Islamic Bank Case Study

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Register to read the introduction… There are two main types of partnership to provide funding for customers in order to earn profit: First is Mudarabah, the second is Musharakah. “Mudarabah” is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise . In this case, rabbul-mal (the lender-bank) can choose the business or project on which investment will be make, whereas he has no right in the management process-this is an exclusive responsibility of the mudarib (the borrower). If project returns profit, it will be divided between partners in the portions that was agreed at the beginning, this distribution can be in any ratio since the Sharia does not set any restriction. However in case of making loss, mudarib will not share the loss as he has not invested any amount, unless the mudarib hasn’t worked properly due to negligence or other reasons. All these details are regulated through mudaraba …show more content…
If a seller agrees with his purchaser to provide him a specific commodity on a certain profit added to his cost, it is called a Murabahah transaction . There are some key points that differ it from ordinary sale transactions, first the trader have to reveal the real cost of the product and then add a profit. The range of Murabahah is extremely large- from providing various services to selling products to customers. One more point is that, the profit that adding up to the original cost can be either a fixed amount or determined through the interest. In other words this interest should not confused with the interest collected by western banking, since it’s charged for covering supplier’s actual effort. After gaining the profit through Murabahah transactions, Islamic banks use it in order to finance their other economic activities, as well as to cover administrative costs. Hence, there is a complex approach in the financing and operating of Islamic banks main through these elements. The gain from all these activities comprises a part of the Islamic banks finance. In a general view, the investment portfolio of Islamic banks is mainly comprised by customers’ funds and shareholders’ …show more content…
The basic concept of these principles are based on the morality, fairness, justice allocations of gained profit and loss, prohibition of interest and so on. The last global financial crisis proved that, Islamic banks and institutions was able to escape from the recession with lower losses than conventional ones or in some cases even with gaining profit. Hence, in terms of risk management Islamic banks are more reliable. In addition, with the increasing population of Muslims all over the world, and the recent economic theories proving Islamic banks’ advantages over traditional banks especially during hard times, I believe that new financial system that are based on Islamic principles will play a very important role in the near

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