MUDHARABAH & MUSYARAKAH ARE

AMONG THE PRODUCTS INTRODUCED

IN ISLAMIC LAW IN ORDER TO AVOID
THE PRACTICE OF RIBA [INTEREST].
COMPARE AND CONTRAST THESE TWO
CONTRACTS IN THE APPLICATION IN
THE PRACTICE OF THE BANKS.
PRESENTED BY : GROUP 4
SITI NORAIDA BINTI SULAIMAN
[2012549169]
NASIHAH BINTI NAIMAT [2012531215]
ROHAIDA BINTI ISHAK [2012531215]

INTRODUCTION
One of the cornerstones of Islamic banking
is prohibiting all forms of interest-based
financial transactions (riba) regardless of
what term they might come under, and does
not tolerate any attempt to justify interest
based financial activities.
Allah permits trade and forbids usury [The
Holly Quran , 2:275]
Riba is the predetermined return on the
use of money.
2

OBJECTIVES & INTENTIONS OF ISLAMIC

FINANCE

Elimination of riba
i.e usury or rent on money in all forms
and intents

Prohibition of involvement in haram or

nonpermissible transactions or economic
activities.
eg- alcohol, non-halal food, pork
production, gaming / number forecasting,
prostitution
Prevention of excessive leveraging
3

OBJECTIVES & INTENTIONS OF ISLAMIC

FINANCE

Aviodance of maisir and gharar

i.e speculation or gambling
i.e preventable uncertainty or ambiguity
in transactions

Deterrence of zulm
i.e oppression and exploitation
Introduction of safety net mechanisms for
the benefit of the poor and the less-have
through zakat or Islamic tax, sadaqah (alms),
waqaf and qard hasan (benevolent loan)
4

OBJECTIVES & INTENTIONS OF ISLAMIC

FINANCE
Upholding universal social, moral and
ethical values with emphasis on maslahah
(public interest).
Achieving justice and musawah i.e fairness
in the distribution of resources
Strong direct linkages to productive
economic activities

 In Islamic banks, Mudharabah and

Musyarakah are two prominent
instruments designed to promote the
Islamic entrepreneurship, where financial
capital is combined with human capital to
create new business entities.
Islamic banks provide solution to finance
entrepreneurs who have an idea but lack of
financial resources to start-ups new
business based on the principle of profit
and loss.

MUDHARABAH
Mudharabah derived from dharaba fi al-ard
which means journeying through the land
seeking the bounty of Allah.
It is a partnership in profit and not in capital.
The rationale behind this partnership is that
there are people who have money but not skilled
in trade, and there are others who have good
experience in trade but do not have necessary
capital. Hence, by joining forces, that is by
bringing together the capital from the first side
and the work from the other, there should be
great benefit for both parties and for the
7
community.

DEFINITION OF MUDHARABAH
Jurist of Medina
Mudharabah

Muqaradhah or qirad

Majallat al-Ahkam al Adiyah

Mudharabah

A type of sharikah in which wealth is contributed

from one side and labour from the other side

Shafie
Mudharabah

Qirad and mudharabah have as their legal subject

matter a contract comprising agency by the
owner to another by giving him wealth so that he
may trade with it and share its profit.
8

DEFINITION OF MUDHARABAH
Al-Mudharabah implies that one person
hands over money to another for the
purpose of investment.
The first party is called the investor or
money owner (rabbul-mal) while the second
party is called the mudharib.
The mudharib is a trustee or agent.
The money lender is normally the sleeping
9
partner.

DEFINITION OF MUDHARABAH
The net profit realised are divided between
the two parties according to certain ratios
agreed upon in advance.
Any loss on capital is borne by the owner
of the money and the mudharibs only loss
is his effort and expected profit.
The mudharib can be sued for any wilful act
or negligence on his part.

10

TYPES OF MUDHARABAH
Mudharabah financing can be divided into 2
types.
Mudharabah Muqayyadah (restricted)
Mudharabah Mutlaqah (unrestricted)

Restricted Mudharabah
the Islamic banking institution may specify
certain terms and conditions.
the customer is bound by all these restrictions
and any violation of these restrictions may make
the customer liable for any loss, if any.
This type of mudharabah financing may be used
for contract financing of a specific project
awarded to the customer.

