borrower.

(iv) The contract should be in writing

(v) Existence of two witnesses

- need to have two male witnesses, and if two men are not available,
then one man and two women must stand as witness. It is essential
that the loan agreement comply with the Quranic injunction to avoid
future dispute.

Al-qard ul-hasan contract has special characteristic which are;

(i) It is flexible with respect to collateral and documentary procedures are

usually very simple
(ii) Loans are usually small in size, quick approval procedures and
disbursement and there are no interest charges involved
(iii) The fund has easy access to capital contributors and borrowers
because of its local base
(iv) The fund managers, who are drawn from capital contributors, are fully
accountable

3.4 Al-Qard Al-Hasan in Practice

In early 2009, there were three players deploying the al-qard al-hassan
concept in Malaysia namely Bank Muamalat Malaysia Bhd, Al-Rajhi Banking &
Investment Corporation (M) Bhd and Kuwait Finance House (M) Bhd (KFH
Malaysia). Other local Islamic bankers are in favour of offering al-qard al-hassan,

14
or benevolent loan, but are reluctant to proceed aggresively as they fear that they
may not be able to generate profit or recover their financing cost. A survey
conducted by International Islamic University’s Accounting Department in 2011
showed that al-qard al-hassan is less appealing to most Islamic banks in Malaysia.
The fact that al-qard al-hassan does not feature prominently in the Islamic banking
transaction is not a surprise as banks are generally driven by profit . Islamic bankers
in Malaysia are familiar with al-qard al-hasan and that they agree that Islamic
banks should offer al-qard al-hasan in order to enhance corporate social
responsibility and to help needy people. However, due to zero profit elements and
high risk, it is very difficult to offer al-qard al-hasan.

In the early stage of Islamic banking development in this country, several

products were introduced based on al-qard al-hasan, such as government
investment certificate and benevolent loan. Now, the application has been expanded
to include other products such as rahnu, credit card and charge card. For instance,
Al Rajhi’s charge card which 'offers you all the convenience of a card with none of
the pitfalls of credit' is based on qard, where the bank pays for your purchases on a
qard or loan basis, and the card holder pays back in full on the due date.

The state government of Kedah has proactively cooperate with Bank

Simpanan Nasional to offer loan scheme adopting al-qard al-hasan concept called
Kedah Micro Credit Program and set to approve 120 loan applications worth
RM600,000 by the end of 2015. Borrowers only need to pay a monthly service
charge of RM20 for loans not exceeding RM5,000.

In United Arab Emirates, Dubai Islamic Bank offers al-qard ul-hasan (an
interest free loan) to assist customers overcomes their financial problems so as to
save them from undesirable circumstances and exploitation. The fund aims at
promoting a healthy Islamic social structure by facilitating social needs like
marriage, education and situations beyond the control of the applicant like
prolonged delay in salaries or wages. The facility promotes the concept of
takaful (mutual benevolence) amongst Muslims. This facility is made available
through varied financial assistance (through donations or interest free loan) from
the bank or other benefactors including individuals, financial corporations, business
organizations and even the government. The facility granted shall be repaid in one

15
calendar year with repayment starting within one month from the date of receiving
the al-qard ul-hasan.

The al-qard ul-hasan funds in Islamic Republic of Iran provides small

consumer and producer loans and, in some cases, engage in profit sharing activities
with small producers and firms, thus supplementing the fund’s capital. These funds
are usually associated with local mosques or other religious organizations and
sometimes with guilds or professional associations. The capital is contributed by
the more well-to-do who are at liberty to withdraw their funds at any time. These
funds operate with reasonably low administrative costs since most are managed on
a voluntary basis by the people within the group.

3.5 CRITICAL ISSUES IN AL-QARD AL HASAN

(i) Misinterpretation of the al-qard ul-hasan concept

Al-qard ul-hasan is a benevolent loan, therefore, it is interpreted

to mean that the borrower cannot be forced to make repayment under this
principle. In the event the borrower is unable to repay the capital amount,
the lender must accept this transaction as a charitable act. Al-qrad al-hasan
is a loan; the borrower is obliged to pay the loan in timely manner as agreed
upon. The borrower can however decide to reward the lender for his timely
assistance, and can decide (at his sole discretion) on the quantum of the
reward as well.

(ii) Administrative cost/management fee for loan granted

Many parties have introduced Islamic financing products in the name

of al-qard ul- hasan, however, their implementation seem to contravene its
benevolent objective, which is meant for welfare service. It now has profit
taking purpose behind the label of administrative cost/management fee so as
to make it lawful in the eyes of the public.

(iii) Inflation

16
 Although Islam urges justice to the borrower, it does not approve of
injustice to the lender. Inflation undoubtedly does injustice to the interest-
free lender by eroding the real value of al-qard ul-hasan.

4.0 COMPARATIVE SITUATION BETWEEN AL WADIAH AND AL-QARD

AL-HASAN

There are two dominant views about current accounts. One is to treat demand
deposits as Amanah. Thus, these deposits are handed over to the bank by depositors as a
trust and the bank does not have the authority to use them without first obtaining the
specific permission of the owner of the funds. The other view is to treat demand deposits as
Qard Hasan. According to this view, money deposited in these accounts is a benevolent (or
interest free) loan (Qard Hasan) from the depositor to the bank. The bank is free to utilize
these funds at its own risk without any return to the depositor and without needing any
authorization because in the case of Qard Hasan, the debtor does not need the specific
permission of the creditor to use the borrowed funds. The debtor owes the creditor only the
principal amount borrowed. This condition is fulfilled as the amount deposited in these
accounts is fully underwritten by the bank. The difference between Al-Wadiah and Qard
Hassan is decpicted in Table 2 below.

