The salam( not to mention asset-based or asset-backed

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credit risk is high under musharakah.

 The client order is not a sale contract but it
is merely a promise to buy it.

The validity
is based on the fact that the bank must buy (become owner) and after that
transfer the ownership towards the buyer i.e. client

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it is an approved form of deferred.

types of risks are being associated with this:

problem risk:



  We can perfectly design a Islamic banks to
merge the Mudaraba and Musharaka contracts,but it doesnot seem basically useful
when there are more functional , simple ways to use those depositors and
contracts are generally not prepared to risk principal. May be the debate
should be more about why the other forms of non murabaha debt financing like
salam and istisnaá and salam( not to mention asset-based or asset-backed
financing using Ijrar) are not used more and Murabaha less.

When it
comes for Islamic finance, the practical answer to the question is no. but in a
theoretical it is a yes answer since the first model for an Islamic bank is
depending on a two-tier mudaraba, where the bank provides capital to business and
shares in the profit and absorbs any losses. The best system for banking
because when people deposits money into banks rather than investing as
shareholders, they assume to use that money for transactions or for saving, and
are not expecting to recognize losses of capital( or else they would find a
better goal, like a mutual fund , where they would fully get the profits from

conflict between whether to choose Mudaraba or Musharaka is still not decided.
But based on certain questions we may decide to choose which one. Let suppose
we are going to focus on a bank Mudaraba or muskaraka is large or small, taking
equity position at all ( for instance, banks at united states are not allowed
to make an equity investments so musharaka-based products are offered only
non-bank financial institution.


Mudarabah & Musharakah:

Categories: Finance


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