Sharīʿah-compliant deposit insurance scheme: a proposed additional modality

Madaa Mustafa and Syed Faiq Najeeb

International Journal of Islamic and Middle Eastern Finance and Management, 2018, vol. 11, issue 3, 488-506

Abstract: Purpose - This paper aims to make a first attempt to highlight theSharīʿah-compliance challenges of existingSharīʿah-compliant deposit insurance schemes (SCDIS), particularly the issue of subrogation to contributing parties intakāful-based SCDIS and the issue of receiving a fee for guarantee inkafālah-based SCDIS. The paper also aims to propose an additional cashwaqfSCDIS structure that mitigates these challenges. Design/methodology/approach - The proposed cashwaqfscheme is assessed for compliance against classical works of Islamic jurisprudence and the contemporary regulations and standards of best practices for deposit insurance schemes. Findings - The proposed cashwaqfSCDIS structure is able to overcome theSharīʿahand legal challenges in the existing SCDIS modalities, including subrogation and payment of fees for guarantee. Moreover, it is designed to comply with the International Association of Deposit Insurers’ Core Principles for effective deposit insurance schemes. Hence, a cashwaqfstructure is a viable alternative for jurisdictions to introduce SCDIS. Originality/value - This paper introduces an additional cashwaqfSCDIS modality and sets the foundation for future research in studying viableSharīʿah-compliant deposit insurance modalities supporting a stable and resilient Islamic banking industry.

Keywords: Islamic banking; Deposit insurance; Cash waqf; Financial safety nets (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-04-2017-0090

DOI: 10.1108/IMEFM-04-2017-0090

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