Table of Contents

Wadiah..................................................................................................................................... 2
Sources of Ruling......................................................................................................................2
Pillars........................................................................................................................................ 2
Types........................................................................................................................................ 3
Wadi‘ah Yad al-Amanah (Act of Trust).................................................................................3
Wadi‘ah Yad al-Damanah (Safekeeping with Guarantee):...................................................3
Conditions................................................................................................................................ 3
Issues on Amanah and Dhaman...............................................................................................4
How and when does amanah changes to dhaman?.............................................................4
Applications of Wadiah Islamic Banking...................................................................................4
Savings Account................................................................................................................... 4
Current Account...................................................................................................................5
Wadiah
Wadiah stem from the Arabic word of “wada’a” which literally means keep, store, lodge,
entrust, deposit, or leave. When we look at its deeper meaning, it can be understood as
“something placed under somebody who is not the owner to keep.” Besides, it also can be
defined as abandon or to forsake where Allah says “Thy Lord has not forsaken thee, nor is
He displeased”.

In the technical sense, wadiah is the act of keeping or the property that is being kept.
According to the Hanafis, wadiah means “authorizing someone to keep his wealth
explicitly or implicitly.” On the other hand, the Malikis and Shafi’is states that wadiah
means “representation in keeping possession or respectable private good in a specific
way.”

Wadiah is applied in the savings and current account in Islamic bank where the customer
placed their money in the bank for safekeeping. Here, the bank will act as the person to keep
the money of the customer.

Sources of Ruling
It should be noted that the concept of wadiah cannot be found in the sources of Islamic Law
but it is nevertheless that such concept can be observed from some of the verses of Al-Quran.
In AQ (2:283), it states that “...then if one of you entrust the other, let the one who is
entrusted discharge his trust (faithfully), and let him be afraid of Allâh...” Also, AQ (4:58)
states that “Verily! Allâh commands that you should render back the trusts to those, to whom
they are due.” From these two verses, we can see that AQ permits the entrustment of one
person to another and such entrusted person shall return to the owner the entrusted property.

On the other hand, in hadith, Prophet once said “Discharge the trust to the person
who entrust it to you, and do not betray the one who betrays you”. Here, we can that hadith
permits the entrustment from one to another and the entrusted person cannot betray such
entrustment.

Other than Al-Quran and the Hadith, the contract of wadiah has been approved by the
consensus of scholars on its permissibility since it is necessary by the people in general to
keep their properties in the hands of other people.

Pillars
The pillars of wadiah can be referred from the Hanafi school where it was held that there
must be an offer and acceptance. Offer is made when the owner of a property says to the
other person who is the keeper or trustee that ‘keep or save this for me, or take this thing and
keep it under your trust’ or any other similar statement. As for acceptance, there is acceptance
when the keeper or trustee accepts the offer by agree to keep the owner’s property.
The pillars of wadiah can be referred from the majority Jamhur of the scholars. It was
stated that firstly, there must be a depositor who is the owner of the property and the keeper
who is entrusted by the owner to keep the property. Secondly, there must be a subject matter
which is the owner’s property. Lastly, there must be offer and acceptance.
In Islamic bank, the customer who deposit money is known as the owner of the property
whereas the bank is known as the keeper. The subject matter that is being entrusted by the
customer to the bank is money.

Types
There are two types of wadiah namely Wadi‘ah Yad al-Amanah and Wadi‘ah Yad al-
Damanah.

Wadi‘ah Yad al-Amanah (Act of Trust)

Firstly, Wadi‘ah Yad al-Amanah. This type of wadiah is also known as act of trust and it
can be defined as keeping with trust. It can be referred from the Apostle of Allah (saws)
where it said: “he who accepts a trust property (as a trustee) has no liability.” This means
that there will be no compensation given if there is any loss of damage to the keeping of
property. Furthermore, the entrusted person has no right to use the property. However, if
the property is being damaged or lost due to the keeper’s negligence or fault, such keeper had
to compensate the owner. This is based on the saying of the Prophet (SAWS) where it was
stated that “there is no compensation on the keeper who is not negligent.” Also, the owner of
the property will not be given any rewards to the keeper for keeping the property as the
saying of the Prophet (SAWS) stated that “there is no compensation on the trusted person”
For example, if Ali entrusted Aina to keep his property in Aina’s house, Aina have to provide
a safe custody to keep Ali’s property. In return of Aina’s keeping, Aina will not be rewarded
and if Ali’s property lost or damaged, Aina need not to compensate Ali. However, if it is
proven that Aina had caused the lost or damage of Ali’s property, she had to compensate Ali.
Also, while Aina keeps the property, she will not have the right to use the property.

Wadi‘ah Yad al-Damanah (Safekeeping with Guarantee):

Secondly, Wadi‘ah Yad al-Damanah. This type of wadiah is also known as safekeeping
with guarantee and is usually applied in Islamic banks. For instance, current account and
savings account is based on this type of wadiah. Here, the bank’s responsibility is in the
form of guarantee and the bank is authorized to utilize the funds deposited by the
customer. If there is any loss by the banks, the bank must replace or compensate the
customer for such loss. Moreover, the bank is expected to give back the funds deposited
by the customer whenever the customer requested. This means that the customer can
withdraw the money deposited at any time they wish.
According to many scholars, Wadi‘ah Yad al-Damanah is most suitably termed as qard
(loan). However, some of the scholars do not even consider this type in Islamic law.
Conditions
It should be noted that there are several conditions in order for wadiah to be valid. Firstly,
at the time the parties enter into a wadiah contract, the parties must be a sane person which
means that they must be of sound mind and the parties must not be a small child who cannot
comprehend things. However, a child can be deemed as a valid keeper on the condition
that he is capable of doing so. The person must not be restricted (al-mahjur) because he is
not allowed to use his money traditionally. Most importantly, the property being entrusted
must be a property that can be handed over. To illustrate, a bird in the sky or a property in
the sea cannot be given as wadiah. Even when it is done under such situation there is no
guarantee.

