Islamic Deposits in Practice

Abstract

Deposits and Saving accounts are major source of funds and create financial strength for Islamic banks besides shareholders’ funds. The sources of funds are essential in supporting the liquidity requirements of Islamic banks and to provide financing services. The treatment of Deposits in Islamic bank is similar to conventional banks, that is, it acts as source of funds and is treated as liability in the balance sheet. Islamic banks raise funds generally based on Wadiah, Mudharabah and Wakalah contracts. Islamic banks offer products for savings, current (demand) and investment deposits, structured to comply with Syariah principles. The role of an Islamic bank is to accept deposits and employs some funds for financing purposes or in other profit-making activities. In Islam, savings is termed as a surplus income and it must be invested again in the economy and is facilitated through deposits by Islamic banks. Depositors in Islamic banking are considered as investor or shareholders, and they earn dividends when the investment makes a profit or lose part of their investment in the event there is a loss. There is no pre-determined rate of returns; the profit and loss sharing is based on the pre-agreed sharing ratio.