Is Islamic Investment Account Unsecured?

Under Islamic Financial Services Act 2013 (IFSA) there are two main accounts: deposit account and investment account. While the capital in deposit account is guaranteed, not only the return is not guaranteed in the investment account, the holder of this account may also loose the capital. This is a major change from the previous practice of investment account whereby the capital is guaranteed. Because of this new requirement, there has been a concern on its attractiveness to the investors/depositors. There has been also uncertainty among the industries that the new investment account would see a significant migration of deposits from Islamic to conventional banks especially among the institutional depositor. Although in principle as per Islamic rule of Mudarabah or Musyarakah both profit and capital are not guaranteed, in reality the element of risk is almost minimal as several steps have been taken to protect the  investment or capital from loss. One of the step is to tag the investment against secured assets that generates stable stream of income. In addition to that under IFSA (section 217 b) the interest of investment account holder are safeguarded in the event of a winding-up of the bank. More importantly, IFSA allows exclusion of capital adequacy ratio calculation, eligible liabilities for computation of statutory reserve requirement calculations and savings from PIDM premium. Because of these exclusions and savings, the bank is able to provide higher return the depositors. In the end, after all, the investment account, despite of its risk element, is actually  a very low risk investment with high return as compared to its older version prior to the enforcement of IFSA.