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Mudarbah & musharkah

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Mudarbah & musharkah

  1. 1. P R E S E N T E R SM U H A M M A D F A I S A L S H A I K HM U H A M M A D Z E E S H A NM U H A M M A D A F A QMUDARBAH & MUSHARKAHAS A MODE OF FINANCING
  2. 2. MUDARABAH
  3. 3. What is Mudarabah? Kind of partnership One person gives money to another for investing Investor ------> Rab-bul-Maal Or Mudarabi Fund Utilizer -------> Mudarib Rabbul Maal---------> No Right in Management
  4. 4. Mudarabah v/s Musharakah1. Investment2. Participation in Management3. Loss Share In Partnership Rabbul Maal Mudarib4. Liability5. Appreciation in the value of the assets
  5. 5. Types of Mudarabah Al Muqayyadah ( Restricted Mudarabah) Al Mutlaqah ( Un-Restricted Mudarabah)
  6. 6. Profit Distribution in MudarbahAt the Beginning : Definite Profit Ratio agreed by Mutual Consent No Particular Proportion has been prescribed by theShariah May agree on different ratio of Profit 40 % Mubarib,60% Rabbul Maal or viseversaLump sum Amount of Profit Not Allowed:Capital ---------------> Rs. 100,000Profit ----------------> Rs. 10,000 of the MudaribProfit 2 --------------> 20 % of Capital of Rabbul Maal
  7. 7. Profit Distribution in Mudarbah Loss in Some Transactions and others in ProfitOffset the Loss FirstRemainder Distributed
  8. 8. Termination of Mudarabah Can be terminated at any time Give Notice to other PartyAsset in form of Cash ---------> Distribute accordingto the agreed RatioAsset in other Form ------------> Mudarib may sell itliquidate them , Distribute it
  9. 9. Combination ofMusharakah & Mudarabah In Mudarabah, Fund Provider -----> Rabbul Maal Mudarib add Capital, if agreed with MudarabiCombination:Rabbul Maal -------------------> Rs. 100,000Mudarib Add Own -------------> Rs. 50,oooProfit Distribution Mudarabi: Certain Percentage of Profit as Mubarib Another Percentage of Profit as Sharik
  10. 10. MUDARBAH & MUSHARKAHAS A MODE OF FINANCING
  11. 11. PROJECT FINANCING
  12. 12. PROJECT FINANCING “Financer want to finance whole project” Mudarabah & Musharakah both easily adoptedMusharakah: Investment comes from both sides Management both responsibilityCombination: Management responsibility of one party Investment comes from both
  13. 13. PROJECT FINANCINGWithdraw One Party from Musharakah Other party want to continue Purchase the shares.Financial Institution Don’t want remain partner forever Sale of share as one unit is lack of liquidity Financer divide into smaller unit and may sell it
  14. 14. SECURITIZATION OFMUSHARAKAH
  15. 15. SECURITIZATION OF MUSHARAKAH Big Project , Huge Amount Required Limited No. of people cannot afford to financeMusharakah Certificate: Each certificate represent his proportion ofownership in the asset of musharakah. Negotiable Instruments Buy or Sale in Secondary Market
  16. 16. SECURITIZATION OF MUSHARAKAHNOT ALLOWED Certificate Trading other than Par Value Assets are in Liquid Form Cash , Receivables or Advances dueExample:No. of Share -------------------------> 100 SharesValue of Share ------------------------> 01 MillionTotal Worth of Project --------------> Rs. 100 Million Nothing Purchased by this Money Not Allowed Sale other than Par Value Money Exchange with Money, excess side ----------> Riba
  17. 17. SECURITIZATION OF MUSHARAKAHExample:Musharkah ProjectNon - Liquid Assets ----------> 40%Liquid Assets -----------> 60 %Face Value of Share ------------> Rs. 100If Sold Higher PriceSold Price -------------------> Rs. 110It Represents:Liquid Assets ------------------> Rs. 60Non – Liquid Assets ----------> Rs. 50 ( Previous was Rs. 40 )
  18. 18. SECURITIZATION OF MUSHARAKAH Sold Less than Rs. 60 Not Allowed Rs. 60 Liquid Assets ( Cash , Receivables etc) Money Exchange with Money, Low / High side ----> Riba
  19. 19. Financing of a single Transaction
