The legal nature of banker-customer contractual relatioship: a comparative case study on the banking deposit account between conventional and Islamic banking systems

Abstract

This research had attempted to compare the legal nature of the banker-customer contractual relationship in banking deposit accounts in Islamic and conventional banking systems. The existing legal characterization of the contractual relationship of banking deposit is based on loan contract in the conventional banking system and in some Islamic banks. Other Islamic banks have more options for customer to choose like wadi` ah. The actual features of banking deposit and its modus operandi do not however fully fit the characteristics of the loan and Wadi`ah contracts. The research also highlighted inefficiency that exists in the application of deposit insurance schemes which is in form of limiting or the ceiling of the coverage amount as well as brief highlight of some obstacles that exist in the adjudication of Islamic banking cases. The objective of this study is to comparatively study the banker-customer relationship and address the gape that exists between the underlying concepts and the actual operation of banking deposit. This research assumed that the banking deposit contract, regardless of whether it is Islamic or conventional, is a new contract and it ought to be recognized as such. The research scope is limited to compare the legal nature of banking deposit in the Islamic, civil and Common Law systems. There is no geographical limitation in this research. This study is conducted using descriptive, analytical, and comparative study approaches. From the analysis of the relevant literatures, the study has found that the banking deposit is wrongly considered to be based on loan contract. The features of the banking deposit were found to be not compatible with the nature of a loan contract. For example the customers believe that they have money in the bank, not a debt. It is the customers who seek the bank to withdraw their money, not the bank seeking the customers to settle a debt. The customer has free access to withdraw his money any time he wishes as oppose to a loan contract. There are no duties and obligations involved in a simple loan contract, unlike a deposit contract. There is no collateral involved in deposit account, unlike the loan contract. The Islamic banking system was found to provide more options for deposit contract, although there is a gap between some concepts of deposit like wadi`ah and the actual deposit operation. The deposit insurance scheme (not taking into account the Malaysian Government interim measure of full coverage) does not achieve its desired objectives due to the limited ainount of coverage. Based on the above findings, the research recommended reconsideration of the legal nature of deposit contract to reflect its true nature and to reconsider the method of how deposit insurance is implemented. It also recommended Proper A venue and qualifies adjudicators for Islamic banking cases.