Musharakah in Bank Deposits

An important value of an Islamic society is mutual dealing. It also refers to deposits in banks. The operation of fixed deposits and savings account in Islamic banks will be different from conventional banks because the Islamic banks will be based on Musharakah (combination of Shirkah & Mudarabah) in which like conventional banks, people will invest in two ways:

1. Participation in setting up the bank like any other company by joint investment and the participants will be called the “shareholders”. They will have a partnership (Shirkah) affected by a mutual contract since they have used their capital and deed on the bank; and
2. Participation by opening their account in fixed deposit and savings account and participants will be called the “account holders”. These will not be the actual owner or shareholders of the bank – rather partners in profit only, meaning that they will have a contract of Mudarabah

The status of the bank or the shareholders will be that of a Mudarib and the account holders will be Rubb-ul-mal. The contract known as Musharakah will be a combination of Shirkah and Mudarabah. This is the reason why the profit ratio of depositors is less than the actual shareholders and the depositors will not have any voting power or the right of management because they are not involved in the deed but has only supplied the capital. This kind of dual relationship is not uncommon in Islamic Fiqh. Therefore if the Mudarib (Bank or the shareholders) wants to merge his assets with the assets of depositor, it is allowed in which case he will be regarded as owner of half the assets and Mudarib of the other half.

Following facts have been established:

1. The actual status of deposits is debt and not amanah.
2. The excess paid on loan is interest, not profit.
3. 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.
4. The shareholders will act as Rubb-ul-mal as well as Mudarib.
5. The depositors will only act as Rubb-ul-mal.
6. Fixed deposit and saving account will be converted into Mudarabah account where the distribution of profit for each partner will be determined in proportion to the actual profit accrued to the business and not according to a fixed ratio or in proportion to the capital invested by him. Fixing lump sum amount is not allowed or any rate of profit tied up with any investment.
7. The entire set-up of the bank is on Musharakah basis where the relationship of the bank and shareholders is through partnership agreement (Shirkah) because they are participating in labor as well as investment and the relationship between the bank and depositors is only that of Mudarabah because they have only invested without participating in labor. Therefore this combination of Shirkah and Mudarabah is called Musharakah in modern terminology.

Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.