Islamic Concepts – Musyarakah
and Mudharabah
Musyarakah
(joint venture facility).
Under Musyarakah concept, customer and the Bank
participate in the project. Profit, if any, will
be distributed between customer and the Bank according
to the pre-determined profit-sharing ratio (PSR).
Losses, if any, will be borne by both parties on
the basis of equity participation.
Mudharabah
(trustee profit-sharing scheme).
Under Mudharabah concept, the entrepreneur acts
as trustee to the capital entrusted to him by the
capital provider. If the Mudharabah venture results
in a loss, the capital provider bears the loss entirely,
unless the loss arises out of willful negligence,
misappropriation by the entrepreneur, etc. The profit
to the Bank under each Mudharabah transaction or
disbursement is computed based on a pre-agreed profit
sharing e.g. 80:20 (i.e. 80% to the customer and
20% to the financiers).