17
5.0 BANK ISLAM MALAYSIA IMPLEMENTATION OF ALWADIAH AND AL-
QARD AL-HASSAN

For Savings Account, Bank Islam offers the Wadi‘ah Savings Account facility for
customer to save his money. Based on the wadi‘ah contract, this facility provides hassle –
free safekeeping of customer’s money and allows easy access for withdrawals whenever
needed. This account is divided into 3 different types, namely:

(i) Individual Account

provided for those who are 12 years old and above.
(ii) Entrust Account
provided for children under 12 years old, opened with an individual adult.
(iii) Joint Account
provided for those who want to open the account jointly with another
person

18
 For Current Account, Bank Islam offers the Current Account facility for safe
custody of customer’s cash. This facility, which is based on the wadi‘ah contract, enables
customer to wisely plan his monthly expenditure and allows him to manage his financial
needs without involving cash. This account consists of several types, they are: Individual
Account, Joint Account, Partnership Account, Government Account, Association Account,
Private Company Account and Company Account. Benefits given in this account is Token
(hibah) is given every month based on Bank’s discretion, Free cheque book holder
Bankcard facility, Salary crediting & sweeping facility.

Additionally, misconceptions and misunderstanding in differentiating between qard

(loan) and wadi‘ah is confusing most of the Islamic banks and Islamic windows of the
conventional banks. An example of this is OCBC Bank (2006) in marketing their Islamic
banking window published a two pages questions and answer concluding their
understanding of wadi‘ah as originally based on al-Daman (liability). Whereas, as we
explained earlier, the practiced of wadi‘ah yad amanah do not permitted the usage of the
trust item, thus automatically eradicating responsibility of liability. Logically, in Islamic
law whatever ends on daman (liability) on the trustee is amounting to loan not trust
anymore. Ascertaining the fact of our conclusion Engku (2007) concluded that the
contemporary understandings and practiced Wadi‘ah Yad Daman is simply more like Qard
(loan), thus all principles of loan would be applicable. This is one of the major weaknesses
of the present practices in the Islamic banking which makes no difference between its
activities and the conventional banking activities save names or brands of the products or
services as the case may be.

Lastly, Chapra & Khan (2000) discusses in their regulation and supervision of
Islamic banks by refering to the early Muslims transactions that are interest free as to have
started from profit-sharing transaction. In this good article we expected the discussion to
start with wada‘ (deposites) based on trust which was in the earlier practices during the
period of the Prophet. Wadi‘ah (trust goods) were allowed to be used with the consent of
the owner therefore, the situation will shift from trustship to borrower and lender’s
relationship, it may be on reward which will amount to riba (usury). The most interesting
part of cautions on the usage of trust property is the tradition reported on lost but found
items.

19
6.0 CONCLUSION

In conclusion, Islamic banks use deposit accounts as one of its major products.
From viewpoint of Islamic banking, the saving account facility is offered to account
holders who seek safe custody of their funds and wish to save money whilst current
account facility entitles the depositor to receive his funds on demand. There is not much
different between current deposits and saving deposits. Both deposits shall not be entitled
for a return and no restriction on deposit or withdrawal are imposed. Practice deposits in
Islamic banks in general are 4, current deposits, savings deposits, term deposits and
investment deposits. Transactions are used on each type of deposit were varied whether it
is wadiah, qard or mudarabah. The most fundamental difference in practice between the
Islamic Bank and Bank conventional is usury. In Islamic banks, element of usury was
replaced with the grant profit and loss sharing.

Currently in Malaysia, Islamic financial institutions applied wadi‘ah contract to

their current and savings accounts. The contract (‘aqd) is between the owner of the asset
(customer) and the custodian (bank) to safeguard the asset on behalf of the customer and at
the same time the bank can use the asset for investment. However, the use of qard Hassan
for the current account and mudharabah instrument for the saving and fixed investment
account are more appropriate to be applied. The customer is to lend his money to the bank
and the bank is the borrower. In this manner, it is clearly upheld in Islamic law that if the
depositor or the one who request somebody else to safe keep his belongings and making a
condition that the later should guarantee the return the same, the contract of wadi‘ah is
void. This is because to guarantee the deposited item which based on trust (amanah) is not
valid in Islamic law.

20
7.0 REFERENCE

1. Ahmad Basri bin Ibrahim & Azman bin Mohd Noor (2011). The
Application of Wadi‘ah Contract By Some Financial Institutions in
Malaysia. International Journal of Business and Social Science. Vol. 2 No.
3. International Islamic University Malaysia.
2. Issa Qaed Mansour Qaed (2014). The Concept of Wadiah and its application
in Islamic Banking. Journal of Research in Humanities and Social Science.
3. Islamic Financial System: Principles & Operations (2013). International
Shari’ah Research Academy for Islamic Finance (ISRA).
4. Wadi`ah - Shariah Requirements and Optional Practices). Exposure Draft
2013
5. http://www.deenhaq.com/service/qardhasan.htm
6. http://www.slideshare.net/emkay84/isb540-qardh
7. http://myviewpoint2u.blogspot.my/2009/06/concept-of-al-qard-ul-
hasan.html
8. http://english.alarabiya.net/en/business/banking-and-finance/2014/09/10/-
UK-developing-Sharia-compliant-loans-for-Muslim-students.html
21
9. Al-Qard al-Hasan: A Practical Approach by Mohammad Delwar Hossain
10. http://irep.iium.edu.my/28988/
11. http://islamicfinanceasia.blogspot.my/2009/09/local-shariah-banks-wary-of-
offering.html
12. http://www.huffingtonpost.co.uk/2014/09/09/sharia-student-loan-system-
muslim-students-government_n_5790544.html

22