| A-E, F-L, M-P, Q-S, T-Z |
| Mudaraba
|
| The
term refers to a form of business contract in which one party
brings capital and the other personal effort. The proportionate
share in profit is determined by mutual agreement. But
the loss, if any, is borne only by the owner of the capital,
in which case the entrepreneur gets nothing for his labour.
The financier is known as ‘rabal-maal’ and
the entrepreneur as ‘mudarib’. As a
financing technique adopted by Islamic banks, it is a contract
in which all the capital is provided by the Islamic bank while
the business is managed by the other party. The profit
is shared in pre-agreed ratios, and loss, if any, unless caused
by negligence or violation of terms of the contract by the ‘mudarib’
is borne by the Islamic bank. The bank passes on this
loss to the depositors. |
| Mudaraba
(Trust Financing) |
| We
may act as managing trustee (‘Modareb’) while you
are the beneficial owner (Rab El-Maal). It is our responsibility
to invest the funds that you provide. Alternatively, our roles
may be reversed, when you, as managing trustee, are responsible
for investing our funds. In each case, we shall agree on our
relative share of any profits. |
| Mudaraba |
|
In
the theoretical model of Islamic banking Mudaraba has been
suggested a technique which shall provide the basis for the
Islamic re-organisation of commercial banking sector. In actual
practice of Islamic banking, Mudaraba has not made much progress
on t he asset side of the balance sheet, although on the liability
side the Islamic banks on Mudaraba accept the funds in investment
accounts. Mudaraba is mostly translated in English as profit
and loss sharing.
There
is no loss sharing in a Mudaraba contract. Profit and loss
sharing is more accurate description of the Musharaka contract.
The Mudaraba contract may better be represented by the expression
profit sharing Mudaraba is an Islamic contract in which one
party supplies the money and the other provides management
in order to do a specific trade. The party supplying the capital
is called owner of the capital. The other party is referred
to as worker or agent who actually runs the business. In the
Islamic Jurisprudence, different duties and responsibilities
have been assigned to each of these two.
As
a matter of principle the owner of the capital does not have
a right to interfere in to the management of the business
enterprise which is the sole responsibility of the Agent x.
However, he has every right to specify such conditions that
would ensure better management of his money. That is why sometime
Mudaraba is referred as sleeping partnership. An important
characteristic of Mudaraba is the arrangement of profit sharing.
The profits in a Mudaraba agreement may be shared in any proportion
agreed between the parties before hand. However, the loss
is to be completely borne by the owner of the capital. In
case of loss, the capital owner shall bear the monetary loss
and agent shall lose the reward of his effort. Mudaraba could
be individual or joint.
Islamic
banks practice Mudaraba in its both forms. In case of individual
Mudaraba an Islamic bank provides finance to a commercial
venture run by a person or a company on the basis of profit
sharing. The joint Mudaraba may be between the investors and
the bank on a continuing basis. The investors keep their funds
in a special fund and share the profits without even the liquidation
of those financing operations that have not reached the stage
of final settlement. Many Islamic Investment Funds operate
on the basis of joint Mudaraba.
|
| Mudaraba |
| This
is an agreement made between two parties: one which provides
‘100 percent of the capital’ for the project and
another party known as a ‘Mudarib’ who using his
entrepreneurial skills, manages the project. Profits arising
from the project are distributed according to a predetermined
ratio. Any losses accruing are borne by the provider of capital.
The provider of capital has no control over the management of
the project. |
| Mudarib
|
| In
a mudaraba contract, the person or party who acts as
entrepreneur.
|
|
Mu'amalah
(t)
|
| Lit:
economic transaction. Technically, lease of land or of
fruit trees for money, or for a share of the crop. |
| Murabaha |
|
Lit:
sale on profit. Technically a contract of sale in which
the seller declares his cost and profit. This has been
adopted as a mode of financing by a number of Islamic banks.
As a financing technique, it involves a request by the client
to the bank to purchase a certain item for him. The
bank does that for a definite profit over the cost which is
settled in advance. Some people have questioned the
legality of this financing technique because of its similarity
to riba or interest.
|
| Murabaha
(Cost-Plus Financing) |
| A
contract of sale between the bank and its client for the sale
of goods at a price plus an agreed profit margin for the bank.
The contract involves the purchase of goods by the bank which
then sells them to the client at an agreed mark-up. Repayment
is usually in instalments. |
| Morabaha
(Cost-Plus Financing) |
| Used
if you wish to purchase equipment or goods. We will purchase
these items, and then sell them to you at cost - plus a reasonable
profit. |
| Murabaha
|
|
Murabaha
is the most popular and most common mode of Islamic inancing.
It is also known as Mark up or Cost plus financing. The word
Murabaha is derived from the Arabic word Ribh that means profit.
Originally, Murabaha was a contract of sale in which a ommodity
is sold on profit. The seller is obliged to tell the buyer
his ost price and the profit he is making. This contract has
been modified a little for application in the financial sectoIn
its modern form Murabaha has become the single most popular
technique of financing amongst the Islamic banks all over
the world. It has been estimated that 80 to 90 percent of
financial operations of some Islamic banks belong to this
category. The Murabaha mode of finance operates in the following
way: The client approaches an Islamic bank to get finance
in order to purchase a specific commodity. An interest-based
bank would lend the money on interest to this customer. The
customer would go and buy the required commodity from the
market. This option is not available to the Islamic bank,
as it does not operate on the basis of interest. It can not
lend the money on interest. It can not lend money with zero
interest rate, as it has to make some money to stay in the
business.
