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Bank deposit guarantees

Published: 24/08/2011 10:35:00 AM GMT
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What is the Islamic ruling about bank deposit guarantees? Are they permissible? What are the Islamic principles that are related to deposit guarantees? Is there any financial institution in the world that provides Islamic deposit guarantees? And what is the difference between deposit insurance and a deposit guarantee?


Answered by

Sheikh Sâmî al-Suwaylim, member of the Islamic Advisory Board of al-Rajhi Bank

A deposit guarantee usually means that the bank guarantees the nominal value of the deposit.

As such, this will make the deposit a form of loan (qard) from the depositor to the bank. This is perfectly fine, as long as the bank does not pay any return above the amount of the deposit, since any such return will be interest. This is because any return on the guaranteed deposit will be effectively a return on a loan.

All banks guarantee their current deposits.

Some banks also guarantee investment deposits, but in the case of investment deposits, such a guarantee makes it a form of interest, as explained above.

Regarding the difference between a a deposit guarantee and deposit insurance, a guarantee is usually provided by the bank itself. By contrast, insurance is usually provided by a separate insurance company.

And Allah knows best.

Source: Islam Today




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