1. Wadiah Contract and its Application in
Islamic Banking Practices
Compiled by:
Nabil Bello

2. Contents
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Introduction
Meaning of Wadiah
Sources of Ruling on Wadiah
Pillars of Wadiah
Types of Wadiah
Conditions of Wadiah
Issues on Amanah and Dhaman
Applications of Wadiah in Contemporary Islamic
Banking Practices
• Conclusion

3. Literal Meaning
• The term wadi’ah is derived from the verb form
“wada’a”.
• Literally it means to
keep, lodge, store, entrust, leave, or deposit.
• In simple terms it means “something placed
under somebody who is not the owner to keep.”
• It also means to abandon or to forsake. Allah says:
“Thy Lord has not forsaken thee, nor is He
displeased.”

4. Technical Meaning
• Technically it refers to the act of keeping or the
property that is being kept.
• The Hanafis defined it as:
“Authorizing someone to keep his wealth explicitly
or implicitly.”
• According to Malikis and Shafi’is:
“Representation in keeping possession or

5. Sources of Ruling
• Not mentioned explicitly in the Qur’an but the
concept can be observed in the following verses:
“..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..”
“Verily! Allâh commands that you should render back
the trusts to those, to whom they are due..”

6. Sources of Ruling
• In the hadith the Prophet (SAWS) says:
“Discharge the trust to the person who entrust it
to you, and do not betray the one who betrays you”.
• The contract of wadiah has been approved by the
consensus of scholars of all times on its
permissibility since it is necessary by the people in
general to keep their properties in the hands of other
people.

7. Pillars
• Hanafi school: Offer and acceptance.
• When the owner says to the keeper/trustee, ‘keep or
save this for me, or take this thing and keep it under
your trust’ or any other similar statement and the
second party accepts the offer.
• The majority Jamhur of the scholars:
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The depositor
who is the owner of the property
The keeper
who is entrusted or the keeper
The subject matter
Offer and acceptance

8. Types
• Wadi‘ah Yad al-Amanah (Act of Trust):
– This simply means keeping with trust.
– No compensation in case of loss or damage
– No reward for keeping
– No right at all to use the property
– This type of wadi’ah is also called Amanah.
The Apostle of Allah (saws) said: “he who accepts a trust property (as a trustee)
has no liability.”
• Wadi‘ah Yad al-Damanah (Safekeeping with Guarantee):
– Responsibility is in form of guarantee.
– Allowed to utilize the deposits
– Must replace or compensate whatever gets lost
– He is also expected to give the deposits whenever they are requested by
the owners
– According to many scholars, this category is most suitably termed as
qard – loan. Some do not even consider this type in Islamic law.

9. Conditions
• The general conditions are that:
– The contracting parties should all be sane, meaning that they
must not be mad people or small children who cannot
comprehend things.
– A child can as well be the keeper if he is capable of doing so.
– The person must not be restricted (al-mahjur) because he is
not allowed to use his money traditionally.
– The property must be a property that can be handed over.
For instance, 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.

10. Issues on Amanah and Dhaman
• The original ruling in the Shariah is that wadiah is that it is a
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trust (amanah)
righteous act (qurbah) which is encouraged and rewarded
no agreement of guarantee because it is a pure amanah
issue of replacement/warranty should follow a weakness from the
keeper or custodian. This is in accordance to the saying of the Prophet
(SAWS):
“There is no compensation on the keeper who is not negligent.”
“There is no compensation on the trusted person”

11. Issues on Amanah and Dhaman
• How and when does amanah changes to dhaman? Below are
some of these situations:
– Where the custodian - wadi’ forfeits from keeping the
wadiah.
– When the wadi’ gives the property to a third party to keep
the property without any necessity.
– Using the property
– Traveling with the property
– Denying the wadiah contract
– Putting the property together with another property
– Refusing to follow the instructions of the owner

12. Applications of Wadiah Islamic Banking
Savings Account
Customer
(Wadi’ – Owner)
Bank (Mudi’ Keeper)
Current Account

13. Savings Account
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Meant to serve the needs of customer surplus
Also for customers to get a return from these deposits
The principal amount of the deposit is guaranteed
The customer can withdraw his amount at any given time
The customer permits the bank to use the deposits in its
investments
• Returns may be given to the customer in the form of hibah –
gift, which is at the discretion of the bank
• Such deposits are used in short-terms projects, which are
normally risk free and the returns are relatively lower
• Some banks treat the savings account in the form of mudarabah
investment accounts where less conditions will be attached to
the contract.

14. Savings Account
• 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.”

15. Savings Account
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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.

16. Current Account
• The Islamic Bank mobilizes customers· to deposit into its Current
Account package under the principles of Al-Wadi·ahYad
Dhamanah (guaranteed custody).
• The bank guarantees the full return of these deposits on
demand
• The depositor is not paid any share of the profit or any other
return in any form.
• Depositors authorize the bank to utilize their funds at the
bank’s own risk
• Usually account holders have a right to draw cheques on their
accounts.

17. Current Account
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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

18. Conclusion
• In contemporary Islamic banking, wadi’ah yad dhaman is the
most widely used i.e. safekeeping with guarantee since the
resources are put together with the bank’s investment.
• As it has been discussed above, the traditions of the Prophet
(SAWS) have indicated that
– wadiah is purely a form of assistance being rendered to the owner.
– the trustee is not allowed to use the property
– if he uses it, it is no longer wadiah, but qard or ariyyah, that is loan or
lending
– no return is expected as the agreement is not for partnership rather it is
deposit in trust

19. Conclusion
• In the modern practice of Islamic banking all the above
mentioned issues are present. In the original wadi‘ah, if the
trustee discharges his duty as prescribed under Islamic law is
not liable for any loss or damages to the deposited item.
• On this note the modern application wadiah is more likely to be
considered as loan given to the bank and if that should be the
case, the principles involved in the qard should be strictly
applied.