What is Islamic about Current Accounts? Deposit products of Islamic banks.

Current Accounts:

These deposit products are based on the principle of loan contracts whereby the depositors will receive payments on demand while the banker can utilize this money for the purposes of lending and investing activities in riba free modes of banking.

Like conventional banking, Islamic banks are also involved in money creation process and maintaining payment system in the economy. There exist simultaneity issue in money creation process; in one way, each unit deposited in the current account in Islamic bank, the banker under normal circumstances extend 60% of it in lending activity whereas the remaining in investing activities so each unit deposited brings almost twice money in the system, the Islamic banker convince both his depositor and its investor/borrower that they both own the same money at the same time.

Now look at the other way of the relationship, when someone ask one unit of money from Islamic banker, the banker need not do anything else, it simply bring money out of blue albeit managing some cash almost 5% of loan amount from interbank Islamic money markets.

Generally the current account works on the principle of loans without interest payments (qard hasan) however, these loans are utilized by Islamic bankers in Islamic modes of finance, and nonetheless, Islamic bankers generally do not lend money on this principle.

For all practical purposes current accounts are considered as money. Excepting its function as unit of account which is done by reserve currency/ legal tenders, the current accounts act as object of exchange in trading activities such as buying goods with currents accounts, they also are means of payment both productive and non-productive and for gift purposes such as payment of civil servants. In case of bank run as it happens in the conventional banks anywhere in the world, the Islamic banker will also be unable to make its current accounts liquid. What is Islamic about Islamic bank current accounts? It is their use of money in halal mode of finance or investing activities and the use of profits of Islamic banks for Muslim cause.