Nobody downloaded yet

Islamic finance : Mudaraba contract - Research Paper Example

Comments (0) Cite this document
The capital provider is referred to as rabbul mal, where as the entrepreneur is called mudarib. Under the terms of Mudaraba, the capital provided by Rabbul mal, is managed by the mudarib…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.8% of users find it useful
Islamic finance : Mudaraba contract
Read TextPreview

Extract of sample "Islamic finance : Mudaraba contract"

Download file to see previous pages is is provided that the losses under consideration did not occur because of the misconduct (ta’addi) or negligence (taqsir) of the mudarib (Davis, 2008). The Mudaraba is an example of a fiduciary relationship, and these assets are normally held in trust. The parties to this association are allowed to terminate their agreement or contract, the mudarib has started working, or the two parties agreed to terminate their contract after a specified period of time.
There are two major types of the Mudaraba. These types are, the restricted, and the unrestricted Mudaraba (Hassan & Lewis, 2007). The unrestricted Mudaraba is also referred to as Mudaraba Mutlaqah, and it is a contract, whereby the Rabbul Mal, has not initiated conditions, in which the Mudarib, could follow, for purposes of investing his money. The restricted Mudaraba is also referred to as Mudaraba Muqayyadah. Under this type of a contract, the Rabbul Mal has initiated a series of conditions, or projects that the Mudarib can engage in, for purposes of investing the money of the Rabbul Mal (Davis, 2008). Restricted Mudaraba can occur in two major ways, restrictions, under the terms of the Mudaraba, and restriction of location.
Restriction under terms, is a concept where the Rabbul Mal, is able to impose specific terms, in regard to the manner which the Mudarib should invest or use his money. Restriction under location is where the Rabbul Mal, restricts the Mudarib, to operate in only some specific locations (Suwaidi, 1994). A concept under Sharia law that is closely related to Mudaraba is Musharakah. Musharakah is a joint venture, whereby both parties to the business, are able to contribute capital for purposes of running the organization (Davis, 2008). Under this concept, the profits are shared by the partners, as per the agreed ratios, and the losses are also shared, as per the level of capital that an individual invested. Both parties in Musharakah can manage the organization, even though it is not ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Islamic finance : Mudaraba contract Research Paper”, n.d.)
Retrieved from
(Islamic Finance : Mudaraba Contract Research Paper)
“Islamic Finance : Mudaraba Contract Research Paper”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Islamic finance : Mudaraba contract

Islamic Finance

...system usually management liquidity through the lack of or limitation of practical instruments. This is also because there is a small number of people participating on the finance market. The sharia principles and rules have banned down majority of the conventional liquidity tools. This makes the Islamic banking and finance system to experience higher liquidity ratios in comparison to the conventional banks. However, there a lot of facts that can still weaken the potential of the Islamic banking and finance system and also affect its reputation. These facts include that the Islamic banking and financial systems lack...
9 Pages(2250 words)Essay

Islamic finance

...element of Riba’, Gharar, Mysur, Haram etc. Secondly, there are many conditions which must be fulfilled in order for a contract to be rendered valid. They include: A condition which is not against the contract is a valid condition A condition which seems to be against the contract, but is normal market practice, is no void unless proved in the light of Shariah. A condition which seems to be against the contract and not market practice but favors any one participant is void. A condition which is against the contract, not market practice, and doesn’t favor anyone is a void condition. Sales in Islamic Finance The concept of...
6 Pages(1500 words)PowerPoint Presentation

Islamic finance based in Bahrain while MASB and IFSB are in Malaysia (Zepeda 53). Islamic Finance as an Alternative to Conventional Finance The conventional finance system has been described as being innately unstable mainly due to being based on interest and debt as well as using the credit multiplier to leverage itself while creating debt excessively. It is characteristic of government rules and regulations, insurance schemes and treatment of tax to promote contracts that are based on debt in conventional finance rather than those involving sharing of the risks (Zepeda 48). As such, a finance system founded on debt encourages the...
8 Pages(2000 words)Essay

