Mudaraba in Islamic Finance: Principles and Application

Business Journal For Entrepreneurs, Vol. 16, No. 4, pp.105-112, 2003

Posted: 2 Aug 2009

Date Written: 2003

Abstract

This paper highlights the workings of Islamic banking and finance in general, and Mudaraba as a finance instrument in particular. Historically Mudaraba was practiced by Arabs long before the advent of Islam, and is therefore considered by many scholars to be the most authentic form of Islamic contract.Yet Mudaraba constitutes a very small percentage of all Islamic financing arrangements. Mudaraba is based on the profit-and-loss sharing system where theoretically the financier and entrepreneur share in the profit and losses of the venture. The paper concludes that Mudaraba is seen as a risky option for financiers and therefore in practice Islamic banks tend to spread the risk of losses and use Mudaraba as a profit-sharing and loss-absorbing instrument.

Keywords: Islamic banking, Profit-and-loss sharing, Mudaraba

JEL Classification: F23, G21

Suggested Citation

Rammal, Hussain Gulzar, Mudaraba in Islamic Finance: Principles and Application (2003). Business Journal For Entrepreneurs, Vol. 16, No. 4, pp.105-112, 2003. Available at SSRN: https://ssrn.com/abstract=1442423

Hussain Gulzar Rammal (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

HOME PAGE: http://www.uts.edu.au/staff/hussain.rammal

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,548
PlumX Metrics