Issues on Amanah and Dhaman

The original ruling in the Shariah states that wadiah is a trust (amanah). The act of trust and
can be define as keeping with trust. It can be referred from the Apostle of Allah (saws)
where it said: “he who accepts a trust property (as a trustee) has no liability.” This means
that there will be no compensation given if there is any loss of damage to the keeping of
property. Furthermore, the entrusted person has no right to use the property. However, if
the property is being damaged or lost due to the keeper’s negligence or fault, such keeper had
to compensate the owner. This is based on the saying of the Prophet (SAWS) where it was
stated that “there is no compensation on the keeper who is not negligent.” Also, the owner of
the property will not be given any rewards to the keeper for keeping the property as the
saying of the Prophet (SAWS) stated that “there is no compensation on the trusted person”

How and when does amanah changes to dhaman?

There are some situations where Amanah will changes into Dhaman. Firstly, the
custodian (wadi’) forfeits from keeping the wadiah. Secondly, if the custodian gives the
owner’s property to a third party to keep the property without any necessity, Amanah
will be converted to Dhaman. Thirdly, the custodian uses the property or travel with such
property. Fourthly, Amanah will be converted to Dhaman when the wadiah contract is
being denied. Fifthly, the property of the owner had been put together with another
property. Lastly, when the custodian refuses to follow the instructions of the owner.

Applications of Wadiah Islamic Banking

Savings Account
Savings account is an account operated based on the Wadiah principle. However, what
differ savings account from current deposits is the way that they earn the depositor’s income
as it is depending upon financial results. This is similar to current account except it does not
have any cheques facility.
Under strict principle of Al-Wadiah, there will be no any remuneration given by Islamic
banks in return since the funds deposited by the customer will not be used for Profit and Loss
Sharing (PLS) ventures. Nevertheless, there will be dividend given by the banks through
hibah as a complement but it is not the obligation for the bank to give the dividend. The
reason that Islamic banks give dividend through hibah is based on mas’lahah (public interest)
reason and to compete with local conventional banks. Some banks treat the savings account
in the form of mudarabah investment accounts where less conditions will be attached to the
contract.

Bank Islam Malaysia Berhad describes savings deposits in the following way:
“The Bank accepts deposits from its customers looking for safe custody of their funds and
degree of convenience in their use together with the principle of Al- Wadi‘ah. The bank
requests permission to use these funds so long as these funds remain with the bank. The
depositors can withdraw the balance at any time they so desire and the Bank guarantees the
refund of all such balances. All the profits generated by the Bank from the use of such funds
belong to the portion of the Bank. However, in contrast with the current account, the Bank
may, at its absolute discretion, reward the customers by returning a portion of the profits
generated from the use of their funds from time to time.”

Bank Islam - Wadiah Savings Account-i

Minimum opening: RM10.00
Minimum balance: RM1.00
Age requirement: Open to all, 12 years and above
Types of Account: Individual Account (12 years old and above) Trust , Entrust account
(for children under 12 years old opened with an individual adult), Joint
Account, External, Association, Societies
Contract: Wadiah
Benefits: Token (hibah), which is given every month based on Bank’s
discretion, Free savings passbook, Bankcard facilities, Salary crediting
& sweeping facility, etc.

Current Account
Current account is operated based on the principle of Wadiah (safekeeping)
whereby repayment of funds is guaranteed to the depositors of current account.
However, the depositor who deposit finds into the current account will not be entitled to
receive remuneration since the guaranteed funds will not be used for Profit and Loss Sharing
(PLS) ventures. In other words, since the depositors placed their deposits under trust or
safekeeping and they can always get their money back at the time they wish, there will be no
any remuneration given by Islamic banks in return. Nevertheless, there will be dividend given
by the banks through hibah as a complement but it is not the obligation for the bank to give
the dividend.

Other than that, the bank is allowed to use the funds in the current account to balance the
liquidity needs of the bank and to utilize it as a capital for investment which is short-term.
Such investment must be short-term since the depositors have the right to withdraw their
money at any time and the funds deposited are not for the purpose of investment. The
depositors may withdraw their money by the way of issuance of cheques, automated
machines or over the bank counters during banking hours.

Bank Islam - Wadiah Current Account-i

Minimum opening: Minimum RM500.00 initial deposit for individual account and
RM1,000.00 for non-individual account. Introducer is also required.
Age requirement: Open to all, aged 18 and above
Types of Account: Individual Account, Joint Account, Partnership Account, Government
Account, Association Account, Private Company Account and Company
Account
Contract: Wadiah
Benefits: Token (hibah), given every month based on Bank’s discretion,
Free cheque book holder, Bankcard facility (for Individual /
Joint account & Private Company Account Only), Salary crediting &
sweeping facility etc

Conclusion
In conclusion, wadi’ah yad dhaman is widely used in Islamic banking especially in savings
and current account. Such concept had guaranteed the funds deposited by the customer.
Under this concept, the trustee is not allowed to use the property and if he uses it, it is no
longer wadiah, but qard or ariyyah, which is loan or lending. Also, there is no return given by
the bank as the agreement is not for partnership rather it is deposit in trust