MAHYUDDIN KHALID emkay@salam.uitm.edu.my

FIQH MUAMALAHISLAMIC BUSINESS TRANSACTION

CHAPTER TWELVE

AL-WADIAH

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

2

DEFINITION EVIDENCE PILLARS SIGNIFICANCE OF AL-WADIAH MODERN APPLICATION

CONTENT

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

3

Literally: Al-wadiah it means to leave, quit, abandon etc

Technically: A thing or commodity committed to the trust and

care of a person A contract whereby a person leaves his property for

safe protection to another person

Al-wadiah is the commission given by the depositor to the depositary for holding his property in safe custody; al-amanah

DEFINITION

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

4

EVIDENCE

Al-Quran: .

Hadith: “Discharge the trust to the person who entrust it to

you, and do not betray the one who betrays you”

Ijma’: The scholars from every single era of the Islamic eras

had came to a consensus on the permissibility of the Wadiah c ontract since it is desired by the people in general to the extent that it is actually an essential and vital contract for the society

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

5

1. Al – Muwaddi’ Depositor, Owner of the property

2. Al – Wadi’ Depositee, Custodian of the property

3. Al-Wadiah Property for safe keeping

4. Sighah Offer (Ijab) Acceptance (Qabul)

PILLARS OF AL-WADIAH

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

6

FLOWS OF AL-WADIAH

Al-Muwaddi’(Depositor, Owner of

the property)

Al – Wadi’(Depositee, Custodian of

the property)

Al-Wadiah (Property for

safe keeping)

Ijab (Offer)

Qabul (Acceptance)

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

7

TYPES

1. Wadiah Yadd al-Amanah

Act of Trust

Bank acts as a trustee to the fund.

If the money under custody is accidentally lost or destroyed, the custodian is not obliged to replace or compensate it.

2. Wadiah Yadd al-Dhamanah

Act of Guarantee

Bank’s responsibility is in form of guarantee

If the deposits are pooled together and are utilized, it is compulsory for the bank to return the fund as when requested by the customer

TYPES OF AL-WADIAH

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

8

Al-Wadiah: Act of Trust (amanah) or Act of Gurantee (dhamanah)? The jurists from different mazhabs had agreed that al–

Wadiah is an act of good deed which is encouraged (mandub), and there is reward (in the hereafter) for its preservation.

It is essentially an act which is based on pure trust(amanah) and not a guarantee (dhamanah).

The depositee is not liable to be the guarantor of the contract except for cases of carelessness or negligence.

Hence, it is not legal to require the trustee to be a guarantor (accountable).

AL-WADIAH CONTRACT : TRUST OR GURANTEE?

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

9

Besides the cases of ignorance, contract of Wadiah could be transformed from trust (amanah) into guarantee (dhamanah) in the following cases if the depositee:1. Ignores the protection and safe keeping of the

deposited property2. Deposits the property with somebody else, or not

somebody who normally takes care of the depositee’s property.

3. Benefits from the usage of the deposited property4. Travels with the deposited property.5. Refuses to return the deposited property to the

depositor or withholds it even though he/she is capable of returning it.

6. Mixes the deposited property with other properties, which could not be recognized and distinguished from each other.

7. Commits certain conducts which are against the predetermined condition of the depositor.

AL-WADIAH: ACT OF TRUST BECOME ACT OF GUARANTEE

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

10

1. Safeguard and protect any valuable from being stolen, destroyed or misplaced.

2. The protection of valuables for almost everybody who thinks their home and office are not safe enough. It is also costly and not cost effective (except for bigger corporations) to manage these properties on their own since not everybody could afford to manage their valuables on their own and still need professional individuals or groups to handle it.

3. Furthermore, in the case of Cash Deposits, it could also be used for investment purposes and can contribute to the economic growth of the nation from two aspects:a. The surplus units (depositors) could channel their cash

for the deficit units (companies and entrepreneurs). They can obtain return in the form of dividends or profit.

b. The deficit units (companies and corporations) could obtain funds for the financing of their projects from the pool of funds deposited by the surplus units.

SIGNIFICANCE OF AL-WADIAH

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

11

1. Al–Malikiah , Abu Yusof, Al-Laiths and Sufyan

The profit is for the depositee who traded the cash

REASON:

1. The agent (depositee) is the guarantor and custodian of the money until it is returned back to the real owner.

2. The depositor does not essentially enter the contract of Wadiah with the intention of gaining any profit but with the purpose of safe guarding their deposited property. Hence, they should be given their original property without any amount of profit.

2. Abu Hanifah The depositee should donate the profit without benefiting from the proceeds

REASON:

1. The revenues were earned through an illicit gain.2. If it is forbidden to sell the Wadiah property, the acquired profit

would be considered as an illicit gain which could only be purified through donation and charity.

3. The profit will be shared and split between the depositor and depositee on the basis of Mudharabah contract.

PROFIT GAINED FROM THE USAGE OF MONEY UNDER AL–WADIAH

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

12

Responsibility of an Islamic Bank is considered as Yad Dhamanah when: Bank imposes certain fee on the safe keeping of the

items and provides a special place for the safe custody of these items.

The bank will be held responsible for the replacement of these items in cases of loss, damage or destroy even if these disaster occur unintentionally or due to negligence.

Bank uses the cash money for business purposes. In this case, the bank is obligated to fully return the al-Wadiah money that has been used back to the owner, regardless of whether the bank had made any profit or even loss from the business venture using the al–Wadiah money.

This means that any profit would be owned by the bank and they have the right to give all or part of the proceeds back to the depositor based on their discretion as a gift or token which are not promised earlier

MODERN APPLICATION

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

13

Al-Wadiah Current Account Islamic Bank mobilizes customers’ deposits in Current

Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody).

It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (Yad Dhamanah).

Bank receives deposits from its customers who want to make a safe custody of their funds and utilizing the services provided under the scheme of a current account.

The bank then will ask permission to utilize their funds. However, the customers may withdraw their saving any time they desire.

All the profit generated by the bank from the use of funds belongs to the bank.

The bank provides cheque books and other services provided by conventional bank to the current account.

MODERN APPLICATION

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

14

Al-Wadiah Saving Account Islamic Bank mobilizes customers’ deposits in Savings

Account under the principles of Al-Wadi’ah Yad Dhamanah (guaranteed custody).

It is based on the combination of contract of custody (al-Wadi’ah) and guarantee (dhamanah)

Bank accepts deposits from its customers who want to make a safe custody of their fund

Profit generated by the bank from the use of such funds belong to the bank.

Bank may at his discretion reward the customer by returning a portion of profits generated from the use of their funds from time to time.

Bank provides its customers with saving passbook and other usual services provided for saving accounts by the conventional banks. ah).

MODERN APPLICATION

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

15

CONVENTIONAL ISLAMIC

Loan contract CONTRACT Wadiah (safe-keeping) contract

Lender – Borrower RELATIONSHIP Depositor – Depositee

Deposits are paid interest

INCOME Deposits are not entitled to any income

Conventional banks must give the depositers their interest payment

OBLIGATION Islamic banks may give the depositer a share of the profits generated at their discretion

Deposits are liability products of a bank

PRODUCTS Deposits are either a trust or guarantee products of a bank

DIFFERENCES BETWEEN DEPOSITS UNDER ISLAMIC AND CONVENTIONAL BANKING

DEFINITION

EVIDENCE

TYPES

SIGNIFICANCE

APPLICATION

COMPARISON

16

END OF CHAPTER