11

TYPES OF MUDHARABAH

Unrestricted Mudharabah
the Islamic banking institution does not
impose any limitation on the customer /
partner.
In this case, the banking institution will not
have any recourse to the customer should the
business incur losses due to the investment
policy as there would have been no such policy
prescribed by the Islamic banking institution
in the first place.
This type of mudharabah financing may be
used towards financing a customers working
capital requirement.

12

PILLARS AND CONDITIONS OF MUDHARABAH

Hanafi School
the pillars of Mudharabah contract is ijab and qabul,
which may be in the form of terms that indicate offer
and acceptance.
Majority of Maliki, Shafie and Hambali
the pillars of Mudharabah are:

contracting parties (capital provider and

entrepreneur)

subject matter (capital, business and profit)

Sighah (ijab and qabul)

13

PILLARS AND CONDITIONS OF MUDHARABAH

Contracting Parties
capital provider and the entreprerneur
both parties must have legal capacity (ahliyyah) to
execute a wakalah contract.
Since the business is run by the entreprenuer using
the capital providers property, a mudharabah
contains element of wakalah.
Subject matter (capital, business and profit)
Capital

Majority of the Muslim scholars view that the

capital must be in the form of absolute currency
and should not be in the form of movable or
immovable assets.
14

PILLARS AND CONDITIONS OF MUDHARABAH

Capital

Majority of the Muslim scholars view that the

capital must be in the form of absolute currency
and should not be in the form of movable or
immovable assets.

The capital should be in monetary value like

gold, silver or a common monetary exchange.

It should not be in form of goods, unless the

value of the goods is calculated based on money
value at the time transaction taken place, so the
value of the goods becomes the capital of
mudharabah.

If the capital are in form of goods and are not

clear at the time of transaction, the value of the
goods may changes as time goes by and it may
lead to dispute at the time of profit sharing. 15

PILLARS AND CONDITIONS OF MUDHARABAH

Profit

The distribution of profit must be clearly

determined and also the distribution of profit
must be determined in terms of its ratio or
percentage.

Hanafi opined that profit can be earned in 3

ways namely;

to use ones capital;

to employ ones labour and;

to employ ones judgment which amounts to

taking a risk as in the case of subcontracting.

In mudharabah, the way profit must be agreed

upon and stated in advance. Since profit is
defined by Muslim scholars as growth of capital,
the share of the mudharib must be related to
16
the profit and not capital.

PILLARS AND CONDITIONS OF

MUDHARABAH
Sighah (offer and acceptance)

17

TERMINATION OF MUDHARABAH CONTRACT

By giving notice
On the date of maturity
When the fund of mudharabah has been
exhausted / have sufferred losses
Upon death of the mudharib/liquidation of
institution that acts as mudharib
Insanity

18

MUSYARAKAH
DEFINITION
EVIDENCE
TYPES

OF MUSYARAKAH
PILLARS OF MUSYARAKAH
CONDITIONS OF MUSYARAKAH
TERMINATION OF MUSYARAKAH

Definition
Musyarakah is a word of Arabic origin which literally
means sharing/partnership.
Musyakarah or shirkah is a form of partnership
where two or more persons combine either their
capital or labour to take on a business venture and
sharing the profits, enjoying similar rights and
liabilities.
Majallat al-Ahkam (1329) define it as an
Agreement for association on the condition that the
capital and its benefit be common between 2 or
more person.

Evidence
Al-Quran
.but

if more than 2, they share in a third (An

Nisa : 12)
Hadith
Reported by Abu Hurairah R.A that the Prophet
S.A.W said: Allah has said that: The blessing of
Allah is given to the two partners as long as they
did not betray each other.
Reported by As-Saib Al-Makhzumi R.A that he
used to be partner of the prophet S.A.W in
business before of the prophet-hood. During the
opening of the Mecca he said to the prophet
S.A.W : Welcome my brother and partner!

