Islamic banks concern is related savings account holders. The primary aim of the saving account depositor is the safe-keeping of his savings. It is properly perceived by the conventional banker and he guarantees the return of the deposit in toto. The banker also assumes that the depositor will desire to keep his money with him in preference to another who might also provide the same guarantee if the depositor is provided an incentive. This incentive is called interest, and this interest is made proportional to the amount and duration of time it is left with the bank in order to promote more money brought into the bank and left there for longer periods of time.
The interest rate is fixed previously so that the depositor and the banker are fully conscious of their respective rights and obligations from the beginning and laws have been enacted to guarantee their enforcement. In Economic theory the interest is taken to compensating the depositors demand and receives for parting with their savings. The fact that the depositors accept the paid interest and that, given other things being equal, depositors prefer the bank to offer the highest interest.
See Also: Islamic Banking an Overview
The scheme seems to have satisfied the requirements of all types of savers, from teenagers to old age pensioners, from individuals to large institutions, pension funds and endowments, from small amounts to millions, and from a few weeks or months to years, that it has survived over centuries and operates across national, cultural and religious borders.
In theory, the situation is very different in Islamic banks. Here also the depositor’s first aim is to keep his savings in safe custody. Islamic bankers divide the conventional savings account into two categories that is, savings account and investment account. The investment accounts operate fully under the PLS scheme here capital is not guaranteed, neither is there any pre-fixed return but under the savings account the nominal value of the deposit is guaranteed, but they receive no further guaranteed returns. Banks may consider funds under the savings accounts too as element of their resources and utilize it to create assets.
See Also: Principles of Islamic Banking
In practice, however, the banks prefer to, encourage and emphasize the investment accounts. This is because from the time when their assets operate under the PLS scheme they might incur losses on these assets which losses they cannot pass onto the savings accounts depositors on account of the capital guarantee on these accounts. In the process the first aim of the depositor is pushed away and the basic rule of commercial banking that is a capital guarantee is broken.
It is suggested that all Islamic banks guarantee the capital under their savings accounts, this will satisfy the primary need and expectation of an important section of the depositors, in Muslim countries where both Islamic and conventional banks co-exist, will induce more depositors to bank with the Islamic banks and it will remove the major objection to establishing Islamic banks in non-Muslim countries.
See Also: Scope Of Islamic Finance In India
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