Prize‐giving to the premium savings certificate holders

Mohd. Fuad, Sawari, Razi Hassan and Faruk Abdullah

International Journal of Islamic and Middle Eastern Finance and Management, 2011, vol. 4, issue 3, 259-270

Abstract: Purpose - Considering the popularity of the premium savings certificate (PSC) of the National Savings Bank of Malaysia (Bank Simpanan Nasional (BSN)) the paper aims to justify theShari'ahcompliancy of this product by analyzing its underlying contracts and to propose aShari'ahcompliant savings certificate, if the current practice is invalid in theShari'ah. Design/methodology/approach - Inductive methodology is first used to obtain a basic understanding of this product and the characteristics ofShari'ahapproved contracts as well as the views of the jurists. Interviewing method is also used to acquire first‐hand information when the inductive method is not sufficient. Afterwards, an analytical approach is adopted to justify the validity of this contract with theShari'ahprinciples. Finally, an innovative methodology is used to propose aShari'ahcompliant savings certificate. Findings - The paper argues that the underlying contract used in PSC violates the conditions of wadi'ahcontract, as inwadi'ah,the bank is not allowed to spend the money for investment, but in practice, BSN uses the money for investment. Therefore, the underlying contract in PSC turns intoqard(loan) contract. Since the scholars unanimously declare that giving any kind of benefit like prizes to the creditor isriba, then PSC is considered as invalid according to theShari'ah. On the other hand, although PSC might seem like gambling, it is different from gambling as the prizes given to PSC are from a third party. The paper proposes implementingmudarabahcontract in PSC where the bank is allowed to invest according to its interest and the depositors share the profit and loss but the huge fluctuation of profit and loss could be shrunk by a special fund method. Originality/value - In particular, it attracts the attention of BSN management to change their product's features. In general, it discovers a non‐Shari'ahcompliant feature of savings certificates and outlines the feature of aShari'ahcompliant saving certificate for the practitioners of Islamic banking all over the world.

Keywords: Premium savings certificate; Shari'ah compliancy; Wadi'ah; Qard; Mudarabah; Banking; Malaysia (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:v:4:y:2011:i:3:p:259-270

DOI: 10.1108/17538391111166485

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