Legal composition of investment accounts in Islamic law: an appraisal

• Main Authors: Sadique, Muhammad Abdurrahman, Waseem, Mohammed
• Format: Article
• Language: English
• Published: academicpublications.net 2022
• Subjects: BPK36 Islamic law (General); HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/102558/7/102558_Legal%20composition%20of%20investment%20accounts.pdf; http://irep.iium.edu.my/102558/; https://www.allsubjectjournal.com/download/5415/9-9-68-148.pdf

Investment accounts offered by Islamic financial institutions manifest features developed through a convergence of the principles of equity partnership and fund management. In their quest to offer an account similar to deposit accounts offered by conventional banks where clients could deposit funds for varying periods without forgoing the opportunity of availing of a return, Islamic banks have succeeded in introducing joint equity investment accounts. The agreements usually provide that loss affecting the pool would be solely borne by the depositors. There could be different investment pools created for different investment purposes. A number of partners pooling their funds together for running a business operation is possible under a contract of equity partnership. In the case of fund management, schools of Islamic law have recognised the validity of several parties jointly investing funds with a common manager/entrepreneur through a single contract. The position of the Hanafi school of Islamic law appears to provide some leeway for mixing of funds belonging to different investors, which is the practice adopted in modern equity accounts. When funds are deposited with a company on mudārabah, the contract is held to take place between the company as a juridical person and the investors.