Ruling on deposit guarantee
Fatwa No: 99600

Question

Salam. what is the islamic hukm about deposit guarantee? Is it permissible? what are islamic principles that are related to deposit guarantee? kafalah or takaful? Is there any financial institution in the world that provide islamic deposit guarantee? And what is the difference between deposit insurance and deposit guarantee? Thank you. Hope for reply soon. Salam

Answer

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

 

According to the jurists  may  Allaah  have  mercy  upon  them a "Deposit" is an entrustment which is confided to others for safekeeping, and the person with whom it is deposited does not benefit from it, and he does not guarantee its loss or damage unless he damaged it or the damage happened due to negligence on his part.

This "Deposit" differs in reality from the deposit which is deposited in banks or companies nowadays. The money which is deposited in banks for investment is now called a "Deposit", but in reality, it is not a “Deposit” according to the abovementioned definition and which is known to the jurists  may  Allaah  have  mercy  upon  them. Rather, it is either a contract of Mudhaarabah (which is an Islamic term that means that a person gives an amount of money to another person in order to trade with it and the second takes a share in the profit, like one-fourth, or half, or a third and the like) or a loan with Ribaa (interest or usury). 

It is considered a Mudhaarabah contract if the investment is lawful, but it is not Islamically acceptable or correct for the owner of the capital to condition the guarantee of the capital money on the investing company.

However, if the company, the bank, or any third party other than the contracting parties donates an amount of money for compensating a loss if it occurs, then this is permissible but this donation should be independent from the contract of Mudhaarabah, and fulfilling this should not be a condition for the contract to be effective.

The “Deposit” could be a loan with Ribaa if the investment is not lawful, where the owner of the capital money gives the money to the bank or the company on the basis of a loan with interest, and it is known that this is forbidden, as the Prophet  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) cursed the one who consumes Ribaa and the one who gives it to others, and he  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) said: “They are equal in sin.

As regards the difference between insuring the deposits and guaranteeing them; a guarantee of the deposit is done by the person with whom it is deposited, whereas the insurance of the deposit is when the person who deposits the deposit insures its loss through insurance companies or the central bank and the like, and we are not aware of any Islamic institution which does an Islamic insurance on deposits.

Allaah Knows best.

Related Fatwa