  20. 20. Financing of a single Transaction Mudarabah & Musharakah both may be UsedImport Financing : Letter of Credit( L/C )without Any Margin ---------> MudarabahWith Some Margin ------------> CombinationExpiry of Term Imported good are not sold Importer may himself purchase the share of Financer Pre-Agreed Price or Market Price
  21. 21. Financing of a single TransactionExport Financing : Exported has a specific order from abroad Export goods Price is known Easily Calculate Expected ProfitFinance on the basis of Mudarabah & MusharakahPre-Agreed Ratio of Profit on Export BillIn Order to Secure Financer Himself , Put Condition: Export goods with Full Conformity, will be responsibility of exporter If Some Disturbance found, exporter will be responsible only( Mudarabah ) If Some Disturbance found other than Negligence, All Partners bear theLoss ( Musharakah )
  22. 22. SHARING GROSS PROFIT ONLY
  23. 23. SHARING GROSS PROFIT ONLY Financing on the basis of MusharakahProblem: Difficult to valuate All Assets & Depreciation /Appreciation CostSolution 1 : Pay Agreed Rent to Client of All fixed assets(Machinery , Building ) from Musharakah fund Remain distribute , according to agreed Ratio
  24. 24. SHARING GROSS PROFIT ONLYSolution 2 : Gross Profit will be distributed Higher Profit Ratio of Client Gross Profit Means Only Direct Expenses will bededucted from the Sales ( Material, Labor, Electricity)
  25. 25. RUNNING MUSHARKAH ACCOUNTON THE BASIS OF DAILYPRODUCTS
  26. 26. RUNNING MUSHARKAH ACCOUNTMusharakah: Opening Running A/c Deposit & Withdraw Amount any time Profit on Average BalanceMusharakah Rulings: % for Management % for Investor Loss , same as investment proportion Average Balance per day --------------> Profit
  27. 27. RUNNING MUSHARKAHACCOUNTArgument:Why share Profit when other Party, during a period had no Moneyinvested in the Business ?Example :A & B Agreed ----------------> MusharakahEach Contribute --------------> Rs. 50,000When A didn’t invest his money into Join PoolEarn Profit --------------> Rs. 10,000 on Rs. 50,000Distribute --------------> Agreed RatioMusharakah Contract Made: Subsequent Transaction effected Regardless, Whose Money Utilized
  28. 28. WORKING CAPITAL FINANCE
  29. 29. WORKING CAPITAL FINANCEMusharakah: Contribute in Cash or Non-liquid Value of Business Assets ---------> Working partnerProfit : On the Basis of Value of Business Exceed Profit of working Partner ( 70% 30%)Termination or Expiry: Purchase share of Financer
  30. 30. OBJECTIONS ON MUSHARAKAHFINANCING
  31. 31. Risk of Loss:Argument:“Musharakah is more likely to pass on losses of thebusiness to the bank . This loss will be passed on todepositors “Answer: Study the feasibility If Business is not profitable, Refuse it Diversified Musharakah Portfolio
  32. 32. DISHONESTY Argument: not paying any return to the financiers Claim that it has suffered a lossSolution:1. well designed system of auditing2. Profit on the basis of gross margins only3. Punitive Step: Unable to avail any facility from theBank.
  33. 33. Secrecy of the Business: it may disclose the secrets of the business to thefinancier,Solution may put a condition that the financier will notinterfere with the management affairs, and he will not disclose anyinformation about the business to any person without prior permission of the client.
  34. 34. Client’s Unwillingness to Share Profits: clients are not willing to share with the banks the actualprofits of their business. passed on to the tax authorities and Clients’ taxliability increases.Solution:clients need to be convinced and persuaded that borrowingon interest is a cardinal sin,The governments should also try to appreciate the fact thatifrates of taxation are reasonable and if tax-payers areconvinced that they will benefit
  35. 35. THANK YOU

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