This document discusses the application of Musharakah and Mudarabah contracts in Islamic finance and banking. It defines Musharakah as a partnership contract where both parties contribute capital to a project and share profits, while losses are based on capital contributions. Musharakah can be used in trade financing, project financing, syndicated assets, stocks, and securitization. Mudarabah is defined as a contract where one party provides capital and the other provides labor to generate profits, which are shared according to agreement. Mudarabah can be used in deposits, various types of financing, takaful, and sukuk.
Types of Sukuk (Islamic Bond)
Sukuk are among the most recent products that are created using structural application in the Islamic financial markets. In order to design flexible securities that could respond to different financing needs of economic agencies in the capital market on one hand and to comply with Islamic principles and standards on the other hand, Muslim scholars started thinking about designing Islamic financial instruments. To this aim, expansive studies were conducted into Shariah-compliant contracts and their ability to be used as instruments so that to design financial instruments that would be able to replace bonds and preferred stocks, which are mainly based on Riba and loans with interests. Eventually, Sukuk was designed as an alternative investment instrument for securities with fixed returns such as bonds that are Hiram in the holy Shariah of Islam. After the successful implantation of the Riba-free banking, Muslim scholars managed to design different financial instruments based on Sharia rules and the actual needs of the Islamic countries. These instruments could be divided into three categories:
Financial Instrument that play a role to bring input resourse for output financial participation. It is the method to structure the capital base for a transaction or a project.
The Presentation is meant for learning purpose where it defines what is Sukuk, Types of Sukuk, Structure of Sukuk, Islamic Mode , Riba, Difference Between Sukuk and Bonds, Islamic structure, Structure Ijarah Murabaha Musharakah Mudarbah Istisna salam Bai Salam
through this slide , one can get a brief idea of what securitization is , how it works and the differences between conventional and Islamic securitization .
Islamic Capital Market is a long term market transactions are carried out in ways that does not conflict with the conscience of Muslims and Islam religion. It follows the religious law or Shariah compliance that is free from any activities prohibited by Islam such as usury (riba), coercion, ambiguity (gharar), and gambing (maysir). The Shariah Advisory Council (SAC) was established in May 1996 as advisor of the Comission on Shariah matters especially in Islamic Capital Market.
The Malaysia Islamic Capital Market has experienced phenomenal growth and raised the bar globally for product innovation and financial intermediation. Islamic financial system is running with conventional system has seen a continuous development in the Gulf cooperation council (GCC) countries. While it has also get success to attract financial centers of world big countries such as UK, USA, France, China, Italy, Korea, Singapore and Japan. Furthermore, this market comprises the Islamic equity sector and fixed income. Various Islamic Capital Market products are available especially for Muslims who only seek into invest and transact in it such as Islamic Unit Trust, Sukuk, Shariah Indices and warrants.
Types of Sukuk (Islamic Bond)
Sukuk are among the most recent products that are created using structural application in the Islamic financial markets. In order to design flexible securities that could respond to different financing needs of economic agencies in the capital market on one hand and to comply with Islamic principles and standards on the other hand, Muslim scholars started thinking about designing Islamic financial instruments. To this aim, expansive studies were conducted into Shariah-compliant contracts and their ability to be used as instruments so that to design financial instruments that would be able to replace bonds and preferred stocks, which are mainly based on Riba and loans with interests. Eventually, Sukuk was designed as an alternative investment instrument for securities with fixed returns such as bonds that are Hiram in the holy Shariah of Islam. After the successful implantation of the Riba-free banking, Muslim scholars managed to design different financial instruments based on Sharia rules and the actual needs of the Islamic countries. These instruments could be divided into three categories:
Financial Instrument that play a role to bring input resourse for output financial participation. It is the method to structure the capital base for a transaction or a project.
The Presentation is meant for learning purpose where it defines what is Sukuk, Types of Sukuk, Structure of Sukuk, Islamic Mode , Riba, Difference Between Sukuk and Bonds, Islamic structure, Structure Ijarah Murabaha Musharakah Mudarbah Istisna salam Bai Salam
through this slide , one can get a brief idea of what securitization is , how it works and the differences between conventional and Islamic securitization .
Islamic Capital Market is a long term market transactions are carried out in ways that does not conflict with the conscience of Muslims and Islam religion. It follows the religious law or Shariah compliance that is free from any activities prohibited by Islam such as usury (riba), coercion, ambiguity (gharar), and gambing (maysir). The Shariah Advisory Council (SAC) was established in May 1996 as advisor of the Comission on Shariah matters especially in Islamic Capital Market.
