Principles of collecting Deposit

Al-Wadiah Principle:


  • Al-Wadiah means amanat (like Bailment)
  • In Al-Wadiah Principle the Bank (Bailee) receives the deposit like amanat and the depositor (Bailor) authorizes the Bank to use the deposit in Shariah compliant modes at the risk of Bank
  • The Bank is liable to return the deposit to the depositor on demand.
  • Usually profit is not allowed against the Al Wadiah deposit


Literally Al-Wadiah means amanat (like Bailment) where the Depositor (Bailor, who offers amanat) authorizes the Bank (Bailee, who takes amanat) to use the deposit given as amanat in Shariah compliant modes and the Bank (Bailee) is liable to return the same to the depositor (Bailor) on demand. Islamic Banking Current Account Deposits are managed on this Al-Wadiah principle. This is why in Islamic banking, Current Account is termed or named as Al-Wadiah Current Account. By opening such account, in general a depositor does not acquire any management (voting) right on the Bank or on the funds deposited. Apparently in banking operation Al-Wadiah Current Account seems to be similar to the conventional Current Account (of traditional Banks); but the difference lies in principle. 

The operations of Al-Wadiah Current Account is primarily guided by the aforesaid principle of Al-Wadiah which in Islamic banking means the Bank (as Trustee unlike borrower in case of conventional current Account) would receive money from the client for safe custody with the condition to return the money on demand by the client either through cheques or by any other acceptable means, with prior permission from him/her (client/depositor) to the effect that the Bank can use money at its risk. At present no profit shall be allowed on Al Wadiah Current Account balances. The Bank at its own discretion uses the fund obtaining explicit consent from the depositors through acceptance of account opening rules to use their fund in amalgamation with Bank's other funds at its own risk. Therefore the account holders bear no risk arising from use of their fund. The Bank would, however, enjoy the discretion to realize charges from the clients for safe keeping the money or for any other special services, if rendered.


Mudaraba principle:


  • In Mudaraba principle the depositor is termed as Rab-al-Mal / Saheb-al- Mal and the Bank as Mudarib.
  • The depositor keeps the Mudaraba fund in a bank and authorises the Bank is to invest the same at the risk of depositor.
  • Profit emerged from deployment of the respective deposit is distributed between the Bank and the depositor as per pre- agreed ratio
  • Loss incurred, if any, is borne by the depositor.

Mudaraba means an arrangement in which a party participates in a venture as provider of fund and another as a Fund Manager. In Mudaraba accounts the party providing the fund (i.e. the depositor) shall be termed as Rab-al-Mal / Saheb-al- Mal (Owner of the fund) and the Bank will be the Mudarib (Manager/ Organiser of the fund). The Bank is authorised to invest the Mudaraba fund at the risk of the depositor (Rab-al-Mal). The Bank will arrange proper deployment of the fund. Through these accounts, usually the depositors do not acquire any management (voting) right on the Bank. Distributable income (means Distributable Investment Income after netting off Provision for Mudaraba Depositors Profit Equalisation at prescribed rate and provision for special mention & classified investment accounts and/or other regulatory requirement) resulting from deployment / investment of the Mudaraba fund will be distributed between the Bank and the depositor as per respective agreed ratio with different types of Mudaraba depositors. Loss incurred, if any, is to be borne by the Owner of the fund.