CREDIT RISK IN ISLAMIC DEPOSIT
Islamic financial institutions mostly Islamic banks take in deposit in various forms, and employ such deposits in ways they deem fit as part of their so called Islamic banking business. In some jurisdictions the term Wadi’ah is normally used to refer to such deposits for convenience sake and for a purpose seemingly to impress upon the fact it is more of safekeeping arrangement undertaken by depositors with the banks concerned, as the term wadiah in its original sense connotes safe-keeping contract between owners of assets and safe-keepers or trustees-custodians.
But then when it come to banking business as commonly understood, such concept of custodianship is a misplaced term in the real application since in most cases the banks that accept the fund would as a matter of practical application use or employ the fund for their business operation. On this score alone it may be safely said that the use of such term as wadiah in the above context is not accurate to describe truthfully what actually happened in the context of the banking practice as described.
