Accounting for Islamic financial transactions
FN 6103
Islamic Deposits Insurance
Omer Bin Thabet
0880944
1
Islamic Deposit Insurance
Introduction
In late 2005, Bank Negara Malaysia (BNM) announced a national insurance scheme for
bank deposits, which will be administered by newly formed independent statutory body
Malaysia Deposit Insurance Corp (MDIC). Bank Negara Malaysia has considered various
models adopted in other countries that operate explicit deposit insurance systems to
propose its model. This scheme is compulsory membership for commercial banks and
Islamic banks licensed under the Islamic Banking Act 1983
The main purposes of this scheme are: to enhance public confidence in the financial
system by providing explicit protection of deposits, protecting small depositors’ funds,
helping to avoid a crisis, guarding the payment system, providing a formal mechanism
for resolving failed banks.
The mechanism of this scheme, members required to pay annual premium based on the
institution’s total insured deposits. If any lose or fail happen to members (commercial or
Islamic banks) the MDIC will pay back percentage to the depositors. The issue here is
this amount pay to depositors in Islamic banks in case of mudaraba complaint with
Shariah perspective.
Discussion
According to Chief Executive Officer of the Malaysia Deposit Insurance Corporation
(2006), MDIC provides deposit insurance coverage for both conventional and Islamic
deposits - side by side and equitably for depositors of both systems…. In relation to the
Islamic deposit insurance fund, all investments and payouts in respect of Islamic
premiums are managed according to Shariah principles….The challenges for Islamic
deposit coverage are different from the conventional norm. For example, where
conventional deposit-taking is subject to a debtor-creditor relationship, Islamic deposittaking is premised on various Shariah concepts, such as “mudharabah”. Under
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mudharabah, deposits are accepted on a joint risk-taking basis where the bank and
depositor agree to share profits and loss that may arise from investment of the deposits.
Before argue about CEO statement its better to illustrate principles of mudarabah in
Islamic financial system. The Islamic financial system employs the concept of
participation in the enterprise, utilizing the funds at risk on a profit-and- loss-sharing
basis. This by no means implies that investments with financial institutions are
necessarily speculative. This can be excluded by careful investment policy,
diversification of risk and prudent management by Islamic financial institutions. It is
possible, that investment in Islamic financial institutions can provide potential profit in
proportion to the risk assumed to satisfy the differing demands of participants in the
contemporary environment and within the guidelines of the Shariah.
Under the principle of no pain no gain, no one is entitled to any addition to the principal
sum if he does not share in the risks involved. The capital provider or rabbulmal may
'invest' through an entrepreneur borrower or Mudarib, hence the name of the structure;
profits are shared on a pre-agreed basis but losses, if any are wholly suffered by the
rabbulmal. This financing structure is called Mudarabah and is similar to non-recourse
project finance.
The above statements show clearly that the main principle of mudarabah is sharing profit
between rabbulmal and capital provider because they are sharing the risk. This principle
provided by sharaih to as alternative of riba (interest) that implant in commercial banks.
This jess point behind the prohibition of riba because the profit here is guarantee.
By apply this principle on the current Islamic deposit insurance given by MDIC given to
depositors in Islamic banks we will find that premium is contravening the basic law of
Islamic finance that requires linking rewards to risks, due to these reasons:
First: this premium is interest because, mudarib know in advance that him capital is
guarantee in any circumstances i.e. zero or less risk. Which means the rewards that he
will get is not based on any risk like riba which prohibited in Islam.
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Second, according to Mudarbad contract, the return must be divided between rubbulmal
and entrepreneur. While this premium goes only to mudarib only as percentage of his
capital provided. This way of dividing return is contravening the contract of mudarabah
itself rather than the Shariah law.
Third, this amount paid by banks as manually premium is included Gharar (The
participant loses the money paid for the premium when the insured event does not occur)
like what happened in conventional insurance. Also, the bank will be in deficit if the
claims are higher than the amount contributed by the participants. Under all this
circumstances we will find this type of transaction is Gharar and this has been practice by
conventional insurance.
In addition, the nature of this insurance includes risk (Khatar) because Islamic bank
participant contributes a small amount of premium to gain a large in case of any risk
happened.
All the above reasons verify that the "Islamic deposit insurance" is unislamic and totally
contravene with Islamic finance law. Therefore, to have lawful Islamic deposit insurance,
Islamic banks all together must have Islamic institution that may work by using
benchmark with what is doing in takaful institutions to make its insurance fully consists
Shariah law.
Conclusion
One of the critical issues in Islamic finance what called Islamic deposits insurance. Under
this scheme MDIC required from conventional and Islamic banks similarly comply with
it to enhance public confidence in the financial system by providing explicit protection of
deposits.
