Al-wadiah

Al-wadiah( saving account and current account)

DEFINITIONLiterally:To leave, quit, abandon the thing left with a person who is not its real owner for the purpose of safe keeping. Technically:Representation in keeping possession or respectable private goods in a specific way.Any belonging left by the owner or his representatives with somebody to take care of them.Al-Wadi'ah is the commission given by the depositor to the depositary for holding his property in safe custody; al-amanah and done on the basis of charity.

EVIDENCEAL-QURAN

HADIS Discharge the trust to the person who entrust it to you, and do not betray the one who betrays you. (Sunan Abu Dawud)IJMA The scholars from every single era of the Islamic eras had came to a consensus on the permissibility of the Wadi'ah contract since it is desired by the people in general to the extent that it is actually an essential and vital contract for the society

PILLARS OF AL-WADIAH Al MuwaddiDepositor, Owner of the propertyAl WadiDepositee, Custodian of the propertyAl-Wadi'ah Property for safe keepingSighahOffer (Ijab)Acceptance (Qabul)FLOW OF AL WADIAHAl-Muwaddi(Depositor, Owner of the property)Al-Wadi'ah (Property for safe keeping)Al Wadi(Depositee, Custodian of the property)Ijab (Offer)Qabul (Acceptance)CONDITION OF AL-WADIAHConditions for Contracting Parties: Al-muwaddi is the depositor or the owner of the property,Al-wadi is the depositee or the custodian of the property,Both parties must be person of sound mind and eligible to do a contract (ahliyaah al ada`a capacity to exercise),Both parties must be eligible to be a wakil (agent) and trustee, Al-wadi must ensure his capability to safe-keep the deposit.

Conditions for Wadiah (Deposited Property): It must be valuable from Shariah view point, must be owned and deliverable,It must be a form of property that can be possessed physically.

TYPES OF AL-WADIAHNOTES: Wadiah Yadd al-AmanahSafe custody based on trustCharitable and divinely rewardedWadiah Yadd al-DhamanahGuaranteed safe custody, is a combination of safekeeping (Wadi'ah) and guarantee (dhaman).

WADIAH YADD AL- AMANAHWADIAH YADD AL- DHAMANAHWADIAH YADD AL-AMANAHGenerally, wadiah is based on amanah (trust). Important features of wadiah yadd al-amanah:The custodian should keep the deposits as if he is keeping and taking care of his own property,The custodian should not responsible for any damage of the property so far it has not resulted from his negligence,The custodian is not entitled to any profits gained from the contract. Any benefits accrued from the deposit belong to the owner,The custodian should not utilize or take benefit of the deposit,The custodian should not transfer the deposit in the hands of others without permission of the depositor, The custodian should not take the deposit in journey unless permission is given,The custodian should return the deposit back to the owner upon request.

WADIAH YADD AL-DHAMANAHThe Wadi'ah is based on guarantee whereby the custodian guarantees the refund of the property kept with him and ensures to refund the item upon request and it is used widely in islamic banking system. Important features of wadiah yadd al-dhamanah:The custodian is entitled to use the deposited property for trading or any purposes.The custodian has a right to any income derived from the utilization of the deposited item and liable for any damages or lossThe custodian owns the profit 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.The custodian must return the deposited property to the owner at any time upon the request of the depositor.

AL-WADIAH CONTRACT:TRUST OR GUARANTEE ?Al-Wadi'ah: Act of Trust (amanah) or Act of Guarantee (dhamanah)?The jurists from different mazhabs had agreed that alWadi'ah is an act of good deed which is encouraged (mandub), and there is reward (in the hereafter) for its preservation.Mandub- act in which whoever does it will be rewarded, but if the person does not do it will not be punished for not doing itIt is essentially an act which is based on pure trust(amanah) and not a guarantee(dhamanah). Al-wadiah:act or trust become act of guaranteeBesides the cases of ignorance, contract of Wadi'ah could be transformed from trust (amanah) into guarantee (dhamanah) in the following cases if the depositee:

Ignores the protection and safe keeping of the deposited propertyDeposits the property with somebody else, or not somebody who normally takes care of the depositees property.Benefits from the usage of the deposited propertyTravels with the deposited property.Refuses to return the deposited property to the depositor or withholds it even though he/she is capable of returning it.Mixes the deposited property with other properties, which could not be recognized and distinguished from each others.

MODERN APPLICATIONResponsibility 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-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 alWadi'ah 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. Al-Wadi'ah Current AccountIslamic Bank mobilizes customers deposits in Current Account under the principles of Al-Wadiah Yad Dhamanah (guaranteed custody). It is based on the combination of contract of custody (al-Wadiah) 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.

Al-Wadi'ah Saving AccountIslamic Bank mobilizes customers deposits in Savings Account under the principles of Al-Wadiah Yad Dhamanah (guaranteed custody),It is based on the combination of contract of custody (al-Wadiah) 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. ah).

Differences between DEPOSITS UNDER ISLAMIC AND CONVENTIONAL BANKING CONVENTIONALDIFFERENCESISLAMICLoan contractCONTRACTWadiah (safe keeping) contractLender and borrowerRELATIONSHIPDepositor and depository (custodian)Deposits are paid interest INCOMEDeposits are not entitled to any incomeConventional banks must give their depositors their interest paymentsOBLIGATION Islamic banks may give the depositors a share of profits at their discretion (gift)Deposits are liability products of a bank PRODUCTSDeposits are either a trust or guarantee products of a bank