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Mudarabah in Islamic Banking
Finance & Accounting
Pages 3 (753 words)
[Name of the Writer] [Name of the Professor] [Name of the Course] [Date] Mudarabah in Islamic Banking The financial System in Islam is governed by the principles governing financial matters that are quoted in the religion of Islam. ISLAMIC BANKING The mode of banking in the religion of Islam is Shariah compliant…
It is the means by which bonding is done between two participants such that one of them is the financer and the other is the manager or the mudharib. While the investor or the RabbulMal is responsible for any losses made in the transaction the Mudharib suffers only the loss of the efforts put by him. The bank often acts as the Rabbul Mal or the capital provider who provides capital to the entrepreneur. The funds provided by the bank can be used by the entrepreneur upon his discretion. The profit attained by using rabbul mal’s funds would be divided amongst the investor and the user with respect to a pre-decided profit sharing agreement. While the bank provides the investment, the entrepreneur is responsible for all the skill and the expertise incorporated within the project. The part of profit that is attained by the bank becomes his right only by virtue of the fact that he is the sole entity responsible for any losses that incur within the business. This relationship of profit sharing by the bank and the entrepreneur continues until the loan is not paid back in full by the entrepreneur. The role of Bank in the type of Mudharabah discussed above may be demonstrated in figure 1. ...
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