In the Name of Allah, the Entirely Merciful, the Especially Merciful
All praise is due to Allah, Lord of the worlds, may the blessings and peace of Allah be upon our master Muhammad, the seal of prophets, on his family, and all his companions.
Resolution No. 222 (6/23)
Banking Advantages of Current Account Customers from Shariah Perspective
The Council of the International Islamic Fiqh Academy of the Organization of Islamic Cooperation, held in its twenty-third Session in al-Madinah al-Munawarah on 19-23 Safar 1440, corresponding to 28 October-01 November 2018.
Having reviewed the research papers submitted to the Academy on Banking Advantages of Current Account Customers from Shariah Perspective
Having listened to the extensive discussions,
Resolves the following
First, the definition of a current account
It is a register of financial amounts submitted by the customers to the bank – an Islamic bank or an interest-based bank –with the possibility to withdraw anytime through conventional means like cheques, bank transfers, and direct withdrawal. These deposited amounts are protected and used by the bank for its interest as it wills and as regulated by laws.
Second, Shariah assessment
After the Academy had observed Shariah assessments of current account deposits such as its assessment as a real deposit guaranteed for use, or as a new independent contract, or as a contractual system composed of a number of contracts, the Academy concluded with the confirmation of its resolution no. 86 (3/9) on financial deposits in “the current account” and in which it asserted that demand deposits accounts (current accounts), whether in Islamic banks or interest-based banks, are considered loans from the Fiqh perspective.
Third: Shariah ruling on the banking advantages of current account customers (demand deposit customers):
Definition of Banking Advantages
The meaning of banking advantages in this context are additional rights granted by the bank to current accounts users in order to bid and encourage them to create accounts or continue using them.
Banking advantages are, according to the nature of their benefits and the intended purposes, of two categories:
The First Category: Customer-only Benefits
The Second Category: Bank and Customer Benefits
- First Category: Features beneficial only to customers
Customer-only advantages can also be divided into two sub-categories: moral advantages and material advantages
1) Moral/administrative advantages are benefits and services offered by the bank to the customer which do not include a financial premium added to the amount of the deposit such as service priority at the bank branches, providing customers with a periodic guiding brochure, periodic account statement, a solvency certificate, international ATM cards, and so forth.
The Shariah ruling on this kind of advantages is permissibility because they are not considered an interest-based financial addition which the borrower is required to pay for the lender in addition to the amount of the loan. It is, in fact, a form of facilitation offered by the lender to the borrower to recover his financial rights. Therefore, istishab (legal continuity) is the basis for the issuance of the original ruling of its permissibility due to the absence of a prohibiting proof.
2) Material advantages are the additional items, benefits, and funds added to the fixed deposit in the current account, and which are similar to material premiums for taking loans such as flight tickets, electric and electronic devices, and so forth.
Whether these material advantages are conditional or unconditional and if they were a motive for loaning, the Shariah ruling on this kind of advantages is prohibition, because of its amount and duration that makes it similar to interest-based additions that the borrower is required to pay for the lender in addition to the amount of the loan.
However, if the advantages are offered to every new customer gained by the bank – whether versed in the current account or through passive partnership account (mudaraba), or funding, etc. –those advantages are then considered expenses on advertisement and marketing, and on gaining customers and agents. In this case, it is permissible following the original ruling of permissibility, providing that it should not be associated with the loan, its amount, and duration.
- Second Category: Advantages of both parties -the bank and the customer- are divided into two sub-categories:
Advantages of the first sub-category are related to deposits and withdrawal operations, whereas advantages of the second sub-category are unrelated to those operations.
1) Customer-only advantages related to deposit and withdrawal operations from the current account and the benefits going to both parties. For example, chequebook and ATM card services.
Their Shariah ruling is permissibility because they are a form of aid by the lender to the borrower to facilitate his financial rights, provided that benefits of the loan are not only for the lender but are also for both the lender and borrower.
Moreover, it contains benefits for both parties without harming anyone of them, and Shariah does not reject unharmful advantages. This kind of advantages are not explicitly forbidden within original Islamic texts, and it does not fall within the context of explicit prohibition; therefore, its permissibility should remain the same as in the original ruling.
2- Advantages of both parties are not related to deposit and withdrawal transactions from a current account. For example, granting some banking services with differential fees, or lesser fees than those granted to other customers such as currency rates, bank transfers fees, safe deposit boxes salaries, credits opening fees, assurance cards, letters issuance, and so forth. All of these operations are prohibited because they are constitute a loan for brining a benefit.
Allah Knows Best.