MBF707: Monetary and Fiscal Framework in Islamic Finance

COMSATS Institute of Information Technology (Virtual Campus)

2

Review of the Last Lecture

MusharakahIntroduction

Legality of Musharakah and Mudarabah

Definition of Musharakah

Application of Musharakah

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Lecture 06

Musharakah &

MudarabahModes of Financing

What is Mudarabah?

Kind of partnershipOne person gives money to another for the

purpose of investmentInvestor ------> Rab-bul-Maal Or MudarabiFund Utilizer ------> MudaribRabbul Maal-------> No Right in Management

Mudarabah v/s Musharakah

1. Investment

2. Participation in Management

3. Loss Share– In Partnership– Rabbul Maal– Mudarib

4. Liability (limited vs unlimited)

5. Appreciation in the value of the assets

Types of Mudarabah

Al Muqayyadah ( Restricted Mudarabah)Al Mutlaqah ( Un-Restricted Mudarabah)One Mudarib or more Mudaribs can be

employed by the RabulMaal.

Profit Distribution in Mudarbah

At the Beginning : Definite Profit Ratio agreed by Mutual Consent No Particular Proportion has been prescribed by the Shariah May agree on different ratio of Profit 40 % Mubarib, 60%

Rabbul Maal or viseversa

Lump sum Amount of Profit Not Allowed:

Capital -------------> Rs. 100,000

Profit ---------------> Rs. 10,000 of the Mudarib

Profit 2 -------------> 20 % of Capital of Rabbul Maal

Profit Distribution in Mudarbah

Mudarib cannot claim any periodical salary in addition to proportion of profit.

Business trip outside own city by the mudarib can claimed for personal expenses, accommodation, food, etc.,

Loss in some Transactions will be offset by the Profit earned in some other transactions before distribution of remainder.

The partner who has expressly excluded himself from the responsibility of work for the business cannot claim more than the ratio of his investment.

Termination of Mudarabah

Can be terminated at any time Give Notice to other Party Difference of Opinion

“All the conditions agreed upon by the Muslims are upheld, except a condition which allows what is prohibited or prohibits what is lawful”…. Hadith

Asset in form of Cash --------> Distribute according to the agreed Ratio Asset in other Form --------> Mudarib may sell it liquidate them ,

Distribute it