Some
portion of total finance may be offered as an interest free
loan, however, the banking institutions have to make profit
in order to stay in business. Hence, what course of action
is open to the bank? The Murabaha model offers a solution.
The bank purchases the commodity on cash and sells it to the
customer on a profit. Since the client has no money, he buys
the commodity on deferred payment basis. Thus, the client
got the commodity for which he wanted the finance and the
Islamic bank made some profit on the amount it had spent in
acquiring the commodity.
There
are a number of requirements f or this transaction to be a
real transaction to meet the Islamic standards of a legal
sale. The whole of Murabaha transaction is to be completed
in two stages. In the first stage, the client requests the
bank to undertake a Murabaha transaction and promises to buy
the commodity specified by him, if the bank acquires the same
commodity. Of course, the promise is not a legal binding.
The client may go back on his promise and the bank risks the
loss of the amount it has spent. In the second stage, the
client purchases the good acquired by the bank on a deferred
payments basis and agrees to a payment schedule. Another important
requirement of Murabaha sale is that two sale contracts, one
through which the bank acquires the commodity and the other
through which it sells it to the client should be separate
and real transactions.
The
Murabaha form of financing is being widely used by the Islamic
banks to satisfy various kinds of financing requirements.
It is used to provide finance in various and diverse sectors
e. g. in consumer finance for purchase of consumer durable
such as cars and household appliances, in real estate to provide
housing finance, in the production sector to finance the purchase
of machinery, equipment and raw material etc. However, probably
the most common and the most popular application of Murabaha
is in financing the short-term trade for which it is eminently
suitable. Murabaha contracts are also used to issue letters
of credit and to provide financing to import trade.
|
|
Murabaha
|
| (Cost-plus
financing) This is a contract sale between the bank and
its client for the sale of goods at a price which includes a
profit margin agreed by both parties. As a financing technique,
it involves the purchase of goods by the bank as requested by
its client. The goods are sold to the client with a mark-up.
Repayment, usually in instalments is specified in the contract.
|
| Musharaka |
| The
term refers to a financing technique adopted by Islamic banks.
It is an agreement under which the Islamic bank provides funds
which are mingled with the funds of the business enterprise
and others. All providers of capital are entitled to participate
in the management but not necessarily required to do so.
The profit is distributed among the partners in predetermined
ratios, while the loss is borne by each partner in proportion
to his contribution. |
| Musharaka
(Partnership Financing) |
| This
is a classical partnership agreement. All parties involved contribute
to towards the financing of a venture. The parties share profits
on a pre-agreed ratio while losses are shared according to each
parties equity participation. Here again the reason is because
in Islam, one cannot loose what they did not contribute. Management
of the venture is carried out by all, some, or just one party
member. |
| Musharaka
(Joint Venture) |
| We
add our funds to your funds, and participate in the equity of
the project. We share profits and losses in direct proportion
to our contributions. |
| Musharaka |
| Musharaka
is another popular techniques of financing used by Islamic banks.
It could roughly be translated as partnership. In this technique
two or more financiers provide finance for a project. All partners
are entitled to a share in the profits resulting from the project
in a ratio which is mutually agreed upon. However, the losses,
if any, are to be shared exactly in the proportion of capital
proportion. All partners have a right to participate in the
management of the project. However, the partners also have a
rig ht to waive the right of participation in favour of any
specific partner or person. There are two main forms of Musharaka:
Permanent Musharaka and Diminishing Musharaka. These are briefly
explained below: |
| Permanent
Musharaka |
| In
this form of Musharaka an Islamic bank participates in the equity
of a project and receives a share of profit on a pro rata basis.
The period of contract is not specified. So it can continue
so long as the parties concerned wish it to continue. This technique
is suitable for financing projects of a longer life where funds
are committed over a long period and gestation period of the
project may also be long. |
| Diminishing
Musharaka |
| Diminishing
Musharaka allows equity participation and sharing of profit
on a pro rata basis but also provides a method through which
the equity of the bank keeps on reducing its equity in the project
and ultimately transfers the ownership of the asset on of the
participants. The contract provides for a payment over and above
the bank share in the profit for the equity of the project held
by the bank. That is the bank gets a dividend on its equity.
At the same time the entrepreneur purchases some of its equity.
Thus, the equity held by the bank is progressively reduced.
After a certain time the equity held b y the bank shall come
to zero and it shall cease to be a partner. Musharaka form of
financing is being increasingly used by the Islamic banks to
finance domestic trade, imports and to issue letters of credit.
It could also be applied in agriculture and Industry. |
| Musharaka
(Venture Capital) |
| This
Islamic financing technique refers to a partnership between
two parties, who both provide capital towards the financing
of a project. Both parties share profits on a pre- agreed ratio,
but losses are shared on the basis of equity participation.
Management of the project is carried out by both the parties.
|
| Musaqah
|
| A
contract in which the owner of the garden shares its produce
with another person in return for his services in irrigating
the garden. |
| Muzara'a
|
| It
is a contract in which one person agrees to till the land of
the other person in return for a part of the produce of the
land. |
| Nisab
|
| Exemption
limit for the payment of zakah. It is different
for different types of wealth. |
