MUDHARABAH

MUDHARABAH
Mudarabah is a special kind of partnership where one partner gives money to another for
investing it in a commercial enterprise. The capital investment comes from the first partner, who
is called the rabb-ul-mal, while the management and work is the exclusive responsibility of the
other party, who is called the mudarib.
The mudarabah (profit sharing) Is a contract, with one party providing 100 percent of the capital
and the other party providing itsspecialized knowledge to invest the capital and manage the
investment project. Profits generated are shared between the parties according to a pre-agreed
ratio. If there is a loss, the first partner rabb-ul-mal will lose his capital, and the other party
mudarib will lose the time and effort invested in the project.
MUSHARAKAH (JOINT VENTURE)
Musharakah is a relationship between two parties or more that contribute capital to a business
and divide the net profit and loss pro rata. This is often used in investment projects, letter of
credit, and the purchase or real estate or property. In the case of real estate or property, the bank
assess an imputed rent and will share it as agreed in advance. All providers of capital are entitled
to participate in management, but not necessarily required to do so. The profit is distributed
among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in
proportion to respective capital contributions. This concept is distinct from fixed-income
investing (i.e. issuance of loans).
HIBAH (GIFT)
Hibah is a token given voluntarily by a debtor to a debitor in return for a loan. Hibah usually
arises in practice when Islamic banks voluntarily pay their customers a gift on savings account
balances, representing a portion of the profit made by using those savings account balances in
other activities.
It is important to note that while it appears similar to interest, and may in effect, have the same
outcome. Hibah is voluntary payment made or not made at the bank’s dicretion, and cannot be
guaranteed akin to dividends earned by shares, however it is not time bound but it is at the
bank’s discretion. However the opportunity of receiving high hibah will draw in customers’
savings, providing the bank with capital necessary to create its profits; if the ventures are
profitable, then some of those profits may be gifted back to its customers as hibah. It is important
to note that although indeed again, no matter how many different ways we re-word this, does in
fact, sound like interest, it is not, because it is hibah.
MURABAHAH
This concept refers to the sale of goods at a price, which includes a profit margin agreed to by
both parties. The purchase and selling price, other costs, and the profit margin must be clearly
stated at the time of the sale agreement. The bank is compensated for the time value of its money
in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such
as real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank
is not compensated for the time value of money outside of the contracted term (i.e. the bank
cannot charge additional profit on late payments); however, the asset remains as a mortgage with
the bank until the default is settled.

MUSAWWAMAH
Musawwamah is the negotiation of a selling price between two parties without reference by the
seller may or may not have full knowledge of the cost of the item being negotiated, they are
under no obligation to reveal these costs as part of the negotiation process. This difference in
obligation by the seller is the key distinction between murabahah and musawwamah with all
other rules as describe in murabaha remainin g the same. Musawwamah is the most common
type of trading negotiation seen Islamic commerce.

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MUDHARABAH

the bank until the default is settled.

type of trading negotiation seen Islamic commerce.

Answer these questions

1. When was Bill Gates born?

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