Islamic banks give their savings accountholders hiba (gifts) as a token of appreciation for depositing with them
Hiba is a gift given by one party to another party during his lifetime without any material consideration (iwadh). A property that is permissible to be given as gift is elaborated by the Islamic legal maxim as; “Every object which is legally tradable from the point of view of Shari’ah is considered legal to be given away as hiba (gift).
Although Islamic banks use customer deposits in the form of savings, they do not pay interest to them. One may wonder how Islamic banks retain these customers with the existence of conventional banks that pay interest on demand deposits. Islamic banks reward their customers with hiba (gifts) that are relatively similar to conventional interest (riba). This is because customers are adapted to conventional products, thus, compare them with Islamic banking services.
The general facilities that Islamic banks provide such as ATM card and presents from lucky draws should not be construed as interest (riba), as these are neither guaranteed nor time bound. Rather, these facilities are regarded as voluntary token of appreciation for depositing with an Islamic bank.
Islamic banks normally give their savings accountholders hiba (gifts) as a token of appreciation for depositing with them. These gifts represent a portion of the profit made from customers’ deposits. This practice is permissible as long as the bank does not cost the gifts it gives to customers in the general product costing.
The contract of hiba (donation) is also applied in takaful (Islamic insurance) products and practiced by Islamic insurance companies in various family takaful plans e.g. takaful education plan. In the takaful education plan, a participant makes hiba (gift) of the takaful benefit to his child to finance his education in the future. Upon his death, the takaful benefits become the right of his son and will not be distributed among the legal heirs. Nevertheless, if the participant leaves until maturity of the certificates, all the benefits are surrendered to him.
Instead of transferring risks from an individual to the insurance operator in exchange of the premiums, participants in Islamic insurance mutually help each other via contribution through a unilateral donation contract (tabarru’) to a participant who is in hardship. In this sense, gharar (uncertainly) which is embedded in the Islamic insurance is tolerated because the contract used is donation (tabarru’) which accommodates gharar (uncertainty). This is not the case with conventional insurance because they use bilateral contracts (such as sale) to collect premiums.
Article is sponsored by Tropical Bank to help understand Islamic Banking.