Types of musyarakah

1. Shirkah al-milk
It means joint ownership of 2 or more persons in a
particular property.
This kind of shirkah may come into existence in 2
different ways:
Ikhtiyariyyah (voluntary) if 2 or more persons purchase
equipment, it will be owned jointly by both of them. Here
the relationship has come into existence at their own
option, as they themselves elected to purchase the
equipment jointly.
Ijabriyyah (involuntary) comes to operate automatically
without any action taken by the parties. For example,
after the death of the person, all of his heirs inherit his
property which comes into their joint ownership as an
automatic consequence of the death of that person.

2. Shirkah al-uqood
Also known as contractual partnership.
Considered as a proper partnership because the parties
concerned have willingly entered into a contractual
agreement for joint investment and the sharing of profits
and risks.
The agreement need not necessarily be formal and
written; it could be informal and oral.
It can be divided in the fiqh books into four categories:
i. al-mufawadah (full authority and obligation);
ii. al-inan(restricted authority and obligation);
iii. al-abdan (labour, skill and management);
iv. al-wujuh (goodwill, credit-worthiness and contracts).

a. Shirkah al-mufawadah
Enjoy

complete equality.
Equal in their capital contribution, their ability to
undertake responsibility and their share of profits and
losses.
They have full authority to act on behalf of the others and
are jointly and severally responsible for the liabilities of
their partnership business, provided that such liabilities
have been incurred in the ordinary course of business.
Thus each partner can act as an agent (wakil) for the
partnership business and stand as surety or guarantor
(kafil) for the other partners.

b. Shirkah al-inan

Contractual partnership whereby two or more

partners share the capital and the profit.
They are not equally responsible for the
management of the business.
Accordingly their share in profits may be
unequal, but this must be clearly specified in
the partnership contract. Their share in losses
would of course be in accordance with their
capital contributions.

c. Shirkah al-abdan
This

partnership has no monetary capital

Where the partners contribute their skills and
efforts to the management of the business
without contributing to the capital.
For eg. If the 2 tailors agree to undertake
joint services for their customers on the
condition that the wages earned will go to a
joint pool which shall be distributed between
them irrespective of the volume of the work
each partner has actually done.

d. Shirkah al-wujuh
The

partners use their goodwill, their

credit-worthiness and their contacts for
promoting their business without
contributing to the capital.
Where the partners do not contribute any
capital, would remain confined essentially
to small-scale businesses only. Ex: they
purchase commodities at a deferred price
and sell them for cash.
In this case, the profit will be distributed
based on their shares in the goods
bought. The same would apply to losses.

Pillars of musyarakah
It can be divided into five:
i. Shuraka (shareholder)
ii.Rasul mal (capital)
iii.Mashru(project or business venture )
iv.Ribh (pre-determined profit allocation)
v.Sighah (offer and acceptance)

Conditions of Musyarakah
It

can be divided into four namely:

i. shareholder and partners
ii. capital
iii.project
iv.profit

Conditions of Musyarakah
i. Shareholder and partners
The parties must be qualified person to appoint an agent or to
be appointed as an agent under the principle of al-Wakalah
(agency).

Each shareholder is considered as a joint owner of the company

and has right to run the business for him and other shareholders
when appointed as an agent. Musyarakah i.e. partnership and
company based business can be made between individuals and
organizations.
ii. Capital

The capital must be cash or things that can be valued by

money.

The capital must be pooled together and are not segregated so

that it cannot be identified the owner of the actual share.

The amount of share is not determined to be of the same. The

shareholder can also transfer his share to other person.

Conditions of Musyarakah
iii. Project
The project must be lawful according to Islamic law i.e it
must be halal.
The appointed shareholder who carried out the project is
held responsible under the principle of Yad Amanah
(trust). In the case of his negligence he is held
responsible for compensation under the principle of Yad
Dhamanah (guarantee).
iv. Profit
The ratio profit sharing between all parties should be
determined and mutually agreed at the conclusion of the
contract in the form of percentage of profit, not a sum of
money or percentage of capital.
This is important as to avoid the element of gharar.

