An Insight into Sharī‘ah Contracts Used to Structure Current Accounts of Islamic Banks

By Muhammad Abu Bakar

Abstract

Purpose– The purpose of this research is to present a comprehensive analysis of Sharī‘ah contracts, used for structuring current accounts of Islamic banks, and find out the impermissible practices. Precisely, this paper attempts to discuss Qard, wadī‘ah and tawarruq contracts and potential Sharī‘ah issues with regard to their applications in current accounts of Islamic banks.

Design/ methodology/ approach-Library-based research are adopted. In this regard, the classical fiqh literature, writings of scholars, resolutions and standards from International organizations and Sharī‘ah councils and policy documents of Bank Negara Malaysia were carefully analyzed.

Findings–Our research finds that wadī‘ah is only used for trust-based safekeeping originally. Therefore, it is not suitable for guaranteed current accounts. Furthermore, this research finds that the structure of tawarruq for the current account is not acceptable according to the majority of scholars including AAOIFI. That’s why, it is suggested that the Qard shall be used for structuring current accounts rather than Wadī‘ah and Tawarruq. In addition, it is argued that the current practice of hibah/gift to current accounts holders is not advisable as it would tantamount to riba.Originality- To the best of our knowledge, this research is a value-added contribution to the existing literature on Islamic financial contracts as it gives some important suggestions and implications in order to improve the Sharī‘ah compliance of contemporary applications.