Mudaraba as a mode of finance in Islamic banking: theory, practice and problems
AbstractThis paper seeks to analyze some of the aspects of mudarabah as a mode of financing business both from the theoretical and operational angles. At the theoretical plane the paper tackles the issue of the determination of the sharing of profit ratio for the outside financier in a competitive setting i.e. where the interest-free and interest-based systems operate side by side. It would show in a micro framework that the determination of this ratio would be a function of profit expectations, leverage ratio, rate of interest, and the risk factor. On the operational side, the paper analyzes the reasons of the unpopularity of the instrument not only with the financiers but also with the borrowers, and suggests some organizational arrangements to overcome the difficulties. The argument has a historical perspective.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2951.
Date of creation: 2002
Date of revision:
Publication status: Published in Journal of Middle East Business and Economics 2.14(2002): pp. 41-53
Islamic banking Mudarabah Agency problem;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G2 - Financial Economics - - Financial Institutions and Services
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- Hasan, Zubair, 2008.
"Islamic banks:Profit sharing, equity, leverage lure, and credit control,"
30392, University Library of Munich, Germany, revised Oct 2008.
- Hasan, Zubair, 2008. "Islamic Banks: Profit sharing, equity, leverage lure and credit control," MPRA Paper 11737, University Library of Munich, Germany, revised Nov 2008.
- Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2012. "Incentive-Compatible Sukuk Musharakah for Private Sector Funding," MPRA Paper 46009, University Library of Munich, Germany.
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