2 Important Types Of Wadiah In Islamic Finance

What is Wadiah?

Wadiah, an Arabic word known as a deposit (in the contemporary world), is a safekeeping contract following Islamic laws. In Islamic Banks, everyone calls it a deposit or deposit account. That is, a depositor puts his assets or property with the bank for safekeeping, and in most cases, banks charge some amount of money to keep the depositor’s funds safe. The word wadiah is derived from the verb wada’a, which means to leave, lodge, or deposit (Al-Farabi, 1987). We call the property owner or assets mudi (depositor), while the person entrusted with it is known as the wadi or mustawda‘. So far, the concept of Wadiah is well-known and widely used in many Islamic countries such as Malaysia and Bangladesh.


Types of Wadiah

There are two types of wadiah:

  • Wadiah yad Amanah – Safe custody based on trust.

It is a type of deposit that does not give the right to use the property. The custodian (the bank in many cases) will take care of the property, but he will not use it for trade and gain any profit. Therefore, this contract acts like a charitable contract. Moreover, the custodian does not charge any damages or loss related to the property unless it happens due to his negligence. Last, he must return the property at any time upon the demand of the owner.

  • Wadiah yad Damanah – Guaranteed Safe Custody.

Islamic Banks often use this type of deposit, where deposits are the primary sources of funds. In this deposit contract, the custodian enables to utilize the deposit for different purposes such as trading. As a result, the custodian has a right to gain profit from these assets or property. Furthermore, the custodian can be fully responsible for any damage that happened to the property. This type of wadiah combines two contracts, namely safekeeping (wadiah) and guarantee (daman).

The legality of Wadiah (deposit)

In Islam, the deposit is among the permissible contracts. The Quran and Hadith back up its legality.

“Indeed, Allah commands you to render trust to whom they are due and when you judge between people, to judge with justice” (Al Quran. Al-Nisa, 4:58) … “If you trust one another, then let him who is trusted fulfil his trust, and let him be conscious of God, his sustainer” (Al Quran. Al-Baqarah. 2:283)

Prophet SAW supported this verse, saying:

“And perform the trust to those who entrusted you and do not betray those who betrayed you” (Abu Daud).

Concluding from these examples, all Muslim scholars agree on the permissibility of wadiah. They also consider that wadiah is a necessity for protecting humankind and their property. So, it should be allowed (Zuhaily, 1985). Wadiah can be carried out by anyone who has trust in himself to take responsibility for it.

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