To judge this scheme Islamically to have to know how it does work. Islamic banks
required to pay annual premium based on the institution’s total insured deposits. Then
MDIC will pay bank percentages of its deposits to the depositors (mudarabah) in case of
lose occur to the bank.
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‫‪According to Islamic law this type of transaction is contravening the basic law of Islamic‬‬
‫‪finance especially when there is contract to share profit and loses such as mudarabah,‬‬
‫‪because the rewards not linked to the risks.‬‬
‫المستشا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا‬
‫لم م ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ال ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ال ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ‪ 1‬الفتا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا‬
‫الشا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا‬
‫ض ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا اام‬
‫أ هنا ب االمو لم ضا‬
‫ما‬
‫فم ا‬
‫ضاام‬
‫ااد ال اال‬
‫ال ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا‬
‫أم ما‬
‫ا ب ها ما‬
‫المضا و ها أ م ا‬
‫ما‬
‫ااد الال ا ‪ ,‬ف اال هاالا ال ا‬
‫‪) 44‬‬
‫ااااااااااااااااا‬
‫ال لا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا‬
‫ا‬
‫لا‬
‫ا المضا‬
‫اساات لال لت م ا م ا اان‬
‫الما‬
‫ما‬
‫‪,‬‬
‫أم الم ا‬
‫ل السا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا ا اات م‬
‫فإلا أم‬
‫تحصا د للاب ما‬
‫للااب ‪ ,‬سا ا‬
‫ا‬
‫تا م‬
‫اد ال ناب الم ا‬
‫للااب ال ا‬
‫لمص ح‬
‫ال لا‬
‫م د آخ‬
‫ا ب الم لما أ أ‬
‫ما و أ‬
‫اا ل المضا‬
‫ل‬
‫أ‬
‫أ‬
‫الما‬
‫اا مسات‬
‫ال ما نم ما‬
‫ا المضا‬
‫ااد حتا لا ت اال ااالا الضاام‬
‫وط هلا ل ل المض و تح شم الشت اط‬
‫لف‬
‫م ااد‬
‫ل آخ‬
‫‪http://moamlat.al-islam.com/Display.asp?f=page55094&id=11721&t=tree&EF=11727&BF=11715&diac= 1‬‬
‫وينبغي أن يعلم أن جممع الفقه اإلسالمي أجاز ضمان رأس مال املضاربة من طرف اثلث عل سبيل التربع كما ورد يف القرار رقم ‪ 5‬من الدورة الرابعة [ ليس هناك ما‬
‫مينع شرعاً من النص يف نشرة اإلصدار أو صكوك املقارضة على وعد طرف اثلث منفصل يف شخصيته وذمته املالية عن طريف العقد ابلتربع بدون مقابل مببلغ خمصص‬
‫جلرب اخلسران يف مشروع معني‪ ،‬على أن يكون التزاماً مستقالً عن عقد املضاربة‪ ،‬مبعىن أن قيامه ابلوفاء ابلتزامه ليس شرطاً يف نفاذ العقد وترتب أحكامه عليه بني‬
‫أطرافه‪ ،‬ومن مث فليس حلملة الصكوك أو عامل املضاربة الدفع ببطالن املضاربة أو االمتناع عن الوفاء ابلتزاماهتم هبا بسبب عدم قيام املتربع ابلوفاء مبا تربع به‪ ،‬حبجة‬
‫َّ‬
‫]‬
‫العقد‬
‫يف‬
‫اعتبار‬
‫حمل‬
‫كان‬
‫االلتزام‬
‫هذا‬
‫أن‬
‫وخالصة األمر أن األصل يف ع قد املضاربة أنه ال جيوز ضمان رأس مال املضاربة من املضارب إال إذا تعدى أو قصر وجيوز أن يتربع املضارب بضمان ما يلحق‬
‫صاحب املال من خسارة عند وقوعها فعالً وليس عند انعقاد العقد على أن ال يكون التربع بتحمل اخلسارة شرطاً ملفوظاً أو ملحوظاً عند العقد‪.‬‬
‫‪References‬‬
‫‪Ariff, M. (1988). Islamic Banking. Asian-Pacific Economic Literature, Vol. 2, No. 2, pp.46-62.‬‬
‫‪The Economist. (2001). Forced Devotion Series: Finance And Economics. February 17 pp.76-77‬‬
‫‪Visioning on Deposit Insurance, (2006). International Open House of Korea Deposit Insurance‬‬
‫‪Corporation Seoul, Korea.‬‬
‫‪5‬‬