Termination of musyarakah

Each partner is entitled to terminate the partnership with prior

notice or when set conditions have been met.
The musyarakah contract is terminated if:
a) The partnership was limited to a given time frame.
b) The purpose of the partnership has been achieved.
c) The continuity of the project is compromised by the
withdrawal of one or several partners.
d) Any of the partners die before the end of the agreement.
e) The bankruptcy of the partners.

COMPARISON BETWEEN MUDHARABAH AND

MUSYARAKAH
Mudharabah

Musyarakah

The investment is the sole

responsibility of rabbul-mal

The investment comes from

all the partners.

Rabbul-mal has no right to

participate in the
management which is carried
out by the mudharib only.

All the partners can

participate in the
management of the business
and can work for it.

The loss, if any, is suffered

by the rabbul-mal only,
because the mudharibdoes
not invest anything.
His loss is restricted to the
fact that his labour has gone
in vain and his work has not
brought any fruit to him.

All the partners share the

loss to the extent of the ratio
of their investment.

34

COMPARISON BETWEEN MUDHARABAH AND

MUSYARAKAH
Mudharabah

Musyarakah

The liability of rabbul-mal

is limited to his
investment, unless he has
permitted the mudharib to
incur debts on his behalf.

The liability is normally

unlimited. Therefore, if the
business exceeds its assets and
the business goes in liquidation,
all the exceeding liabilities shall
be borne pro rata by all the
partners.
However, if all the partners
have agreed that no partners
shall incur any debt during the
course of business, then the
exceeding liabilities shall be
borne by that partner alone who
35
has incurred a debt on the

COMPARISON BETWEEN MUDHARABAH AND

MUSYARAKAH
Mudharabah

Musyarakah

All the goods purchased by

the mudharib are solely
owned by the rabb al-mal,
and the mudharib can earn
his share in the profit only
in case he sells the goods
profitably.

Therefore, he is not entitled

to claim his share in the
assets themselves, even if
their value has increased.

As soon as the partners put

their capital in a joint pool, all
the assets of the musyarakah
become jointly owned by all of
them according to the
proportion of their respective
investment.

Therefore, each one of them

can benefit from the
appreciation in the value of the
assets, even if profit has not
36
accrued through sales.

PRACTICE BY ISLAMIC BANKING

Mudharabah and Musyarakah concepts are amongst the widest
concepts used in Islamic Banking transaction.

BNM has issued The Guidelines on Musyarakah and

Mudharabah Contracts for Islamic Bank. The objectives of
these guidelines are as follows:

To enhance the corporate governance practices

To improve risk management capabilities in identifying,

monitoring, controlling and mitigating the risk

To provide appropriate enabling environment for

diversification of Islamic banking risk profile into equitybased or floating-rate exposures; and

To serve as an assessment tool for Islamic banking

institutions in ensuring compliance with the relevant
regulatory and prudential guidelines issued by BNM.

PRACTICE BY ISLAMIC BANKING

Additional Key Governance The Principles:

The Board of Directors of the Islamic banking institutions must

ensure that the management of the Islamic banking institutions have
adequate resources and qualified personnel with sufficient knowledge and
understanding on the concept, application and risks associated with
musyarakah and mudharabah contracts.
The Islamic banking institutions Board of Directors must also ensure
that the Islamic banking institutions possess the necessary expertise in
the activities where the Islamic banking institutions will be financially
involved;

Islamic banking institutions are required to determine the materiality

of exposures that would require establishment of dedicated oversight
committee or unit on musyarakah and mudharabah exposures;

Islamic banking institutions must ensure comprehensive and effective

Shariah governance framework is in place for proper conduct of the
Islamic banking operations in accordance to Shariah principles; and

Any appointment of Board representative for musyarakah and

mudharabah exposures shall be subject to the conditions specified in the
Guidelines.

