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Mudarbah & musharkah
1. P R E S E N T E R S
M U H A M M A D F A I S A L S H A I K H
M U H A M M A D Z E E S H A N
M U H A M M A D A F A Q
MUDARBAH & MUSHARKAH
AS A MODE OF FINANCING
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. Mudarabah v/s Musharakah
1. Investment
2. Participation in Management
3. Loss Share
In Partnership
Rabbul Maal
Mudarib
4. Liability
5. Appreciation in the value of the assets
5. Types of Mudarabah
Al Muqayyadah ( Restricted Mudarabah)
Al Mutlaqah ( Un-Restricted Mudarabah)
6. Profit Distribution in Mudarbah
At the Beginning :
Definite Profit Ratio agreed by Mutual Consent
No Particular Proportion has been prescribed by the
Shariah
May agree on different ratio of Profit 40 % Mubarib,
60% Rabbul Maal or viseversa
Lump sum Amount of Profit Not Allowed:
Capital ---------------> Rs. 100,000
Profit ----------------> Rs. 10,000 of the Mudarib
Profit 2 --------------> 20 % of Capital of Rabbul Maal
7. Profit Distribution in Mudarbah
Loss in Some Transactions and others in Profit
Offset the Loss First
Remainder Distributed
8. Termination of Mudarabah
Can be terminated at any time
Give Notice to other Party
Asset in form of Cash ---------> Distribute according
to the agreed Ratio
Asset in other Form ------------> Mudarib may sell it
liquidate them , Distribute it
9. Combination of
Musharakah & Mudarabah
In Mudarabah, Fund Provider -----> Rabbul Maal
Mudarib add Capital, if agreed with Mudarabi
Combination:
Rabbul Maal -------------------> Rs. 100,000
Mudarib Add Own -------------> Rs. 50,ooo
Profit Distribution Mudarabi:
Certain Percentage of Profit as Mubarib
Another Percentage of Profit as Sharik
12. PROJECT FINANCING
“Financer want to finance whole project”
Mudarabah & Musharakah both easily adopted
Musharakah:
Investment comes from both sides
Management both responsibility
Combination:
Management responsibility of one party
Investment comes from both
13. PROJECT FINANCING
Withdraw 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
15. SECURITIZATION OF MUSHARAKAH
Big Project , Huge Amount Required
Limited No. of people cannot afford to finance
Musharakah Certificate:
Each certificate represent his proportion of
ownership in the asset of musharakah.
Negotiable Instruments
Buy or Sale in Secondary Market
16. SECURITIZATION OF MUSHARAKAH
NOT ALLOWED Certificate Trading other than Par Value
Assets are in Liquid Form
Cash , Receivables or Advances due
Example:
No. of Share -------------------------> 100 Shares
Value of Share ------------------------> 01 Million
Total 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. SECURITIZATION OF MUSHARAKAH
Example:
Musharkah Project
Non - Liquid Assets ----------> 40%
Liquid Assets -----------> 60 %
Face Value of Share ------------> Rs. 100
If Sold Higher Price
Sold Price -------------------> Rs. 110
It Represents:
Liquid Assets ------------------> Rs. 60
Non – Liquid Assets ----------> Rs. 50 ( Previous was Rs. 40 )
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
20. Financing of a single Transaction
Mudarabah & Musharakah both may be Used
Import Financing :
Letter of Credit( L/C )
without Any Margin ---------> Mudarabah
With Some Margin ------------> Combination
Expiry of Term
Imported good are not sold
Importer may himself purchase the share of Financer
Pre-Agreed Price or Market Price
21. Financing of a single Transaction
Export Financing :
Exported has a specific order from abroad
Export goods Price is known
Easily Calculate Expected Profit
Finance on the basis of Mudarabah & Musharakah
Pre-Agreed Ratio of Profit on Export Bill
In 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 the
Loss ( Musharakah )
23. SHARING GROSS PROFIT ONLY
Financing on the basis of Musharakah
Problem:
Difficult to valuate All Assets & Depreciation /
Appreciation Cost
Solution 1 :
Pay Agreed Rent to Client of All fixed assets
(Machinery , Building ) from Musharakah fund
Remain distribute , according to agreed Ratio
24. SHARING GROSS PROFIT ONLY
Solution 2 :
Gross Profit will be distributed
Higher Profit Ratio of Client
Gross Profit Means Only Direct Expenses will be
deducted from the Sales ( Material, Labor, Electricity
)
26. RUNNING MUSHARKAH ACCOUNT
Musharakah:
Opening Running A/c
Deposit & Withdraw Amount any time
Profit on Average Balance
Musharakah Rulings:
% for Management
% for Investor
Loss , same as investment proportion
Average Balance per day --------------> Profit
27. RUNNING MUSHARKAH
ACCOUNT
Argument:
Why share Profit when other Party, during a period had no Money
invested in the Business ?
Example :
A & B Agreed ----------------> Musharakah
Each Contribute --------------> Rs. 50,000
When A didn’t invest his money into Join Pool
Earn Profit --------------> Rs. 10,000 on Rs. 50,000
Distribute --------------> Agreed Ratio
Musharakah Contract Made:
Subsequent Transaction effected
Regardless, Whose Money Utilized
29. WORKING CAPITAL FINANCE
Musharakah:
Contribute in Cash or Non-liquid
Value of Business Assets ---------> Working partner
Profit :
On the Basis of Value of Business
Exceed Profit of working Partner ( 70% 30%)
Termination or Expiry:
Purchase share of Financer
31. Risk of Loss:
Argument:
“Musharakah is more likely to pass on losses of the
business to the bank . This loss will be passed on to
depositors “
Answer:
Study the feasibility
If Business is not profitable, Refuse it
Diversified Musharakah Portfolio
32. DISHONESTY
Argument:
not paying any return to the financiers
Claim that it has suffered a loss
Solution:
1. well designed system of auditing
2. Profit on the basis of gross margins only
3. Punitive Step: Unable to avail any facility from the
Bank.
33. Secrecy of the Business:
it may disclose the secrets of the business to the
financier,
Solution
may put a condition that the financier will not
interfere with the
management affairs, and he will not disclose any
information about the business to any
person without prior permission of the client.
34. Client’s Unwillingness to Share Profits:
clients are not willing to share with the banks the actual
profits of their business.
passed on to the tax authorities and Clients’ tax
liability increases.
Solution:
clients need to be convinced and persuaded that borrowing
on interest is a cardinal sin,
The governments should also try to appreciate the fact that
if
rates of taxation are reasonable and if tax-payers are
convinced that they will benefit