Islamic Finance

...years suppose 5 years when the amount is taken out or is repaid. The total amount will principle added the increased or decreased value of gold. So that, both parties may survive the risk of economic fluctuations such as currency loss or inflation etc. Islamic banks work on the principle of profit and loss sharing. When an individual lend money from an Islamic Bank, both parties enter into a business contract (Musharaka or Mudaraba). According to this agreement borrower runs the business as entrepreneur and bank becomes the investor and overlook business affairs while at the end profit or loss is shared according to the specified ratio. Question 4: Like conventional...
6 Pages(1500 words)Essay

Islamic Finance be capital on which a return may be obtained, but only "potential capital" requiring the services of an entrepreneur to pit it to actual productive use. The lender who advances money for trade or production can only contract to receive a share of the profit because he is just a part owner of the enterprise's capital and has to share in the risk of enterprise. Put simply, the Islamic Financial system replaces with debt financing with equity financing (Hayes 1998 p12). All the traditional Islamic financial instruments derive their legitimacy and validity under Islamic law either because Mohammad himself adopted them or because they were...
32 Pages(8000 words)Coursework

Business/Finance (islamic Finance)

...GROWTH OF ISLAMIC FINANCE Islamic Finance has been one of the fastest growing fields in the entire financial history of the world. As per Movassaghi and Raquibuz (2001), there were 166 Islamic banks and financial institutions in the world in 1996, with a total asset base of $137 billion, deposits of around $100 billion and paid-up capital of $7.3 billion. Last ten years have witnessed a phenomenal growth rate in Islamic financial institutions' performance. As per the recent statistics provided by The International Islamic Finance Forum (2007), there are 270 Islamic banks worldwide having $265 billion assets, financial investments of around $400 billion, and deposits of $202 billion. This sheer increase in the number of banks... and their...
4 Pages(1000 words)Research Proposal

Islamic finance presently a leading hub for Islamic financial services with 22 banks operating in the country. But out of these only 5 banks have become fully compliant with the principles of Sharia which include 1 retail bank and 4 wholesale banks. The Islamic financial institutions in practice are more focused on the short term or medium term project financing. The factors of late profit rates, deferred contracts, risk aversion and dividend policies are majorly used to evaluate the performance of the Islamic financial system. Islamic finance has evolved as a strongly established sector but it still remains far behind when a...
10 Pages(2500 words)Research Paper

Islamic Finance

...Islamic finance Islamic finance is undergoing a new transition (DiVanna & Sreih, 2009). This is because the world is advancing in technology, which requires the Islamic Finance to upgrade their systems in accordance with new inventories thus thriving not only in their respective regions but also globally. Though some complies with this transition, some still disagrees and curses this revolution citing that it does not comply with Islamic Sharia law tracing their faith and beliefs from Quran and Prophet Mohammed (DiVanna & Sreih, 2009). These sharia laws require all Islam followers to abide by these laws. Hence, the present state of this Islamic finance is trying to upgrade and cope up with the economic, banking and finance crisis... with...
2 Pages(500 words)Case Study

Islamic finance

...or shares held by the public. It will be worth mentioning that Islamic financial system reduces the possibility of banks witnessing instability or breakdown in their payment mechanism, as the value of deposits is associated with the overall profits and assets of the banks. Lending Operations There are certain methods formulated by the Islamic law in order to carry out lending operations in the Islamic Banking system which includes Mudarabah financing, Musharakah financing and other financing modes. According to Halabi & Mirza (2001) there are two methods in lending operation which includes ‘Murabaha or cost plus...
12 Pages(3000 words)Essay

Islamic Finance

...failed to execute PLS system as they did not follow the risk-free rule of the system (Dar and Presley, 2000). Information asymmetry Information asymmetry is another root cause for the decline of Musharaka and Mudaraba financing. This is the main reason why “fixed- interest financing dominates over the PLS system during a principle-agent contract” (Halkos and Salamouris, 2004). The agents and principle contracts experience the problem of information asymmetry, which becomes difficult for them to trust and select contracts. The banks should evaluate the imperfect information of the borrowers before the banks provide loans. The evaluation...
8 Pages(2000 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Research Paper on topic Islamic finance : Mudaraba contract for FREE!

Contact Us