Concept of Deposit Insurance: A Comparative Study between Conventional System and Shariah

Abstract

Deposit insurance is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank’s inability to pay debts when due. On the other hand, there have been a lot of discussions with regard to its permissibility from the Shariah point of view. This paper compares this concept between the conventional system and Shariah to see the similarities and differences between the two systems. The findings of the research show that many countries in the world implement deposit insurance system in their conventional system which is mostly associated with certain elements not permitted by Shariah. However, under the Islamic deposit insurance system, expenses acquired and any investments of the Islamic deposit insurance fund need to comply with Sharī`ah principles, whereby only permissible expenses are paid by the Islamic fund and the fund is invested in Islamic instruments. Moreover, under government regulation, the government effort to set up an Islamic deposit insurance system is considered being in line with the Islamic concept of SiyāsahShar`iyyah. Siyāsah Shar`iyyah refers to any action taken by the government in the interest of the public, or Maslahah.