Hamish al-Jiddiyya

Abstract

In Islamic finance, the security deposit is a financial practice that reflects the seriousness and commitment of contracts. The transaction, known as “hamish al-jiddiyya” in Islamic law, should not be confused with terms such as pledge and deposit. This contract is considered a sectoral alternative to “option contracts” in conventional finance and serves to demonstrate the customer’s commitment to the transaction subject to the contract. Banks have the option of categorizing funds deposited by the customer into hamish al-jiddiyyah as either active or passive. Passive funds are held in “trust” accounts under the provisions of Wadī’a/trust, while active funds are subject to the provisions of Mudarabah or profit/loss sharing. Hamish al-Jiddiyyah is a popular choice among Islamic financial institutions because the bank is not required to obtain court orders or third-party approval prior to accessing these funds. When contractual conditions are met, the hamish al-jiddiyyah payment is included in the total cost. However, if the customer fails to fulfill the contract terms, the loss is covered by the hamish al-jiddiyyah and the seller returns the remaining amount to the customer. Jurists hold differing opinions on the legitimacy of the hamish al-jiddiyyah practice, while AAOIFI asserts its legitimacy, some financial institutions argue that it is not permissible.