Sharīʿah-compliant deposit insurance scheme: a proposed additional modality

Abstract

Purpose

This paper aims to make a first attempt to highlight the Sharīʿah-compliance challenges of existing Sharīʿah-compliant deposit insurance schemes (SCDIS), particularly the issue of subrogation to contributing parties in takāful-based SCDIS and the issue of receiving a fee for guarantee in kafālah-based SCDIS. The paper also aims to propose an additional cash waqf SCDIS structure that mitigates these challenges.

Design/methodology/approach

The proposed cash waqf scheme 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 cash waqf SCDIS structure is able to overcome the Sharīʿah and 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 cash waqf structure is a viable alternative for jurisdictions to introduce SCDIS.

Originality/value

This paper introduces an additional cash waqf SCDIS modality and sets the foundation for future research in studying viable Sharīʿah-compliant deposit insurance modalities supporting a stable and resilient Islamic banking industry.

Citation

Mustafa, M. and Najeeb, S.F. (2018), "Sharīʿah-compliant deposit insurance scheme: a proposed additional modality", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 11 No. 3, pp. 488-506. https://doi.org/10.1108/IMEFM-04-2017-0090