The Malaysia Islamic Capital Market has experienced phenomenal growth and raised the bar globally for product innovation and financial intermediation. Islamic financial system is running with conventional system has seen a continuous development in the Gulf cooperation council (GCC) countries. While it has also get success to attract financial centers of world big countries such as UK, USA, France, China, Italy, Korea, Singapore and Japan. Furthermore, this market comprises the Islamic equity sector and fixed income. Various Islamic Capital Market products are available especially for Muslims who only seek into invest and transact in it such as Islamic Unit Trust, Sukuk, Shariah Indices and warrants.
The concept of musharakah and mudarabah envisaged in the books of Islamic Fiqh generally presumes that these contracts are meant for initiating a joint venture whereby all the partners participate in the business right from it’s inception and continue to be partners upto the end of the business when all the assets are liquidated . One can hardly find in the traditional books of Islamic Fiqh the concept of a running business where partners join and leave the enterprise without affecting in any way the continuity of the business. Obviously, the classical books of Islamic Fiqh were written in an environment where the large scale commercial enterprises were not in vogue and the commercial activities were not so complex as they are today. Therefore, they did not generally dwell upon the question of such a running business.
Animé par Kader Merbouh, Directeur de l'Executive Master Finance Islamique, Université Paris Dauphine, Casablanca & Kedge, Arnaud RAYNOUARD, Professeur de Droit, Université de Paris Dauphine et Nadia MOLINIER, Directeur Juridique & Présidente, Ethink Finance Elite
FIN 6303, International Finance 1 Course Learning .docxdurantheseldine
FIN 6303, International Finance 1
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
6. Prescribe international short-term cash management investments that maximize firm value.
6.1 Examine methods for financing international trade.
6.2 Evaluate short-term financing options available to multinational companies.
Course/Unit
Learning Outcomes
Learning Activity
6.1
Unit Lesson
Chapter 19
Video: The Big Ideas of Trade
Unit VIII Project
6.2
Unit Lesson
Chapter 20
Article: "Corporate Financing and Macroeconomic Volatility in the European
Union"
Unit VIII Project
Required Unit Resources
Chapter 19: Financing International Trade
Chapter 20: Short-Term Financing
In order to access the following resources, click the links below.
Marginal Revolution University. (2015, February 25). The big ideas of trade [Video]. Cielo24.
https://c24.page/p9szkkqcuaurgtm4rtrzavxqtr
Mullineux, A., Murinde, V., & Sensarma, R. (2011). Corporate financing and macroeconomic volatility in the
European Union. International Economics and Economic Policy, 8(1), 79–92.
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=59929554&site=ehost-live&scope=site
Unit Lesson
Methods of Payment
Increased world economic globalization has also increased the importance of global trade activities. It is
important that financial managers understand the methods available to ensure international trade product
delivery and payment. This is because of the risk of nonpayment or lack of product shipment involved in
transactions that involve importers and exporters. There are several payment methods available to help
facilitate international trade. These include prepayment, letters of credit, drafts, consignment, and open
accounts.
Using the prepayment method, the exporter does not ship the product until payment is received. This is
typically done using a wire transfer from bank to bank. Companies involved in international trade can use the
international electronic payment system to make electronic payments using an intermediary bank. This
method protects the exporter and is generally used for first-time transactions when trust is being established.
UNIT VIII STUDY GUIDE
Short-Term Asset and
Liability Management
FIN 6303, International Finance 2
UNIT x STUDY GUIDE
Title
This is not ideal; however, for importers that may fear the exporter will not ship the product, this may be
preferred.
The letter of credit provides assurance that the importer will make payment once they have proof that the
product has been shipped. The letter comes from the importer’s bank, which provides the exporter
reassurance because they feel they can trust the bank. Shipping documents are sent from the exporter’s
bank, which authenticates the product has been shipped. The importer pays the exporter once the.
Taxation of Islamic Financial Instruments in KenyaLyla Latif
A discussion on the use and taxation of Islamic financial instruments in Kenya to enable the Nairobi International Financial Centre Authority understand the principles that define the nature of Islamic financial transactions.
This slides deals with financial engineering. It is an innovative financial service. it also deals with different financial services rendered by the forex and domestic market.
Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
for beginners, providing thorough training in areas such as SEO, digital communication marketing, and PPC training in Noida. After finishing the program, students receive the certifications recognised by top different universitie, setting a strong foundation for a successful career in digital marketing.
