profit and loss sharing in islamic framework

TERMINATION OF MUDARABAH AND MUSHARAKAH TERMINATION OF MUDARABAH 1)Mudarabah is terminated when it is cancelled or when a mudarib is prevented from using the fund or when he is dismissed. In this case, the mudarib is entitle to his claim in the profit. If capital is in the form of goods cancellation of mudharabah, prevention of mudarib, or his dismissal can only take place after the good are sold. The action of the mudarib who is unaware of the cancellation, prevention, or dismissal is binding on the sahih al-mal. 2)When mudharabah which is for the fixed period of time expires. 3)If either party loses its legal capacity. 4)If one of the conditions in restricted Mudharabah is violated. 5)If Mudarib fails in his duties due to his negligence or deliberate loss. 6)If the capital is destroyed in the hands of mudharib. 7)If either parties dies and if the investor dies the mudarib has no right to continue mudharabah.Any further use of the capital depends on the permission of

Four main types of contractual partnership: -Sharikah al-Abdan -Sharikah al-Wujuh -Sharikah al- Mufawadha -Sharikah al-'Inan  Sharikah al-Abdan  Can a partnership where two or more professionals agree to work in partnership and share their earning together by contributes their skills and effort but not capital ? and the profit distributed among partner according to an agreed ratio (distributed between them irrespective of the volume of the work each partner has actually done).? Shafie school: Rejected because of uncertainty(gharar), absent of capital and the labour and efforts cannot  be calculated. Hanafi : According to Hanafi school, the contract is designed to gain profit, which is possible to attain. Sharikah al-Wujuh Can two person become partners by agreeing to purchase goods jointly upon their personal credit and to sell them on their joint account.However, both partner do not contribute any capital and they purchase commodities at a deferred price and sell the

Venture capital organization (VCO) is a group of Islamic banks establishes a venture capital fund which purpose to invest in troubled companies acquire public corporations facing privatization. This organization will help if the company hold only a small proportion of equity along with the management and the institutional investors. Debt instrument which implies in his model is no based-interest since they are Islamically accepted mode of financng like leasing and mark-up. The VCO provides a balance of power between management and other owners who have a financial stake in the firm. the shareholders are passive capitalist and share decision making with management to run the organization. the value of this organization is more better than other organization. Managers who hold shares in VCO, will be productive because they hold private information about the project.In addition, joint ownership between managers and other shareholders affect alignment of interest between them. VCO strateg

Mudharabah profit Such profit is shared based on agreement (profit and loss sharing) loss  Any losses will be borne by the owners of capital  (shahibul maal), given that the loss is not due to deliberate action of the fund manager (mudharib), while the fund manager suffers from loss of time, energy and mind. If the loss cause by the negligence of the fund manager (mudgarib), the fund manager must bear the loss. Musharakah profit The profit-sharing is based on the mutually agreed percentage loss In the event of loss, it is bone jointly in accordance with the amount of capital each party has. Reference: article on principle of justice in transaction based on profit and loss sharing in sharia banks by Trisadini Prasastinah Usanti, A.shomad & Ari Kurniawan

   Justice is one of the goals of every religion in the world, including the Islamic religion which puts justice at a very important place in the life of the nation. According to Ibn Qudamah who is an expert in Hambali school of Islamic Law, justice is something that is hidden, motivated solely due to fear of Allah SWT. Justice is strongly associated with right and obligations. Those rights and obligations are associated with a mandate, while the mandate must be given to those who deserve it.    The principle of justice requires and teaches four terms in the management of sharia banks which are transparency and honesty, fair transaction, healthy competition and mutually beneficial agreement.    One of the underlying principles of sharia agreement is the principle of Al-adalah. The implementation of this principle is an agreement or contract requires the parties to do what is right in expressing the will and circumstances, meeting all its obligations. Agreements must always be

One of the key precepts of Islamic finance is that under conventional systems based on interest, neither profit and loss nor risk is shared by the contracting parties Profit Loss Sharing (PLS) dominates the theoretical literature on Islamic finance. Broadly, PLS is a contractual arrangement between two or more transacting parties, which allows them to pool their resources to invest in a project to share in profit and loss. Most Islamic economists contend that PLS based on two major modes of financing, namely Mudaraba and Musharaka, is desirable in an Islamic context wherein reward sharing is related to risk-sharing between transacting parties The most important feature of Islamic banking is that it promotes risk-sharing between the provider of funds (investor) and the user of funds (entrepreneur). By contrast, under conventional banking, the investor is assured a predetermined rate of interest. Since the nature of this world is uncertain, the results of any project are not known wi