What is Wadiah?

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What is Wadiah?

What is Wadiah



Legality of Wadia

Important principles



‘Wadia’ is an Arabic word which means ‘Deposit’. It is derived from the verb wada’a, which means to leave, lodge or deposit.  It is a type of Contract (akad)  between the owner (Muwdi) of the goods and custodian (Mustawde) of the goods where the owner of the asset deposits the funds or assets in an Islamic bank for safekeeping. In most of the agreements, the bank charges a fee for the safe custody of the depositor’s funds. The bank also requests permission to utilize the customers’ funds for investment purposes. This concept is more popular in Malaysia where Islamic banks use this concept to accept deposits from customers.


In the Quran Allah says:

“Verily! Allah commands that you should render back the trusts to those to whom they are due…” (Al Quran 04:58)

“Those who are faithfully true to their Amanat (all the duties which Allah has ordained, honesty, moral responsibility and trusts) and to their covenants…” (Al Quran 23:08).

“If you trust one another, then let him who is trusted fulfil his trust, and let him be conscious of God, his sustainer” (Al Quran. Al-Baqarah. 2:283)

“And perform the trust to those who entrusted you and do not betray those who betrayed you” (Abu Daud)

Here is Prophetic hadith narrated by Abu Hurayrah (May Allah be pleased with him):

The Prophet (saw) said: Pay the deposit to him who deposited it with you, and do not betray him who betrayed you. (Abu Dawud, Book #23, Hadith #3528).

The Prophet (saw) said: “Render back the trust to the one who entrusted it to you, and do not betray those who betray you.” Narrated by al-Tirmidhi, 1264; classed as Saheeh by al-Albaani in Saheeh al-Tirmidhi.

Other than the evidence from the Quran and Sunnah, all Muslim scholars collectively agree on the permissibility of wadiah. This kind of transaction is a necessity and a requisite for protecting mankind and such should be allowed (Zuhaily, 1985).

Important principles

  • There must be a valid offer (ijab) and acceptance(qabul) made in wadiah contract.
  • The depositor and the custodian must be of sound mind and must have legal capacity.
  • The deposit property must be a valuable property in Islamic law.  Forbidden items such as a dead animal, pork, alcohol etc, cannot be part of the wadiah. The deposited property must be possessed physically and must be owned and deliverable.
  • Custodian can utilize the deposited property only after the prior consent of depositor.
  • The custodian is not permitted to mix the deposited property with other properties, except that there is a valid reason to do so or in a situation where the deposited property can easily be identified and separated.
  • The custodian must return the property at any time upon demand of the depositor.


Wadiah yad Amanah

It refers to a trust to keep. Here, asset or fund is deposited on the basis of trust. The custodian (Mustawde) keeps the deposit and takes care of his own property. He is not responsible for any damages except due his negligence. Also, the custodian does not gain any profit from the contract. He must return the asset or fund at any time upon demand of the owner.

Wadiah yad Dhamanah

It refers to savings with guarantee or safe-keeping.  It refers to a combination between safe-keeping (al wadiah) and guarantee (daman). The custodian is free to use the deposited property for investment purpose. He has the right to gain some profit which is derived from the investment fund and sometimes he is fully responsible for the damage.