The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking

(Tina Meador) #1

of accounts were marketing techniques used by the new accounts depart-
ments of different banks to entice customers to open accounts and maintain
their existing banking relationships.
In response, we convened a meeting of the concerned departments and
after an in-depth discussion we agreed that the bank would offer simple and
clearly defined account types and conditions, and that we would earn our
income at the bank, mainly through reinvesting the funds in our customers
by financing their needs. This practice brings our motto to life:We Do Not
Rent Money—We Invest in Our Customers. The following is the list
of account types that we decided to offer our clients. All these are offered at
no fees.


Deposit-In-Trust Accounts (DIT)—Correspond to Demand Deposit Accounts
(DDA) in Riba-Based Conventional Banks These accounts comply with the
U.S. federal banking Regulation Q, because they are looked on literally as
money given by the customer for safekeeping at the bank. A DDA is a
type of cash account that makes customer deposits available upon demand.
Regulation Q disallows the payment of interest/profit on these deposits
because they are not allowed to be invested or given as a loan—this money
must be available any time the customer asks for it by writing a check or by
ordering it to be transferred by any banking mechanism.
This type of account is exactly what is called in RF banking theAmana
account, meaning a deposit-in-trust (DIT) account. In RF banking, the chief
operating officer (COO) must pay close attention, with his CFO and the rest
of the treasury supervisors, to make sure that the Amana/DIT accounts are
not used for financing activities (lending) because that does not comply with
our implied agreement with the clients who wanted to use the bank as a safe
place to keep their money. DIT deposits can only be invested overnight in
the Fed Funds to alleviate some of the fees charged by the bank. The RF
bank may be allowed by Shari’aa to charge a service fee that pays for the
cost of safekeeping and servicing these types of accounts, in case the income
from the Fed Funds is not sufficient. As discussed in Chapter 5, the Fed
Funds rate is the rate that reflects monetary policy regarding the printing
of paper money (fiat money); it is different from the interest prohibited by
Judeo-Christian-Islamic Law (Shari’aa).


Income-Generating Accounts for Individuals and Businesses: Regulation D
Deposits Investment banking firms (e.g., Merrill Lynch, Morgan Stanley,
and Goldman Sachs) offer money market funds, denominated at $1 a share,
which give a variable interest rateon the deposits. These money market
funds are mutual funds that invest in short-term fixed-income interest-
paying securities. In response, the federal banking regulators established


348 THE ART OF ISLAMIC BANKING AND FINANCE

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