In a bid to catch up with Malaysia, Indonesia may consider tax incentives for mudaraba depositors with Islamic banks in the country. I think this is an excellent way to promote Islamic finance because it amounts to an explicit subsidy for depositors to choose Islamic banks over conventional banks. Depending on how it is structured, it may not be as great in practice as it is in theory (it effectively lowers the cost of funds for Islamic banks compared to conventional banks, which should reduce the rates they charge on financing). For instance, if the exemption is only usable for higher income individuals, it will benefit larger banks over microfinance institutions or institutions with a greater reliance on small depositors.
It also started me thinking on the differences between the participation investors have whether they are mudaraba depositors, investors in specific funds or equity/debt investors in Islamic banks. I think it raises a potential problem for the Islamic banking structure as is currently is created. The main difference between depositors in banks and mudaraba investors in Islamic banks is that the latter are on the hook (i.e. they could lose their deposits) if the bank's investments lose money. In a conventional bank, the depositors are generally insured by the government (at least in the US and many other countries). That means that in a bank insolvency, the depositors will be made whole up to a certain point (at which they will be treated as unsecured creditors). The debtors will have a claim on the bank's assets, either secured or unsecured. Investors in any funds sponsored by the bank will have recourse against the assets in the fund (which should be segregated from the bank's other assets). Equity investors are last in line, but at least go into that position with that full knowledge.
Mudaraba depositors are not in such a position. In some countries, they are covered by deposit insurance (which may not be Shari'ah-compliant). However, they are placing their funds in a bank with the possibility of loss, but they are not placing them in the bank with an expectation that they could lose it all (as equity investors do). This creates somewhat of a grey area. It may be covered in banking laws that they are entitled to a senior position to equity holders (or even creditors), but I don't know if it is the case in all countries that depositors are given a specific legal priority in the winding up of the bank if it fails.
How are the depositor's covered in the legal structure of a bank? Are they treated as depositors and given whatever priority each country provides for depositors (senior or junior to creditors?) Are they subject to full loss and subject to the same risk of loss as equity holders (based on the mudaraba contract, but shielded by any reserve accounts set up by the bank?)?
If there is no solid standard (or if depositors are subject to total loss alongside equity investors or unsecured creditors unless national laws count them as depositors), then I would be worried. If there were an Islamic bank failure in a country that allowed Islamic banks to actually subject depositors to the standards of the mudaraba contract (which puts the risk of loss of capital on the provider of funds, the rabb ul-maal), it could create a run on all Islamic banks in that country. Not only that, it would put the onus to explain how their countries had greater protections to keep the run on Islamic banks from spreading to other countries.