Deposit mobilization in islamic banking

Shariah Principles of Deposit Mobilization

Introduction
Mobilization of deposit is one of the main function of banking business and also an important
source of working fund for the bank. Mobilization of deposits for a Bank is essential as oxygen for
human being and also deposit is the LIFE BLOOD of a bank. A major portion of investable fund of a bank
comes from deposit. A bank earns an average 70-75% of its gross income by investing depositors money.
Moreover, size and place of banks are determined on the basis of volume of their deposit.
So, the main function of Islamic banks is to mobilize deposits from the savings of individuals and
to make these deposits available for investment ensuring production and distribution for the
establishment of equity, justice and welfare in the society. Allah, the almighty says in the Holy Quran.
◌ۗ ُ‫ﻓ َﺈ ِنْ أ َﻣِ َﻦ ﺑ َ ْﻌﻀُﻜُﻢ ﺑ َ ْﻌﻀًﺎ ﻓ َْﻠﯿُﺆَ ِد ّ اﻟ ﱠ ﺬِي اؤْ ﺗ ُﻤِ َﻦ أ َﻣَ ﺎﻧَﺘَﮫُ َ ْوﻟﯿ َﺘ ﱠﻖِ ا ﱠ َ رَ ﺑﱠﮫ‬
“And if one of you deposit a thing on trust with another let the trustee (faithfully) discharge his trust,
and let him fear his lord”. (Sura Al Baqarah: 283)

A_©t hw` †Zvgv‡`i ga¨ †_‡K †Kvb e¨w³ A‡b¨i Ici wbf©i K‡i Zvi mv‡_ †Kvb KvR Kvievi K‡i Zvn‡j hvi Ici wbf©i Kiv n‡q‡Q
†m †hb Zvi AvgvbZ h_vh_i“‡c Av`vq K‡i Ges wb‡Ri ie Avjvn&‡K fq K‡i|
َ ‫ﺼﺪﱡونَ ﻋَﻦ ﺳَﺒ ِﯿﻞِ ا ﱠ ِ ۗ◌ َواﻟ ﱠ ﺬِﯾ َﻦ ﯾ َﻜْ ﻨ ِﺰُ ونَ اﻟﺬ ﱠھَﺐَ َو ْاﻟ ِﻔﻀﱠﺔ‬
ُ َ ‫ﱠﺎس ﺑ ِﺎﻟ ْ ﺒ َﺎطِ ﻞِ َوﯾ‬
ِ ‫َﻣْﻮا َل اﻟﻨ‬
َ ‫َﺎن ﻟ َﯿ َﺄ ْﻛُﻠ ُﻮ َن أ‬
ِ ‫اﻷّﻦََﺣْ ﺒ َِﺎر َواﻟﺮﱡ ْھﺒ‬
‫ﯾ َﺎ أ َ ﯾﱡﮭَﺎ اﻟ ﱠ ﺬِﯾﻦَ آﻣَ ﻨ ُﻮا إ ِنﱠ َﻛﺜ ِ ﯿﺮً ا ْ ِﻣ‬
ٍ‫ب أ َ ﻟِﯿﻢ‬
ٍ ‫َو َﻻ ﯾُﻨﻔِﻘ ُﻮﻧَﮭَ ﺎ ﻓ ِﻲ ﺳَﺒ ِﯿﻞِ ا ﱠ ِ ﻓ َﺒ َ ِﺸ ّﺮْ ھُﻢ ﺑ ِﻌ َﺬ َا‬

“O you who have believed, indeed many of the scholars and the monks devour the wealth of people
unjustly and avert [them] from the way of Allah . And those who hoard gold and silver and spend it not
in the way of Allah - give them tidings of a painful punishment.” [Sura At Tawbah : 34]

A_©t †n Cgvb`viMY! G Avn‡j wKZve‡`i AwaKvsk Av‡jg I `i‡e‡ki Ae¯’v n‡”Q GB †h, Zviv gvby‡li ab m¤ú` Ab¨vq c×wZ‡Z

Lvq Ges Zv‡`i‡K Avjvni c_ †_‡K wdwi‡q iv‡L| hviv †mvbv I iƒcv Rgv K‡i iv‡L Ges Zv Avjvni c‡_ e¨q K‡i bv Zv‡`i‡K
hš¿Yvgq Avhv‡ei myLei `vI|

‫َﻣْﻮاﻟ َﻜ ُﻢُ اﻟ ﱠ ﺘ ِﻲ ﺟَﻌ َ َﻞ ا ﱠ ُ ﻟ َﻜ ُﻢْ ﻗ ِﯿ َﺎﻣًﺎ َوارْ زُ ﻗ ُﻮھُﻢْ ﻓ ِﯿﮭَﺎ َواﻛْ ﺴُﻮھ ُﻢْ َوﻗ ُﻮﻟ ُﻮا ﻟ َﮭُﻢْ ﻗ َْﻮ ًﻻ ﻣﱠ ﻌْﺮُ وﻓ ًﺎ‬
َ ‫َو َﻻ ﺗ ُﺆْ ﺗ ُﻮا اﻟَﮭَﺴﺎءَﱡﻔ أ‬
“And do not give to the foolish your property, which Allah has made a means of sustenance for you, but
provide for them with it and clothe them and speak to them words of appropriate kindness.” [Sura An
Nisa: 5]