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
Normal Labour/ Stages of Labour/ Mechanism of LabourWasim Ak
Normal labor is also termed spontaneous labor, defined as the natural physiological process through which the fetus, placenta, and membranes are expelled from the uterus through the birth canal at term (37 to 42 weeks
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Thesis Statement for students diagnonsed withADHD.ppt
Islamic financial system
1. P
Islamic Financial System
MIFB - 6013
Application of Musharakah and Mudarabah
as financial instruments in Islamic Finance
and Banking practice
A term paper presented
by
Mohamed ibrahim ismail
[Matric No: A1111477M04]
15th Oct 2011
2. Outline
Introduction
Legality of Musharakah and Mudarabah
Definition of Musharakah
Application of Musharakah
Definition of Mudarabah
Application of Mudarabah
Conclusion
Page 2
3. Introduction
As many contemporary Muslim scholars and Islamic
economists are advocating for the implementation of equity-
based modes of financing, the most important contracts in
this regard are Musharakah and Mudarabah.
These two modes of financing are based the concept of profit
and loss sharing.
hey are true Islamic products, whereby all Muslim scholars ,
classical and contemporary are unanimous in its validity and
permissibility..
Page 3
4. INTRODUCTION
Theoretically, much has been discussed about these two
concepts such the terms ,conditions and tenets
The following sections will discuss the modern application of
these concepts in the as financial instruments in Islamic
finance and banking practice
Page 4
5. Legality of the two products
Legality of Musharakah
“
Page 5
6. Cont…..
Allah SWT says:
“Verily, many partners oppress one another, except those who
believe and do righteous good deeds and they are few” Sad: 24
Page 6
7. Cont….
The prophets SAW said : “Allah Says: “I am the third
partner of any two partners as long as neither of them
betrays the other. But if one of them betrays the other I
get out of them“”. Abu Daud Hadith No.3383
Page 7
8. Legality of Mudarabah
1
“ ”
Ibn Munzir said in his book “Al-Ijma”,
“They [Muslim Ulama] unanimously agreed upon each other that
Qirad(Mudarabah) in Dinars and Dirhams (Cash) is permissible”
Page 8 1.Ibn Mundir (1999) A,l-Ijma, Maktabah Alfurqan, Ras Khaima, p.140
9. Definition of Musharakah
Draft of Shariah parameter reference 4:Musharakah Contract, a paper
published by Bank Negara in 2010 defined Musharakah as follows:
“Technically, Musharakah is a contract between the partners to
contribute capital to an enterprise or a venture, whether
existing or new, or to owner of a real estate or moveable
asset, either on a temporary or permanent basis. Profits
generated by that venture or real estate or asset are shared
in accordance with the terms of the Musharakah agreement,
while losses are shared in proportion to each partner’s share
of capital.”
Page 9
10. How is Musharakah applied in modern finance and
Banking Practice?
Musharakah as equity-based financial instrument is used in
many areas and is applicable to a wide spectrum of business
activities, it can be used in trade financing, such as import or
export, project financing, syndicated asset financing, stock
markets and issuance of sukuk or certificates
Page 10
11. Musharakah in trade financing: Import
Musharakah can be applied in trade finance without complexities,
since the chances of fraud, negligence and other problems are
relatively lower in international trade than in other Musharakah-
based projects.
A bank may enter into a Musharakah arrangement with a client
who intends to import;
the bank may also appoint him as agent for acquisition and
disposal of the goods after the same are imported;
Page 11
12. Cont……
an L/C(letter of credit) could be opened in the bank’s or the
client’s name
The net profit out of this limited purpose Musharakah will be
shared between the bank and the client in an agreed ratio.
Page 12
13. Musharakah in trade financing: export
In the case of export finance under L/C, the goods will be
acquired and made ready for shipment on a Musharakah
basis.
The client will prepare the export documents strictly in
accordance with the terms of the L/C and undertake to
indemnify the bank for any loss in case of his failure to
honour his commitment.
Page 13
14. Cont………..
Export proceeds will be distributed according to the agreed
ratio.
If there is no L/C involved, the merchandise will be made
ready for export under joint ownership of the bank and the
client.
Page 14
15. Cont….
The following could be the procedure for export financing on the
basis of Musharakah:
the exporter receives an order from abroad to export a specific
commodity or goods at a known price.
He estimates its expected profit. If he needs financing for
manufacturing or procurement of the goods, the bank can provide
financing on the basis of Musharakah.
.
