Depositors Protection Scheme: Appraisal of Islamic Banks Participation in Deposit insurance System

Abstract

Deposit Insurance Scheme (DIS) has assumed the position of universal importance as a consumer protection scheme for the depositors and investors in the banking sector of nations' economy. The role of Islamic deposit insurance is to create a level playing field between Islamic and conventional banks apart from maintaining a foundation for public confidence in the banks it is also to reinforce the consumer protection aspects that are inherent in Islam. However virtually all the existing DISs are established on legal, regulatory and operational framework devoid of any Islamic bias, meanwhile the Islamic banks and their customers are as much in need of this protection, assurance and sustenance of confidence produced by the scheme as their conventional counterparts. The research therefore examines some of the controversies in the operation of Deposit Insurance as well as its compatibility with Shariah rules under which Islamic banks operate. It looks into the needs and the extent to which Islamic banks can participate into the scheme. The paper concludes that objectives of DIS is compatible with Shariah but also finds out that its designs and some of its operations need to be adjusted for Islamic banks to fully integrated without impairing the provisions of Shariah.