A_©t Avi †Zvgv‡`i †h ab m¤ú`‡K Avjvn& †Zvgv‡`i Rxeb avi‡Yi gva¨‡g cwiYZ K‡i‡Qb, Zv wb‡ev©a‡`i nv‡Z Zz‡j w`‡qvbv Z‡e
Zv‡`i LvIqv civi e¨e¯’v K‡iv Ges m`yc‡`k `vI|


In Addition, in case of mobilizing deposits Islamic bankers have to be very much careful:
 To provide the interest-free banking facilities to the depositors with a view to make them safe
from the curse of riba (interest).
 To establish participatory banking relationship with clients instead of debtor-creditor
relationship. The resulting relationship that exists between the customers and the Islamic banks
is one of a depositor and a depository.
 To accept deposits on the basis of Shariah stipulation of Al-wadi’ah and Mudarabah principles
which have been permitted in the Islamic Shariah.
 To establish trust financing oriented banking system and take it as worship (Ibadat).
 To extend co-operation to the low-income group of people of the society for their economic upliftment by opening deposit accounts with the small amount of initial deposit.
 To contribute in achieving the capital formation goal of the economy.
Basis of Shariah
Islamic Banks mobilize its deposits through two principles of Shariah.
 Al-Wadeeah Principle
 Mudarabah Principle
Al-Wadeeah Principle
 Wadeeah – Literally it means deposit. Legally, it is a contract by which a person leaves his

property for safe protection to another person and through Wadeeah a person empowers
someone else to keep and protect his property.
 The word ‘Al-Wadeeah’ has been derived from Arabic word ‘Wada’yun’ which means ‘to
keep/to deposit/to give up/Amanat.
 As per Shariah, Amanat means to keep something (goods/money/others) to any reliable
person/institution for safe and secured preservation of the same keeping its ownership
unchanged and which will be returned to the owner of the fund on demand as it in original
shape.
 In case of Amanat, Bank/any other person/institution can not use, invest and amalgamate the
funds of Amanat with the banks/his/its/other funds without prior permission of the owner of
the Amanat.
 But the concept of Al-Wadeeah indicates to some extend addition of the concept of Amanat, in
which there is a provision to obtain prior permission from the owner of the fund to use, invest,


amalgamate the said fund with their/other funds and return the same within banking hour on
demand.
 Bank is here ‘Muaddah Elaihe’, depositor is ‘Muaddi’, and money/goods are ‘Muaddah’.

In Islamic banks, it receives money from the depositors with the condition to return the same on
demand. With depositors permission, the Bank can use/invest the money without paying
benefit for this deposits though the Banks have right to realize charges from the client for safe
keeping of the money or for services it rendered.
Characteristics of AWCA (Al-Wadeeah Current Account)
 This A/c is fully governed by “Al-Wadeeah” Principle under Islamic Shariah.
 The depositors can deposit any amount in this account.
 The depositor can with draw any amount.
 No profit is allowed in this account.
 The depositors shall also not bear any loss.
 Cheques, bills etc. are collected in this account against commission.

 Govt. excise, incidental charges etc. are realized from this account as per rule.

Mudaraba Principle
 Meaning: The word ‘Mudaraba’ has been derived from Arabic word ‘Darb’/’Darbun’ which
means “Travel” Literally, it means movement to earn Rahmat (Munafa) of Allah (Al-Qur’an
73:20). Thus the word Mudaraba means travel for undertaking business.
 Definition: “Mudaraba is a partnership in profit whereby one party provides capital and other
party provides skill and labour. The provider of capital is called “Shahib-al-Mal” or ”Rabb-ul-Mal
(owner of the fund) while the provider of skill and labour is called “Mudarib”
(Organizer/Manager).
 As per definition of Accounting and Auditing Organization for Islamic Financial Institution
(AAOIFI), Mudaraba is a partnership in profit whereby one party provides capital (rab-al-maal)
and the other party provides labour (Mudarib).
 So, Mudaraba may be defined as a contract of partnership where the “Shahib-al-Mal” provides
capital to the Mudarib for investing it in a commercial enterprise by applying his labour and
endeavor.


 Both the parties share the profit as per pre-agreed ratio and the losses, if any, being borne by
the provider of funds i.e. “Shahib-al-Mal” except if it is due to breach of trust i.e. misconduct,
negligence or violation of the conditions agreed upon by the Mudarib. If there is any loss
incurred due to the reasons mentioned above, the Mudarib becomes liable for that.
Characteristics of MSA (Mudaraba Savings Account)
 Total profit resulting from such investments will be distributed between the Bank and the
depositor as per agreed ratio.
 Normally individuals, Society, Club, Mosque Committee open such kind of Account. We do not
encourage to open the Account in the name of business concern, Limited Company etc.
 Opening of more than one Account in the name of same person is not allowed normally.
Profit / loss will be calculated on monthly product basis.