Toward Islamic deposit insurance model

Abstract

Purpose

This paper aims to provide an essential framework for establishing Shariah-compliant deposit insurance scheme, by reviewing the Shariah provisions concerning the available approaches for deposit guarantee, types of deposits in Islamic financial institutions and the permissible party to incur the cost of this guarantee.

Design/methodology/approach

This paper reviews the Fiqh rules and principles approved by the well-known Islamic Fiqh references, as well as the resolutions of International Islamic Fiqh Academy (IIFA) and Shariah standards issued by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and presents these resolutions and judgments in a modern applicable way.

Findings

This paper recommends that the Islamic scheme for deposit insurance should be established based on Takaful insurance principle, and this scheme must adopt fund segregation principle to comply with Shariah provisions for guarantee permissibility.

Research limitations/implications

The paper bridges the gap between theory and practice by highlighting how the proposed model can be initiated in practice, thus, it can influence public policy in countries with Islamic banking system.

Originality/value

This paper represents a significant contribution toward the establishment of a consensual Shariah-compliant Islamic deposit insurance model.

Citation

Fendi, U.A. (2020), "Toward Islamic deposit insurance model", Journal of Islamic Accounting and Business Research, Vol. 11 No. 1, pp. 130-151. https://doi.org/10.1108/JIABR-06-2017-0077