HAIZAM FITRI BIN ABDUL JALIL. 2008268206 SITI NURAMANI BINTI ABDUL MANAB 2008261672 SITI NUR HANIM BINTI ISMAIL 2008268228. Islamic Law of Transactions (Law 737). Research Topic:
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SITI NURAMANI BINTI ABDUL MANAB
SITI NUR HANIM BINTI ISMAIL
Mudharabah and Musyarakah are among the products introduced in Islamic Law in order to avoid the practice of riba (interest). Compare and contrast these two contracts.
- Mudharabah : means that one party provides capital and the other utilises it for business purposes under the agreement that profit from the business will be shared according to a specified proportion. (Partnership and Profit-Sharing in Islamic Law, Muhamad Nejatullah Siddiqi, The Islamic Foundation, London, U.K, 1985 pg15)
- Musyarakah : means participation of two or more persons in a certain business with defined amount of capital according to a contract for jointly carrying out a business and for sharing profit and loss in specified proportions. (Partnership and Profit-Sharing in Islamic Law, Muhamad Nejatullah Siddiqi, The Islamic Foundation, London, U.K, 1985 pg15)
Agreement between at least 2 parties known as lender/investor (I) (ra’s al-mal) & entrepreneur (E)(mudarib).
I entrust money to E who will manipulate for profit in the agreed manner. If any, I will receive principles and profit on pre agreed proportion and remaining balance will be kept by E.
Profit will be on proportional basis not on lump sum or guaranteed return. It revealed no unfair terms to be shouldered by E.
Uncontrollable loss by E, I will face it consequence of financial losses (tangible) but E only losses time, effort or may be reputation in the eye of future investor (intangible).
I tend to act as “sleeping partner”.
Only I contribute the capital. (all from Fadillah Mansor’s article)
(1) sharikah al amwal,
(2) sharikah al a`mal
(3) sharikah al wujuh.
It was narrated by Ibn Majah that the Prophet was reported to have said:
Mudharabah capital represents savings for the owner or investor but is generally a source of livehood for the working partner or entrepreneur.
In case there is more than one financier of the same project i.e one project is jointly financed by several Banks, profits are to be shared in mutually agreed proportion previously determined but lost is to be shared in the proportion in which the different financier’s have invested the capital.
The only difference between Islamic banking and the interest banking in this respect is that the cost of capital in interest based banking is expressed in terms of a predetermined fixed rate, while in Islamic Banking, it is expressed in absolute amount which may also be expressed as a ratio of profit.
In the case of loss as a result of circumstances beyond the control of the entrepreneur, the investor will bear all the financial risk and the entrepreneur losses the time and his effort s only.
Whenever the Mudharabah incurred losses, such losses stand to be compensated by the profits of future operation incurs losses, such losses stand to be compensated by the profits of future operations of the Mudharabah.
If losses are greater than the profits at the time of liquidation, the balance (net loss) must be deducted from the capital.
“ Do not convert the bounties which God has bestowed more abundantly on some of you than on others. Men are allowed what they earn, and women are alloted what they earn. Ask God for something of His bounty….
- The above verse reiterates the principle that no one may claim more than he has earned.