El sistema jurídico

Al-Wadi’ah is one of the most commonly used principles in

the Islamic banks. It is used for the acceptance of deposits in the saving and current accounts work under the principle.

Al-Wadi’ah literally means “the thing left with a person who

is not its real owner for the purpose of safe-keeping”. Al wadi’ah is considered to be a form of contract or ‘aqd. The jurists of all schools of Islamic law (mazahib) agree that wadi’ah is a form of trust. Hence, the depositee i.e. the Islamic bank is regarded as the trustee to safely keep the deposited property in his custody. It follows that the depositee must return the deposited property to the depositor at any time upon the request of the latter.

For both current and savings accounts, the depositors grant permission to the Islamic bank to mobilize the funds but at the same time guarantee their deposits (wadi’ah yadhamanah). No return is promised or expected but a gift (hibah) can be given to the depositors. In terms of accounting, no interest expense is recorded but the deposits will be treated as liabilities as they are guaranteed custody account.

The accounting recognition process (journal entries) are as follows:

Dr. Cash account

Cr. Wadi’ah Deposits account

(Being deposit received from depositor)

...

Dr. Wadi’ah Deposits account Cr. Cash account

(Being deposit repaid to depositor)

...

Dr. Profit and Loss account or Reserve account Cr. Cash account

(Being hibah disbursed to depositor)

5.2

Principles of Mudharabah Investment

Account

An Islamic bank normally accumulates deposit and investment from customers through various channels. Islamic bank can offer customers to deposit their money in various types of accounts such as savings, current or investment accounts. The major difference with conventional banks is that they offer interest and the customers’ relationships are merely lending. In the case of Islamic banks they may offer Islamic deposit or investment accounts normally based on wadi’ah or mudharabah contracts.

Al-Mudharabah is a form of partnership whereby the owner

of capital, rab al- mal, gives a specified amount of capital to another person, termed as the mudharib. In this case, the Islamic bank, who is to act as the entrepreneur to trade with the capital. The profit will be shared between the two

parties according to agreed profit sharing ratio of their agreement. On the other hand, if there is a loss then the loss will be borne by the rab al- mal who is the financier, whilst the mudharib only suffers the fruitless effort. However, if the loss is due to the willful negligence of the mudharib then he/she must be responsible for the loss.

The liability of the rab al-mal in a mudharabah is limited to the extent of his contribution to the capital. In Islamic banking, the bank may act as either the rab al-mal or the

mudharib. In accepting deposits from its customers to be

invested in fruitful business, the bank acts as a mudharib and the customers the rab al-mal. On the other hand, in financing the entrepreneurs or business projects, the bank acts as the rab al-mal and the entrepreneurs become the mudharibs. In this case, the bank is not participating in the management of the business financed. It could, however, exercise adequate supervision to ensure that the funds are being used in accordance with the mudharabah agreement.

The Islamic bank may also act as both the rab al-mal and the mudharib. This is what is termed as the two-tier

mudharabah. In this type of arrangement, it involves two

separate contracts of mudharabah; between the bank and the suppliers of capital (depositors) on the one hand, and between the bank and the users of capital (entrepreneurs) on the other. Thus, there are actually two contracts signed between three parties: the suppliers of capital (rab al-mal); the bank as the intermediary link; and the users of capital (mudharib). It is called two-tier mudharabah because, one tier represents the mudharabah between the bank and the suppliers of capital, and the other tier represents the

In this tripartite relationship: rab al- mal; Islamic bank; and

mudharib, the bank will have a direct contract with both

the rab al-mal and the mudharib (for further details refer Chapter 6). The bank will act as intermediary between the financiers and entrepreneurs. Thus, the bank in the first hand, will have to share any profits (as well as bear losses) on mutually agreed terms with the entrepreneurs who obtain capital from it, and secondly, on receiving its share of the profits will in turn have to share it with the depositors, also on mutually agreed terms.

There are at least two types of Islamic investment accounts namely Restricted Mudharabah (mudharabah mutlaqah), and Unrestricted Mudharabah (mudharabah muqayaddah). According to AAOIFI, Unrestricted Investment Account is where the investor fully authorizes the bank to invest the funds without restrictions as to where, how and what purpose the funds should be invested as long as it is deemed appropriate. Comingling of funds from other sources is permitted and separate disclosure in the financial statement is therefore required.

On the other hand, Restricted Investment Account is where the investor restricts the manner as to where, how and for what purpose the funds are to be invested. No comingling of funds is required from other sources to ensure proper management and accountability of the funds. A separate disclosure (off-balance sheet) in the form of Statement of Restricted Investments is required to be kept by the Islamic bank.

5.3

Accounting Issues on Mudarabah