Wadiah

Wadiah corresponds to safekeeping, custody, deposit and trust. In Islamic finance, wadiah refers to the deposit of funds or assets by a person with an Islamic bank. In this arrangement, the depositor deposits his funds or assets with the bank for safekeeping and in most of the agreements the bank charges a fee for the safe custody of the depositor’s funds.

There are two basic types of wadiah:

• Wadiah yad amanah refers to property is deposited on the basis of trust (guarantee safe custody).
• Wadiah yad Dhamanah refers to savings with guarantee or safe-keeping.

The term wadiah relates to the old concept of amanah where one person hands over his or her assets to other person for the purpose of safekeeping. The concept of Wadiah has been implemented in different Islamic countries such as Malaysia and Bangladesh [1]. Generally, Islamic banks charge an accounts maintenance fee for wadiah accounts, which can be attributed to the administrative costs incurred by the bank in managing the assets or funds in safe custody.

Some features of Wadiah Bank Accounts

• This is a non profit and loss bearing product.
• Bank gives the guarantee to return the full amount on demand / maturity at its own risk (depositor will not share the risk).
• Bank can invest this deposited fund with the permission of the depositor. Bank may share the profit with the depositors as per management’s decision.
• Accounts maintenance fees apply.

Related Verses from the Qur’an

“Indeed, Allah commands you to render trust to whom they are due and when you judge between people, to judge with justice” (Al Quran, Al Nisa, 4:58)

Hadith on Safekeeping

The Prophet  said: “Render back the trust to the one who entrusted it to you, and do not betray those who betray you.” Narrated by al-Tirmidhi, 1264; classed as saheeh by al-Albaani in Saheeh al-Tirmidhi.

References

[1] Hosen, M. and Nahrwai, A. (2012) Comparative analysis of Islamic Banking products between Malaysia and Indonesia. International Journal of Academic Research in Economics and Management Sciences.