Page 15
16. Cont…
Profit would be shared on a pre-agreed percentage.
The bank can secure itself from any negligence on the part of the
exporter. However, being a partner of the business, the bank will
be liable to bear any loss which may be caused due to any reason
other than the negligence of the exporter.
However, in order to undertake such an operation, banks need to
understand the nature of the exporter’s business and other
requirements
Page 16
17. Project Financing
In the case of project financing, the traditional method of
Musharakah can be easily adopted whereby investment comes
from both sides
The following may be the flow of transactions in the case of
Musharakah for running business:
1. A running Musharakah Account for the client will be opened in
the books of the financing bank.
2. The client’s proceeds from the sale of finished of goods will be
credited in the Running Musharakah Account.
Page 17
18. Cont….
3. The client’s cash flows generated from investment activities (for
example, sales proceeds from the disposal of fixed assets) and cash
flows from long-term financing activities (for example, long-term
finance availed for the project) cannot be credited in the Running
Musharakah Account.
Page 18
19. Cont…
5. At the end of each quarter or month, as the case may be, the
profit earned by the client in the Musharakah will be paid to the
bank.
6. The profit-sharing will be based on the computed operating
profit for the same period for which the running Musharakah limit
was awarded.
Page 19
20. Syndicated asset financing
A group of banks joint efforts to partially finance a big enterprise or
a large project.
The enterprise contributes its part of the investment to the project
such building a new factory for a car manufacturing company or
another giant company.
A group of Islamic banks which joined hands finance the remaining
part.
Page 20
21. Cont…
The enterprise runs the project on behave of the banks. The banks
and the enterprise share the profit according to the agreed ratio in
the Musharakah contract and losses are borne in terms of each
investors capital contribution
Page 21
22. Musharakah in stocks
Business companies issue shares based Musharakah concept. The
investors buy these shares and become shareholders in the
company. Like the ordinary partners the are entitled to profits
generated by the company generated based on the Musharakah
agreements.
Musharakah as a basis of securitization
Musharakah can easily be adopted as a basis for
securitization, especially in the case of big projects where
huge amounts are required.
Page 22
23. Cont…
Every subscriber can be given a certificate representing his
proportionate ownership in the assets of the joint business, and
after the project is started by acquiring substantial non-liquid
assets, these Musharakah certificates can be treated as negotiable
instruments and can be bought and sold in the secondary market
Page 23
24. Diminishing Musharakah ( )
In a Diminishing Musharakah contract, a party, after participation
in ownership of any business or project, can liquidate his
investment from the asset or the ongoing business.
DM contracts contain a sale provision, according to which, one
partner makes a promise to sell his part of ownership to the other
party periodically.
Page 24
25. Cont…..
DM is used in house financing, auto financing, plant and machinery
financing, factory or building financing and all other fixed asset
financing.
House financing
Trade financing
Page 25
26. Mudarabah
According to Islamic Financial System by ISRA Mudarabah is
defined a partnership in profit whereby one party (rabbul mal)
provides capital and the other party (mudarib) provides labour.2
Page 26 2
ISRA (2011) Islamic financial System, ISRA, Kuala Lumpur p. 249
27. Application of Mudarabah
Mudarabah is used in the following a source of fund
Saving Deposit Account
- Bank accepts deposits on wadiah yad damanah and utilize it in its
financing activities
Current Deposit Account
General Investment Account
Special Investment Account
Page 27
28. Cont…..
Mudarabah as a financing instrument can be used in the following:
Project financing
Trade financing: import/export
Mudarabah as applied in takaful
Mudarabah sukuk
-facilitated by SPV or SPM
Page 28
29. Cont…
Inter-bank Funds Market
A bank in short of funds enters into a mudarabah contract with a bank with
surplus funds. This creates an investee-investor relationship.
Government/Public Sector Financing
The government issues certificates of Mudarabah when it is short in funds,
purchases assets or utilities and leases the asset to the public
corporations.
Page 29
30. Concluding remarks
Musharakah and mudarabah can be applied in a spectrum of areas
and the Muslim scholars are unanimous in on their permissibility,
however the practitioners in the Islamic banking industry overstate
the risks associated with undertaking projects based on PLS
concepts.
To avoid any future financial crisis, the Islamic banking industry
should be more on the equity side in terms of financing modes
while at the same time trying their level best to mitigate any
possible risks that may arise in adopting equity-based financial
instruments
Page 30
31. THANK YOU
THE END
B
I
Page 31
Application of Musharakah and Mudarabah