Islamic Banking Accounts and Mechanism

Islamic Banks offer all typical retail banking services offered by conventional banks such as Transactional accounts, Current accounts, Savings accounts, Debit cards, ATM cards, Credit cards, Cheques, except interest-bearing loans; but interest-free loans. But the mechanism of functioning of some Islamic Banking accounts is different from Conventional Banking Accounts.

1. Current account:

The current account in Islamic banks works Conventional banks that provide the facility for safekeeping and transfer of funds, but don’t invest the deposit in interest-bearing products. The current accounts are mainly meant for individuals and business firms. The current account holder can withdraw money from his account at any time without prior notice being given to the bank. The Islamic bank facilitates easy withdrawals to its current account holders by providing cheque facility, ATM cards, traveler cheques, telephone banking, and branch services.

Types of current account:

Current Account for al-Qard ul-Hasan (interest-free loan):  An Islamic bank collects funds in a current account on the basis of Qard (loan) contract, where credit balance in the current account is treated as an interest-free loan to the bank. The bank guarantees the full return of these deposits on demand. This account bank will give interest-free loans to the needy people to fulfilling certain conditions and requirements.

Al-Wadiah (savings for safekeeping)

Al-Wadiah Refers to the safekeeping of goods with someone else.  Al Wadiah is a depository account that works like the guarantor and guarantees repayment of the whole amount of the deposits when demanded. The depositors are not entitled to any share of the profits but the bank may provide returns to the depositors as a token of appreciation.

Mudarabah current account

The Mudarabah current account is a saving account where, unlike Al- Wadia Account,  customers have the right to share any profits generated in proportion to a pre-agreed ratio.

2. Savings Accounts

An Islamic saving account is similar to any usual savings deposit in a traditional commercial bank, except that the Islamic Saving Accounts don’t provide any fixed return (Interest); but share profit and loss with investors.   

3. Investment Accounts

Investment deposits are the Islamic bank's substitute for the Term Deposits in the conventional system. They are also called profit and loss sharing or participatory accounts.

Types of investment accounts

 1. General investment deposits: the funds are not tied to any specific investment project but are utilized in different financing operations of the bank

2. Special investment deposit: the depositor meets the required minimum to invest in this product like the bank selectively accept deposits for the government.

3. Limited and unlimited period investment deposits: In this model, the period is not specified. Deposits are automatically renewable unless a notice of three months is given to terminate the contract.