APPLICATION OF MUDHARABAH CONCEPTS IN

ISLAMIC BANKING

It is the very basis utilities apply by Islamic Banking in reorganising

banking activity in an interest free framework. Under this system, the
creditor does not earn interest on a fixed rate but participates in the
business risks and earn a share of the profit.
The distribution of profit between two parties must necessarily be on a
proportional basis and cannot be a lump sum or guaranteed amount. In a
case of loss as a result of circumstances beyond the control of
entrepreneur, the investor will bear all financial risks and the
entrepreneur loses the time and his efforts only.

Under Mudharabah principle, the Islamic bank also may undertake to

finance acceptable projects. In this instance, the bank is the investor
and will provide 100% financing for the relevant project. The initiator of
project is the agent manager who will manage the project.

The bank cannot interfere in the management of the project but has the
right to undertake follow up and supervision tasks. Both parties agree
through negotiations the ratio of distribution of the profits generated from
the project, if any. In the event a loss in the project, the bank bears all the
losses.

APPLICATION OF MUSYARAKAH CONCEPTS BY

ISLAMIC BANKING
Musyarakah investment occurs when an Islamic banking
institution becomes one of the shareholders in a newly set-up or an
existing company.

Under musyarakah investment, an Islamic banking institution

may enter into a musyarakah agreement to acquire some shares
from a separate legal entity that undertake Syariah-compliant
activities.

Musyarakah
circumstances:

investment

may

occur

in

the

following

The Islamic banking institutions hold equity in another

entity for investment purposes; or
The Islamic banking institutions acquire a proportion of
shares in another entity as a risk mitigant to the financing
facilities extended to the entity.

APPLICATION OF MUSYARAKAH CONCEPTS

BY ISLAMIC BANKING

Islamic banks may undertake to finance acceptable projects

under the principle of Musyarakah (partnership). In this
instance, the banks together with the initiator or initiators
of the relevant project will provide the whole financing for
the project in agreed proportions. All parties including the
banks have the right to participate in the management of the
project, but all parties have the option to waive such right.

All parties agree through negotiations on the ratio of

distribution of the profits generated from the project, if any.
Such ratio need not coincide with the ratio of participation
in the financing of the project. In the event of a loss in the
project, all parties bear the loss in accordance with an earlier
agreed cost-sharing formula.

APPLICATION OF MUSYARAKAH CONCEPTS BY

ISLAMIC BANKING
Musyarakah Financing
Musyarakah financing facility may be provided by an Islamic
banking institution to their customers based on a partnership
arrangement through the execution of contracts such as musyarakah
financing agreement.

Both partners mutually agree to contribute capital for a specific

project and share, any profit or loss arising from the business activities
according to a pre-agreed ratio. The financing can be disbursed either
progressively or in a lump sum, depending on the agreement.

The ownership may be subdivided among partners as long as the

transfer of ownership is made with the agreement of all partners. A
supplement agreement between the transferor and the transferee may
be allowed so long it does not affect the contract such as musyarakah
financing agreement.

ISLAMIC BANKING IN MALAYSIA BANK

ISLAM (M) BHD

Mudharabah Savings Account-I

This facility is based on the Mudharabah contract, which
entails the concept of profit sharing. Customers will enjoy the
profit gained from investment according to previously
determined ratio.

Al-Awfar Savings and Investment Account-I

Customers will enjoy the profit gained from investment
according to previously determined ratio. Al-Awfar Savings
and Investment Account-i is a rewarding account that offers a
host of additional features, which include expected
Mudharabah returns on savings and investments (if any). This
is in addition to the opportunity to receive cash prizes from
the bank through monthly and quarterly prize draw. Prize
draws are permitted if there is no element of riba (usury),
gharar (uncertainty) and maysir (gambling).

APPLICATION OF MUSYARAKAH CONCEPTS BY

ISLAMIC BANKING
Musyarakah Mutanaqisah Financing
Literally

meant declining the share.

It is a contract of partnership with declining ownership by a hybrid of three contracts,

namely shirkah, ijarah, and bay.

In this contract, the bank and the client will participate in the joint ownership (sharikat almulk) of a property or equipment, or in a joint commercial enterprise and share the equity
portion.

