THREE TYPES OF ACCOUNT IN THE LIGHT OF ISLAMIC RULES

DEFINITION OF EACH ACCOUNTS

There are three types of account which are commonly known in the Islamic Banks. These are: Current Account, Saving Account and Investment account.

CURRENT ACCOUNT:
The main characteristics of this account, as operated by Islamic banks, are below:

1. The bank guarantees the full return of these deposits on demand and the depositor is not paid any share of the profit or any other return in any form.
2. Depositors authorize the bank to utilize their funds at the bank's own risk. Hence, if there is any profit resulting from the employment of these funds, it accrues to the bank and if there is any loss, it is also borne by the bank.
3. There are no conditions with regard to deposits and withdrawals.
4. Usually account holders have a right to draw checks on their accounts.
5. Current accounts can be considered as call deposits or demand deposits.
   

SAVING ACCOUNT:
The Bank accepts deposits from its customers looking for safe custody of their funds and a degree of convenience in their use together with the possibility of some profits in the form of Saving Accounts on the principle of Al Wadia.

The bank requests permission to use these funds from the depositor. The depositors can withdraw the balance at any time they so desire and the Bank guarantees the refund of all such balances.

All the profits generated by the Bank from the use of such funds belong to the portion of the Bank.

In contrast with the current account, the Bank may, at its absolute discretion, reward the customers by returning a portion of the profits generated from the use of their funds from time to time.


INVESTMENT DEPOSITS

Investment deposits are Islamic banks' counterparts of term deposits or time deposits in the conventional system. They are also called Profit and Loss Sharing (PLS) Accounts or Participatory Accounts.

The main characteristics of investment deposits can be described as follows:

1. The depositors do not receive any interest but they participate in the share of the profits or losses.
2. Usually these accounts are opened for a specific period, e.g. three months, six months, one year or more.
3. The return on investment is determined according to the actual profits from the investment operations of the bank and shared in an agreed proportion by depositors according to the amount of their deposits and the period they are held by the bank.
4. Depositors do not have the right to withdraw from these accounts as is customary in time deposits in conventional banks. However, withdrawals may be made under special circumstances with the depositor forfeiting his share of the profit for the withdrawn amount.
5. Usually, banks insist on a specified minimum amount to open and maintain the investment account.
6. Most banks issue an investment certificate to depositors stating the terms and conditions of the deposit.
   

The Difference Between Investment Account And Traditional Fixed Term Deposits:

• Fixed term deposits in the conventional system operate on the basis of interest, while investment accounts in Islamic banks operate on the basis of profit sharing.
• Instead of promising depositors a predetermined fixed rate of return on their investment, the bank tells them only the ratio in which it will share the profits with them.
• How much profit each depositor earns depends on the final outcome of the bank's own investment.
• Fixed term deposits are usually distinguished from each other on the basis of their maturities; while investment deposits can be distinguished on the basis of maturity as well as on the basis of purpose, as it is possible to give special instructions to the bank to invest a particular deposit in a specified project or trade.
  

STATUS OF THE ACCOUNTS:

Current Account:
There are two dominant views:
One is to treat demand deposits as Amanah. This view is adopted by the Jordan Islamic Bank which operates a "Trust Account" instead of a current account. A trust deposit is defined by the Jordan Islamic Bank as "cash deposits received by the bank where the bank is authorized to use the deposits at its own risk and responsibility in respect to profit or loss and which are not subject to any conditions for withdrawals or depositing. In a trust, obtaining the specific permission of the owner of the funds is necessary.

The other view is to treat demand deposits as Qard Hasan. So, money deposited in these accounts is a benevolent (or interest free) loan (Qard Hasan) from the depositor to the bank. The bank is free to utilize these funds at its own risk without any return to the depositor and without needing any authorization because in the case of Qard Hasan, the debtor does not need the specific permission of the creditor to use the borrowed funds. The debtor owes the creditor only the principal amount borrowed. This view has been adopted by Iranian Islamic banks which call the current account "Qard Hasan current account".

Saving Account:
In saving account, depositors are guaranteed that their amounts will be refunded in full on demand, but however, they are not participating in a business risk. So, savings depositors are not Islamically entitled to any return. In case some portion of the profits generated from the use of saving deposits are given to the depositors, it is absolutely at the discretion of the bank and it should be treated as gift.

The conclusion is that the saving account can also be considered as Qard-Hasan as there are requirements such as:
Authorization to utilize the deposited amount.
The depositors are guaranteed in full for the repayment when they demand.
The banks are liable for returning the amount.


Investment Account
Participation by the depositors in the investment account can be considered as Mudarabah, in which the depositor is the owner of the mal and the bank is a mudarib. So the profits generated from the investment operation are shared between the bank and the depositor.

CONCLUSION:

• In case of current account, the status of deposits is debt and not amanah because in amanah, the bank can not use it for its business and benefit. Furthermore, in amanah, the bank can not be liable for any damage or loss resulted from circumstance beyond his control.
• The excess paid on loan is interest, not profit. If a bank is operating on Islamic principles, the bank and the depositor will have a partnership through a contract of Shirkah or Mudarabah in which case the depositor's capital will not be regarded as loan.
• The relationship between the bank and depositors is only that of Mudarabah because they have only invested without participating in labor. The depositors will only act as Rubb-ul-mal.