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Shariah guided Modes of investment-1

Dr. Abu Kholdun Al-Mahmood

MBBS, MPhil, PhD

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Areas of discussion: Areas of discussion:

• Various Bai Modes - Bai-Various Bai Modes - Bai-Murabaha, Bai- Muajjal, Bai-Murabaha, Bai- Muajjal, Bai-Salam, Bai- Istisna, Bai- Istijrar Salam, Bai- Istisna, Bai- Istijrar etc, Difference between them, etc, Difference between them,

• Investment Products Investment Products under Islamic Banking, under Islamic Banking, Comparison with Conventional Comparison with Conventional Loans and Advances.Loans and Advances.

• a. Bai Mechanism

• i. Bai-Murabaha

• ii. Bai-Muajjal

• iii. Bai-Salam

• iv. Bai-Istisna’s

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• b. b. Shirkat / Sharing or Partnership Shirkat / Sharing or Partnership Mechanism.Mechanism.

• i Mudaraba i Mudaraba • ii Musharakaii Musharaka• c. c. Ijara/ Leasing MechanismIjara/ Leasing Mechanism• i. Ijara / Leasing i. Ijara / Leasing • ii. Hire Purchase ii. Hire Purchase • iii. Hire Purchase Under Shirkatui Meelk. iii. Hire Purchase Under Shirkatui Meelk.

(Partnership in Ownership)(Partnership in Ownership)

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• Investment can be made by Investment can be made by the Islamic Banks under the the Islamic Banks under the following Modes.following Modes.

• Profit & Loss Sharing ModeProfit & Loss Sharing Mode• Shirkat / MusharakaShirkat / Musharaka

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• InvestmentInvestment• Investment is the action of Investment is the action of

deploying funds with the intention deploying funds with the intention and expectation that they will and expectation that they will earn a positive return for the earn a positive return for the owner. Funds may be invested in owner. Funds may be invested in either real assets or financial either real assets or financial assets. assets.

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• Investment can be made by the Islamic Banks Investment can be made by the Islamic Banks under the following Modes.under the following Modes.

• Profit & Loss Sharing ModeProfit & Loss Sharing Mode• Shirkat / MusharakaShirkat / Musharaka• The term refers to a financing technique adopted by The term refers to a financing technique adopted by

Islamic Banks. It is an agreement under which the Islamic Banks. It is an agreement under which the Islamic bank provides funds which are mingled with Islamic bank provides funds which are mingled with the funds of the business enterprise and others. All the funds of the business enterprise and others. All providers of capital are entitled to participate in the providers of capital are entitled to participate in the management but not necessarily required to do so. management but not necessarily required to do so. The profit is distributed among the partners in pre The profit is distributed among the partners in pre determined ratios, while the loss is borne by each determined ratios, while the loss is borne by each partner in proportion to his contribution. partner in proportion to his contribution.

Profit sharing Loss bearing Mode :Profit sharing Loss bearing Mode : Al-MudarabahAl-Mudarabah

The word ‘Mudarabah’ has been derived from the The word ‘Mudarabah’ has been derived from the Arabic word ‘Darb’/ ‘Darbum’. It means movement Arabic word ‘Darb’/ ‘Darbum’. It means movement to earn rehmat (Munafa) of Allah.to earn rehmat (Munafa) of Allah.

Mudarabah is a form of partnership where one of Mudarabah is a form of partnership where one of the contracting parties called the ‘Shahib-al-Maal’ the contracting parties called the ‘Shahib-al-Maal’ or the Rabb-ul-Maal’ (the financier) provides a or the Rabb-ul-Maal’ (the financier) provides a specified amount of capital and acts like a specified amount of capital and acts like a sleeping’ a dormant partner which the other party, sleeping’ a dormant partner which the other party, called the Mudarib (entrepreneur), provides the called the Mudarib (entrepreneur), provides the entrepreneurship and management for earing on entrepreneurship and management for earing on any venture, trade, industry or service with the any venture, trade, industry or service with the objectives of earning profits. objectives of earning profits.

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The Mudarib is in the nature of a trastee The Mudarib is in the nature of a trastee as well as an agent of the business. as well as an agent of the business. Profit in distributed as per preagreed Profit in distributed as per preagreed ratio while the loss is entirely borne by ratio while the loss is entirely borne by the Shahib-al-Maal.the Shahib-al-Maal.