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INTRODUCTION
One of the cornerstones of Islamic banking
is prohibiting all forms of interest-based
financial transactions (riba) regardless of
what term they might come under, and does
not tolerate any attempt to justify interest
based financial activities.
Allah permits trade and forbids usury [The
Holly Quran , 2:275]
Riba is the predetermined return on the
use of money.
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Elimination of riba
i.e usury or rent on money in all forms
and intents
Deterrence of zulm
i.e oppression and exploitation
Introduction of safety net mechanisms for
the benefit of the poor and the less-have
through zakat or Islamic tax, sadaqah (alms),
waqaf and qard hasan (benevolent loan)
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MUDHARABAH
Mudharabah derived from dharaba fi al-ard
which means journeying through the land
seeking the bounty of Allah.
It is a partnership in profit and not in capital.
The rationale behind this partnership is that
there are people who have money but not skilled
in trade, and there are others who have good
experience in trade but do not have necessary
capital. Hence, by joining forces, that is by
bringing together the capital from the first side
and the work from the other, there should be
great benefit for both parties and for the
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community.
DEFINITION OF MUDHARABAH
Jurist of Medina
Mudharabah
Muqaradhah or qirad
Shafie
Mudharabah
DEFINITION OF MUDHARABAH
Al-Mudharabah implies that one person
hands over money to another for the
purpose of investment.
The first party is called the investor or
money owner (rabbul-mal) while the second
party is called the mudharib.
The mudharib is a trustee or agent.
The money lender is normally the sleeping
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partner.
DEFINITION OF MUDHARABAH
The net profit realised are divided between
the two parties according to certain ratios
agreed upon in advance.
Any loss on capital is borne by the owner
of the money and the mudharibs only loss
is his effort and expected profit.
The mudharib can be sued for any wilful act
or negligence on his part.
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TYPES OF MUDHARABAH
Mudharabah financing can be divided into 2
types.
Mudharabah Muqayyadah (restricted)
Mudharabah Mutlaqah (unrestricted)
Restricted Mudharabah
the Islamic banking institution may specify
certain terms and conditions.
the customer is bound by all these restrictions
and any violation of these restrictions may make
the customer liable for any loss, if any.
This type of mudharabah financing may be used
for contract financing of a specific project
awarded to the customer.
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TYPES OF MUDHARABAH
Unrestricted Mudharabah
the Islamic banking institution does not
impose any limitation on the customer /
partner.
In this case, the banking institution will not
have any recourse to the customer should the
business incur losses due to the investment
policy as there would have been no such policy
prescribed by the Islamic banking institution
in the first place.
This type of mudharabah financing may be
used towards financing a customers working
capital requirement.
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MUSYARAKAH
DEFINITION
EVIDENCE
TYPES
OF MUSYARAKAH
PILLARS OF MUSYARAKAH
CONDITIONS OF MUSYARAKAH
TERMINATION OF MUSYARAKAH
Definition
Musyarakah is a word of Arabic origin which literally
means sharing/partnership.
Musyakarah or shirkah is a form of partnership
where two or more persons combine either their
capital or labour to take on a business venture and
sharing the profits, enjoying similar rights and
liabilities.
Majallat al-Ahkam (1329) define it as an
Agreement for association on the condition that the
capital and its benefit be common between 2 or
more person.
Evidence
Al-Quran
.but
Types of musyarakah
1. Shirkah al-milk
It means joint ownership of 2 or more persons in a
particular property.
This kind of shirkah may come into existence in 2
different ways:
Ikhtiyariyyah (voluntary) if 2 or more persons purchase
equipment, it will be owned jointly by both of them. Here
the relationship has come into existence at their own
option, as they themselves elected to purchase the
equipment jointly.
Ijabriyyah (involuntary) comes to operate automatically
without any action taken by the parties. For example,
after the death of the person, all of his heirs inherit his
property which comes into their joint ownership as an
automatic consequence of the death of that person.
2. Shirkah al-uqood
Also known as contractual partnership.
Considered as a proper partnership because the parties
concerned have willingly entered into a contractual
agreement for joint investment and the sharing of profits
and risks.
The agreement need not necessarily be formal and
written; it could be informal and oral.
It can be divided in the fiqh books into four categories:
i. al-mufawadah (full authority and obligation);
ii. al-inan(restricted authority and obligation);
iii. al-abdan (labour, skill and management);
iv. al-wujuh (goodwill, credit-worthiness and contracts).
a. Shirkah al-mufawadah
Enjoy
complete equality.
Equal in their capital contribution, their ability to
undertake responsibility and their share of profits and
losses.
They have full authority to act on behalf of the others and
are jointly and severally responsible for the liabilities of
their partnership business, provided that such liabilities
have been incurred in the ordinary course of business.
Thus each partner can act as an agent (wakil) for the
partnership business and stand as surety or guarantor
(kafil) for the other partners.
b. Shirkah al-inan
c. Shirkah al-abdan
This
d. Shirkah al-wujuh
The
Pillars of musyarakah
It can be divided into five:
i. Shuraka (shareholder)
ii.Rasul mal (capital)
iii.Mashru(project or business venture )
iv.Ribh (pre-determined profit allocation)
v.Sighah (offer and acceptance)
Conditions of Musyarakah
It
Conditions of Musyarakah
i. Shareholder and partners
The parties must be qualified person to appoint an agent or to
be appointed as an agent under the principle of al-Wakalah
(agency).
Conditions of Musyarakah
iii. Project
The project must be lawful according to Islamic law i.e it
must be halal.
The appointed shareholder who carried out the project is
held responsible under the principle of Yad Amanah
(trust). In the case of his negligence he is held
responsible for compensation under the principle of Yad
Dhamanah (guarantee).
iv. Profit
The ratio profit sharing between all parties should be
determined and mutually agreed at the conclusion of the
contract in the form of percentage of profit, not a sum of
money or percentage of capital.
This is important as to avoid the element of gharar.
Termination of musyarakah
Musyarakah
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Musyarakah
Musyarakah
The bank cannot interfere in the management of the project but has the
right to undertake follow up and supervision tasks. Both parties agree
through negotiations the ratio of distribution of the profits generated from
the project, if any. In the event a loss in the project, the bank bears all the
losses.
Musyarakah
circumstances:
investment
may
occur
in
the
following
In this contract, the bank and the client will participate in the joint ownership (sharikat almulk) of a property or equipment, or in a joint commercial enterprise and share the equity
portion.
The client will be allowed to utilise the property e.g. residing in the house in the house
financing and has to pay monthly rental payment against the share ownership of the bank to
the house as a promise.
The share of the bank is further divided into a number of units and the client will purchase
this share periodically thus increasing his share and the share of the financier will be in
decreasing as the bank had promised so.
At the end of the contract all the share of ownership of that property belongs to the client,
making him the sole owner of the property. The title of the property will be transferred to the
client.
of Credit-I
Letter of Guarantee
Under this service, the banks will provide the
It
is an account based on the Islamic concept of AlMudharabah. It refers to a contract made between a provider of
capital (depositor) and an entrepreneur or fund manager (the
Bank) to enable the Bank to carry out business ventures within
Shariah guidelines. Both parties agree to share profits from the
investment according to a mutually agreed ratio. It is based on
Tiered Profit Sharing Ratio (PSR) - the higher the account
balance, the higher customer's profit ratio.
Mortgaging
CONCLUSION