Wadiah, Wadiah Yad Dhamanah (Safe Custody / Safe Custody with Guarantee)
- The Bank undertakes to keep safe the customers deposit and return to them upon demand. The Bank has no obligation to pay profit / interest. A token return can be given based on discretion as a Gift.
Common Usage : Savings Account, Current Account
Mudharabah (Profit Sharing)
- The customer provides the fund (Raab Ul Maal) and the bank invest the funds (Mudharib).The Bank agrees to collect funds from customers, invest and share profits derived from the investment (if any) upon maturity of investment period. The customer does not get involved in the management of the investment. However, in a Restricted Mudharabah, the customer can indicate, before the investment is made, the channels for the investment.
- The Profit Sharing Ratio is agreed up-front e.g. 70 (customer portion) to 30 (Bank portion) and cannot be revised without prior consent. So, if the net profit from an investment is $100, the customer gets $70 while the Bank keeps $30.
- However, if the investment makes a loss, the customer may not have any returns and capital returned may be less than 100% as all the capital risks are with the customer. The bank will avoid this by placing some internal mechanism to ensure customers’ interest are protected.
Common Usage : General Investment Amount (FD), Savings Account, Current Account
Wakala Fi Isthimar (Agency for Investment)
The customer approach the Bank to seek investment opportunities available for their funds. The customer indicates to the Bank his/her expected rate of return for his investment. The Bank will evaluate the customer’s expectation of return against the current returns generated by the Bank.
If the Bank is able to meet the customer’s expectation, the customer and Bank will go into an Agency Agreement where the customer will appoint the Bank as an Agency for the purpose of achieving the indicative returns for the investments. Bank will accept the appointment with an Agency fee and proceeds to invest the funds.
Although the returns are indicative, the Bank is expected to be able to deliver the returns to the customer. However, should the actual returns be below the expected returns, the Bank may return the Agency fee and/or decide to compensate / meet the expected rate of returns at their discretion. However, any compensation paid to meet the expectation should be derived from either shareholder fees or profit reserves from prior profits recorded.
If the actual returns exceed the indicative returns to the customer, the Bank will retain the surplus as part of the Bank’s incentive. The Bank is not obliged to pay more than the indicative returns to the customer.
Common Usage : General Investment Account (FD), Savings Account, Current Account
Qardh / Qardhul Hassan (Loan / Interest Free i.e Benevolent Loan)
- The customer is granted a loan where no interest is charged, usually for a short period of time. Used to cover temporary excess in current accounts.
Common Usage : Temporary Overdraft, Savings Account, Current Account