The client will be allowed to utilise the property e.g. residing in the house in the house
financing and has to pay monthly rental payment against the share ownership of the bank to
the house as a promise.

The share of the bank is further divided into a number of units and the client will purchase
this share periodically thus increasing his share and the share of the financier will be in
decreasing as the bank had promised so.

At the end of the contract all the share of ownership of that property belongs to the client,
making him the sole owner of the property. The title of the property will be transferred to the
client.

APPLICATION OF MUSYARAKAH CONCEPTS BY

ISLAMIC BANKING
In musyarakah mutanaqisah (diminishing musyarakah) home or
property financing, the customer and Islamic banking institution
jointly acquire and own the property. The Islamic banking institution
then leases its share of property to the customer on the basis of
ijarah (lease).

The customer, as an owner tenant, promises to acquire

periodically the Islamic banking institutions ownership in the
property. The customer pays rental to the Islamic banking institution
under ijarah, which partially contributes towards increasing their
share in the property. In other words, the portion of the payment
proceeds or monthly instalments received from the customer shall be
used towards the gradual acquisition of the Islamic banking
institutions share in the jointly.

It is also essential to note that musyarakah financing can also be

in the form of musyarakah mutanaqisah (diminishing ownership)
financing, in which one party gives the right to the other party to
gradually acquire his equity or capital throughout the contracted
period owned property. At the end of the ijarah (lease) term and
upon payment of all lease rentals, the customer would have acquired
all the financiers shares and the partnership will come to an end
with the customer being the sole owner of the house.

ISLAMIC BANKING IN MALAYSIA

BANK ISLAM (M) BHD
Bank Islam was set up in July 1983, under Islamic Banking Act,
1983. It is established as regards of the desire of Muslims to establish
Islamic Bank in Malaysia. Because of this, the Bumiputra Economic
Congress 1980 passed a resolution calling on the government to
allow the Pilgrims Management Fund Board to establish an Islamic
Bank in Malaysia in order to mobilise the funds of Muslim.

Products in Mudharabah concepts:

General Investment Account-I

Bank Islam offers the General Investment Account-i facility for

customer to gain maximum profit through their investment. This facility,
which is based on Mudharabah contract, prescribes customers as the
provider of capital and the Bank as the entrepreneur. Profit gained from
the investment will be shared between both parties according to
previously determined ratio.

ISLAMIC BANKING IN MALAYSIA BANK ISLAM

(M) BHD
Products under Musyarakah concepts:
Letter

of Credit-I

The customer and the bank enters into an agreement

wherein the former appoints the latter as his agent in
undertaking certain transactions on his behalf. Under this
arrangement, the customer informs the banks of his letter of
credit requirements and negotiates the terms of Al
Musyarakah financing and requests the bank to provide the
facility.
The bank may require the customer to place a deposit in
the
full
amount
of
the
price
of
goods
to
be
purchased/imported which the bank accepts under the
principle of Al Wadiah.
The bank establishes the letter of credits and pays the
proceeds to the negotiating bank utilising the customers
deposits, and subsequently releases the documents to the
customers. The customer takes possession of the goods and
disposes these off in the manner agreed in the agreement.
The bank and the customer share in the profit from the
venture as provided for in the agreement.

ISLAMIC BANKING IN MALAYSIA BANK ISLAM

(M) BHD
Products under Musyarakah concepts:

Letter of Guarantee
Under this service, the banks will provide the

facility of a letter of guarantee to its customers for

certain purposes under the principle of Al-Kifalah,
which is an agreement between a customer and the
Islamic banks, whereby the latter guarantees the
fulfilment of the obligation of the former to a third
party. The letter of guarantee may be provided in
respect of the performance of a task, settlement of
a loan etc. The bank may require the customer to
place a certain amount of deposits for this facility
which the bank accepts under the principle of Al
Wadiah. The bank charges the customer a fee for
the services it provides.

