Mudarba is a form of partnership in Islamic finance, where one partner (the investor) provides the capital, while the other partner (the manager) provides expertise and manages the business. The profit generated from the business is shared between the partners based on an agreed-upon ratio. However, in case of a loss, the investor bears the loss, while the manager does not have to repay the capital invested.
The mudarba contract requires that the investor provides the capital, while the manager contributes their skills, knowledge, and expertise. The manager is responsible for managing the business, making day-to-day decisions, and ensuring the success of the venture. The profit-sharing ratio is agreed upon between the parties before the contract is executed. The manager is not allowed to use the capital for any other purpose other than the business, and any profits generated from the business are shared according to the agreed ratio. The manager can also receive a performance-based incentive in addition to their share of profits.
Murabaha is a common Islamic finance contract used for the purchase of goods or assets. In this transaction, the seller discloses the cost of the asset and adds a profit margin, which is agreed upon by both parties. The buyer then pays for the asset in installments, which includes the original cost of the asset plus the profit margin.
The murabaha contract consists of three parties: the buyer, the seller, and the financier. The buyer identifies the asset they wish to purchase and agrees on a price with the seller. The seller then informs the financier of the transaction, and the financier purchases the asset from the seller, using their own funds. The financier then sells the asset to the buyer at an agreed-upon price, which includes the cost of the asset plus a profit margin. The buyer then pays for the asset in installments, over an agreed-upon period of time.
Murabaha is commonly used in Islamic finance as an alternative to traditional interest-based lending. It allows buyers to purchase assets without having to pay interest, while also providing sellers with an opportunity to earn a profit. It is also a popular way to finance commercial transactions, such as the purchase of equipment or inventory.