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

2. MUDARABAH

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

10. MUDARBAH & MUSHARKAH
AS A MODE OF FINANCING

11. PROJECT FINANCING

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

14. SECURITIZATION OF
MUSHARAKAH

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

19. Financing of a single Transaction

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 )

22. SHARING GROSS PROFIT ONLY

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
)

25. RUNNING MUSHARKAH ACCOUNT
ON THE BASIS OF DAILY
PRODUCTS

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

28. WORKING CAPITAL FINANCE

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

30. OBJECTIONS ON MUSHARAKAH
FINANCING

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

35. THANK YOU