ISLAMIC BANKING IN MALAYSIA

BANK MUAMALAT (M) BHD
Bank Muamalat Malaysia Berhad (BMMB), was established in
October 1999 and they are the second Islamic banking established in
Malaysia. The establishment of BMMB arose from the merger between
Bank Bumiputra Malaysia Berhad and Bank of Commerce (M) Bhd.

Products under Mudharabah concepts:

ONE

REACH Saving Account

It
is an account based on the Islamic concept of AlMudharabah. It refers to a contract made between a provider of
capital (depositor) and an entrepreneur or fund manager (the
Bank) to enable the Bank to carry out business ventures within
Shariah guidelines. Both parties agree to share profits from the
investment according to a mutually agreed ratio. It is based on
Tiered Profit Sharing Ratio (PSR) - the higher the account
balance, the higher customer's profit ratio.

ISLAMIC BANKING IN MALAYSIA

BANK MUAMALAT (M) BHD

Muamalat Mudharabah Current Account

ONE REACH Current Account is an account based on

the Islamic concept of Al-Mudharabah. It refers to a

contract made between a provider of capital (depositor)
and an entrepreneur or fund manager (the Bank) to
enable the Bank to carry out business ventures within
Shariah guidelines. Both parties agree to share profits
from the investment according to a mutually agreed
ratio.

ISLAMIC BANKING IN MALAYSIA BANK

MUAMALAT (M) BHD
Musyarakah Concepts;
Bank Mualmalat in it websites, defines Musyarakah as a joint venture on
profit / loss sharing between a bank and its client whereby the client has to
contribute part of the capital in a joint venture project. The profit derived from
the project shall be distributed at a profit ratio as agreed between the bank and
its client.

Products under Musyarakah concepts:

Mortgaging

A contract made between a Capital Provider (Depositor) and

Entrepreneur/Fund Manager (the Bank) to enable the Bank to carry out
business ventures within Shariah principles. Both parties agree to share
profits from the investment according to a mutually agreed ratio. It is more
convenient and comprehensive, with peace-of-mind benefits. It is also
Attractive and competitive profit rates, extra long tenor and high margin of
financing, Convenient with network of branches and service centres
throughout the nation, Mortgage Reducing Term Takaful (MRTT) plan for pure
peace-of-mind benefits and flexibility of payment available at all branches.
The types of financing offered for example housing and land financing.

ISLAMIC BANKING IN MALAYSIA BANK

MUAMALAT (M) BHD

Outward Letter of Credit-I (OLC-i)

Outward Letter of Credit (OLC-i) is a written undertaking by
BMMB, given to the beneficiary (seller) at the request and on the
instructions of the applicant (BMMB client), to pay at sight or at
a determinable future date, up to a stated sum of money within a
prescribed time limit and against stipulated documents which
are in compliance with the terms and conditions of the credit
and subject to current Uniform Customs and Practice for
Documentary Credits.

The OLC-i can be issued under 3 contracts:

o

Wakalah Outward Letter of Credit-i

Wakalah refers to a contract where a party authorises another
party to act on behalf.

ISLAMIC BANKING IN MALAYSIA BANK

MUAMALAT (M) BHD

Murabahah Outward Letter of Credit-i

Murabahah refers to the sale of good at a price, which
includes cost- plus profit as agreed by both seller and the
buyer. This is a contract where the commodity exchanged
for is delivered immediately and the price is paid in lump
sum at a later date.

Musyakarah Outward Letter of Credit-i

Musyarakah is defined as a joint venture on profit /
loss sharing between a bank and its client whereby the
client has to contribute part of the capital in a joint
venture project. The profit derived from the project shall
be distributed at a profit ratio as agreed between the bank
and its client.

CONCLUSION

Mudharabah and Musyarakah is a major concepts

used in Islamic bank in Malaysia.
However before all Syariah concepts can be used,
the Syariah panel in each bank have to give their
approval after making a discussion.
Although Bank Islam and Bank Muamalat is
practicing as an Islamic banking, and there is a
Guidelines
by
BNM
according
to
the
implementation of the concepts but the products
that both banks practice is not standardize.
It depends on their Syariah panels own
translation about
how the concepts will be
operationalised according to Syariah laws.