"Islamic Finance Research" (IFR)

Jurisprudential-Legal Analysis of the Compliance of Deposit Contract with Current Qard-ul-Hasana Deposit in Islamic Banking

Document Type : Resear Paper (Islamic Banking)

Authors

1 Associate Professor, Department of Economics and Islamic Banking, Kharazmi University, Tehran, Iran

2 Lecturer, Level 4 Seminary, Jurisprudence of Transactions, Seminary, Ahvaz, Iran

Abstract

 1. Introduction and Objective
Current accounts constitute one of the most fundamental pillars of modern banking systems and play a decisive role in facilitating payment services, liquidity management, and financial intermediation. In Islamic banking, however, the jurisprudential and legal nature of current accounts—particularly those classified as qard al-ḥasanah current deposits—has remained a subject of persistent debate among jurists, legal scholars, and policymakers. Classical and contemporary Islamic jurisprudence has proposed various interpretations of the legal nature of current deposits, including loan (qard), complete deposit (wādīʿah tammah), incomplete or unconventional deposit wādīʿah ghayr mutifah, settlement (ṣulḥ), or even a newly constructed contract outside traditional nominate contracts.
     The dominant jurisprudential position in many Islamic banking systems, including Iran, treats current deposits as loans to banks. This classification is primarily justified by two arguments: first, the bank’s proprietary control and utilization of deposited funds; and second, the obligation of the bank to return an equivalent amount (mithl) rather than the identical physical units (ʿayn) deposited. Consequently, the depositor is regarded as a creditor and the bank as a debtor, thereby framing the contractual relationship within the legal structure of qard.
     Despite its prevalence, this interpretation raises significant jurisprudential, ethical, and practical concerns. Most notably, it appears to conflict with the widely accepted jurisprudential maxim al-ʿuqūd tābiʿah li-l-quṣūd (contracts are determined by the intentions of the contracting parties). Empirical observation suggests that the overwhelming majority of depositors do not intend to lend their money to banks, nor do they consciously consent to proprietary exploitation of their funds. Instead, their primary motivation is safekeeping, transactional convenience, and trust.
     Against this backdrop, the present study aims to reassess the jurisprudential and legal classification of current accounts in Islamic banking by examining whether the contract of deposit (wādīʿah) can be validly applied to such accounts. The central objective is to demonstrate that, when depositor intent, the nature of fiat money, and the contemporary theory of bank money creation are properly taken into account, current accounts may be more coherently classified as deposits rather than loans. By integrating doctrinal analysis with empirical evidence, this research seeks to provide a more realistic, legitimate, and ethically consistent framework for Islamic banking operations.
2. Methods and Materials
This study adopts an integrative and interdisciplinary research design combining jurisprudential–legal analysis with empirical field research. In the theoretical component, classical and contemporary sources of Islamic jurisprudence (fiqh), legal doctrines, statutory banking laws, and scholarly literature on Islamic banking were systematically reviewed and critically analyzed. Particular attention was given to discussions on the nature of qard, wādīʿah, contractual intent, and the jurisprudential implications of modern fiat money.
     In parallel, the study incorporates an empirical investigation to assess the actual intentions, awareness, and satisfaction of depositors regarding current accounts. A structured questionnaire was designed in consultation with academic experts and distributed among more than 700 current account holders in the city of Ahvaz, Iran. The sample included diverse social groups such as teachers, university students, seminary students, employees, and self-employed individuals, all of whom regularly use current accounts for salary payments, check issuance, and daily transactions.
     The questionnaire addressed key dimensions including:
(1) depositors’ awareness of the legal terms governing current accounts;
(2) their perception of ownership over deposited funds;
(3) their consent or dissatisfaction regarding the bank’s use of their money; and
(4) their primary intention in opening and maintaining current accounts (deposit/trust versus lending).
     Data were analyzed using descriptive statistical methods, with results presented in percentage form to capture prevailing depositor attitudes. The combination of doctrinal analysis and empirical evidence enabled a comprehensive comparison between the theoretical assumptions underlying banking contracts and the lived realities of depositors, thereby strengthening the validity and originality of the study.
3. Research Findings
The empirical findings reveal a significant discrepancy between prevailing legal classifications of current accounts and the actual intentions of depositors. The results show that 87% of respondents deposited their funds with the explicit intention of safekeeping and trust, not lending. Moreover, over 90% expressed dissatisfaction or lack of informed consent regarding the bank’s utilization of their funds for profit-generating activities. Only a small minority considered their deposits as loans to the bank or believed that ownership of the funds was transferred upon deposit.
     These findings directly challenge the assumption that current deposits can be legitimately treated as qard based on depositor consent. From a jurisprudential perspective, the absence of true and informed intent to lend undermines the validity of loan classification, as intention constitutes a foundational element of contractual legitimacy in Islamic law.
     On the theoretical level, the study demonstrates that contemporary fiat money lacks intrinsic physical value and derives its legitimacy from legal recognition and social acceptance. Furthermore, by adopting the modern theory of bank money creation, the research shows that banks do not primarily lend out existing deposits but instead create new money through accounting mechanisms when extending credit. Under this framework, current deposits remain intact in depositors’ accounts, while loans are generated through monetary creation rather than the physical use of deposited funds.
     Accordingly, if banks do not exercise proprietary control over deposited funds in the traditional sense, one of the main arguments for classifying current accounts as loans becomes untenable. On this basis, current accounts can be regarded as complete deposits (wādīʿah tammah), wherein ownership remains with the depositor and the bank acts as a custodian.
     The study further acknowledges alternative scenarios. If a depositor explicitly grants the bank permission for non-proprietary utilization of funds and consents to restitution by equivalent value, the relationship may be characterized as an incomplete or unconventional deposit. Where neither classification is entirely satisfactory, current accounts may be conceptualized as a new contract possessing a deposit-like nature, consistent with Islamic jurisprudential principles while accommodating modern banking realities.
4. Discussion and Conclusion
The findings of this research suggest that the dominant treatment of current accounts as loans in Islamic banking systems rests on assumptions that are increasingly inconsistent with both depositor intent and contemporary monetary realities. By foregrounding the principle of contractual intent and integrating empirical evidence, the study demonstrates that current accounts align more closely with the concept of wādīʿah than with qard.
     Reclassifying current accounts as deposits carries important jurisprudential and practical implications. It preserves depositor ownership, restricts unauthorized proprietary use by banks, and resolves several persistent challenges in Islamic banking—such as conditional lending practices and concerns over implicit ribā. Moreover, it enhances transparency, trust, and legitimacy within Islamic financial institutions.
     The study concludes by recommending the development of deposit-based or newly structured accounts within Islamic banking systems, particularly for sensitive purposes such as holding religious funds (wujūhāt sharʿiyyah), where banks must be explicitly prohibited from proprietary utilization. Such reforms would contribute to aligning Islamic banking practices more closely with both jurisprudential principles and depositor expectations, thereby strengthening the ethical and legal foundations of Islamic finance.

Keywords

Main Subjects

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Volume 15, Issue 1 - Serial Number 35
August 2025
Pages 1-40
  • Receive Date: 02 September 2025
  • Revise Date: 30 October 2025
  • Accept Date: 05 November 2025