Current Account: In this session, We will learn what a current account is; Identify the differences between a conventional current account and an Islamic current account; Then, understand how an Islamic current account is structured. What is a Current Account? One of the most popular products in Islamic banking is the current account. Almost all Islamic banks offer this basic and primary product for customers. A current account is a type of bank account that keeps customers money secure and helps them manage their finances. Personal current accounts facilitate the making of payments. (direct debits, standing orders) and they let people businesses and organisations pay and receive funds easily. Generally, current accounts do not pay any return to the depositors. A current account typically has the following features: Debit Cards, Online and Mobile Banking, Direct Debits, Sending and Receiving Money, Checkbooks and often comes with no fees. Islamic Current Accounts: A current account of an Islamic bank gives almost all the same features and benefits of conventional banks but with an added piece that the entire eco-system of this deposit is Shariah-compliant. The funds will never be administered in a manner which go against the values of Shariah. Thus, the two salient features of an Islamic current account are as follows: Interest free, funds will be administered in accordance with Shariah principles. Islamic current accounts are generally structured using Qard. A Qard is simply an interest-free loan. In an Islamic current account, the depositor is a lender and the bank is the borrower. The bank is considered to be the borrower of funds. As the risk of the funds lies with the bank and the bank can use the funds whilst in its possession. Therefore, the bank is responsible to return the exact amount back to the depositor. It is on this premise that the bank is considered as the borrower. The Qard product does not limit the bank from using the funds. In addition, the deposits of the depositor is guaranteed; The depositor is not entitled to any returns, nor any nonfinancial benefits. Any return on this type of account would fall under the prohibition of Riba. As the benefits would be in lieu of a loan. Islamic banks using Qard as a product for current accounts is common in the Middle East, North Africa, Western countries, as well as South Asia. Let's see this application: The customer opens a current account with an Islamic bank by depositing his money on a Qard basis. The Islamic bank may invest in Shariah-compliant investments. Any returns end from these investments are the sole property of the bank. The customer must not gain any benefit whatsoever from the Qard. Shariah Ruling on Current Accounts: The Bank Negara Malaysia Shariah standard on Qard, Standards 13 to 15 state: The borrower has the obligation to repay the subject matter in the Qard contract to the lender at all times and in all circumstances. Identified services facilities or privileges provided by the borrower which are not exclusive to the lender shall not be construed as contractual benefit to the lender and are permissible. The Qard contract must not contain any contractual benefit to the lender. The borrower shall be entitled to any benefit or revenue gained from the money borrowed. Wadi'ah Yad Dhaman: Wadi'ah Yad Dhaman means safe keeping with guarantee, it is a transaction between the depositor (Customer) and the custodian (Bank) for safekeeping of funds. The bank in this situation is guaranteeing the safe keeping of deposits and will return the same to the customer accordingly. Subject to the bank's procedures, Islamic banks using this structure generally take permission from customers to use the funds. Wadi'ah was commonly used in Malaysia until 2018, after which banks reclassified most Wadi'ah accounts with Qard-based current accounts. Wadi'ah is still offered in different parts of the world such as Africa and other Central Asian countries. Let's take this example: Islamic bank A offers the current account facility for safe custody of cash. The customer gives consent to the bank to deal with the whole or any part of any balances in the account in the manner that the bank deems fit. Any profit generated by the bank from the use of the funds shall belong to the bank. The bank may at its absolute discretion give reward (Hibah) to the customer. The bank guarantees payment of the wholesome standing to the credit of the customer's account upon demand. Conventional Current Account: A current account offered by conventional banks is also based on a loan contract. The funds deposited with the bank are guaranteed and the depositor can access their funds on demand. Although, an interest free loan contract itself is Shariah-compliant. Conventional banks generally use the depositors' funds to generate non-Shariah-compliant products. Module Summary: In this session, we looked at the concept of current accounts; We learned the features of current accounts; We covered the Shariah contract typically used by Islamic banks.