Muclarabah principle point-wise analysis on different aspects of the .same is furnish below:

5.2.1.2 Meaning of Mudarabah:

The term 'Mudarabah' has been derived from one of the meanings of the Arabic word 'Zarbun' which means 'Travel', 'Beating', 'Example', etc'. Thus the word 'Mudarabah' means 'Travel' for undertaking business.

Muclarabah is a partnership in profit whereby one party provides capital & other provides skill and labor'. The provider of capital is called 'Sahibul Maal' while the provider of skill and labor is called 'Mudarib'.

So, Muclarabah may be defined as a contract of partnership where the Sahibul Maal provides capital to the Mudarib for investing it in a commercial enterprise by applying his labor & endeavor.

The practice of Mudarabah was very common in the early age of Islam when the Qura'nic message was being sent down. The holy Qur'an says "And another group of people conduct traveling on the earth in search of God's blessing".

5.2.1.3 Types of Mudarabah:

Muclarabah contract may be bifurcated into two types:

(I)Restricted Mudarabah:

A restricted Mudarabah is a contract in which the Sahibul Maal imposes any restrictions on the actions of the Mudarib but not in a manner that would unduly constrain the Mudarib in his operations.

Restricted Mudarabah may further be divided into three types:-

(i)Restriction in respect of time period:-

In this type of Mudarabah, the Mudarabah contract includes a clause on duration of the business. After expiry of such period, the Mudarabah shall become void. ,

(ii) Restriction in respect of place or location:-

In this type of Mudarabah, the Mudarabah contract includes a clause on place or location of the business. The Mudarib shall be bound to do the business within the area of such place or location.

(iii) Restriction in respect of business:-

In this type of Mudarabah, the Sahibul Maal restricts the actions of the Mudarib to a particular type of business, as he considers appropriate.

(2)Unrestricted Mudaraba:

An unrestricted Mudaraba (Al Mudaraba Al Mutlaqah) is a contract in which Shahib al-maal permits the Mudarib to administer the Mudaraba capital without any restrictions4. In this case, the Mudarib his a wide range of trade or business freedom on the basis of trust and the business expertise he has acquired. Such unrestricted business freedom must be exercised only in accordance with the interests of the parties and the objectives of the Mudaraba contract.

But, if Muclarib wants to have an extraordinary work, which is beyond the normal course of business, lie cannot do so without express permission from Shahib al-maal.

5.2.1.4 Rules relating to Mudaraba Contract.

There are two contracting parties in Mudaraba Contract: the provider of the capital i.e. 'Shahib al-maal' and the Muclarib. Both parties should possess the legal capacity to appoint agents and accept agency,

The general principle is that a Mudaraba contract is not binding, i.e. each of the contracting parties may terminate it unilaterally except in two cases:

When the Mudarib has already commenced the business, in

A. Which case the Mudaraba contract becomes binding up to the date of actual or constructive liquidation.

B. When the contracting parties agree to determine a duration for which the contract will remain in operation. In this case, the Contract cannot be terminated prior to the end of the specified duration, except by mutual consent of the contracting parties.

A Mudaraba contract is one of the trust-based contracts. Therefore, the Muclarib invests Mudaraba capital on trust basis in which case the Mudarib is not liable for losses except in case of breach of trust, such as misconduct, negligence and breach of the terms of Mudaraba contract. In committing any of the above, Mudarib becomes liable for the Mudaraba capital.

5.2.1.5 Rules relating to Offer and Acceptance.

The wording-"Offer and Acceptance" - by which both the contracting parties express their willingness to conclude a contract and must conform to the following:

The wording should explicitly or implicitly indicate the purpose of the contract.

Acceptance of the offer is contingent on its taking place during the time which both the parties are negotiating agreement to the contract. However, acceptance is not valid if one party refuses the terms of the offer or leaves the place where the negotiation of the contract is being made before the deal is concluded'.

Contract is permissible by verbal utterance or in writing and signing it. It is also permissible through correspondence or by the use of modern communication means, e.g., Telex, Fax, E-mail or Internet.

5.2.1.6 Rules relating to Capital.

This is the amount of money given by the provider of funds i.e. Sahib al-maal to the Mudarib with the purpose of investing it in the Muclarabah activity. The following conditions, in this respect, should be satisfied;

The capital of Muclarabah should be provided in the from of cash. However, it may be presented in the from of tangible assets, in which cash the value of the assets is the contribution to the mullarabdh capital. The valuation of the assets may be conducted by experts or as agreed upon by the contracting parties.

The capital of Mudarabah should be clearly known to the contracting parties and defined in terms of quality and quantity in a manner that eliminates any possibility of uncertainty or ambiguity.

It is not permissible to use a debt owed by the Muclarib or another party to Shahib al-maal as capital in a Mudarabah contract.

The Mudarabah capital must be, either wholly or partially as per contract according to the nature of the business, put at the disposal of the Mudarib or the Muclarib must have free access to and control over the capital.

5.2.1.7 Rules relating to profit and Loss.

Profit is the amount earned in excess of capital. It is the end objective of Mudarabah contract. The following conditions should be satisfied relating to profit:

It should be for both the parties, and no party should have possession thereof without the other. The mechanism for distribution of profit must clearly be expressed To eliminate uncertainty and any possibility of dispute. The Distribution of profit must be on the basis of an agreed percentage of the profit and not on the basis of a lump sum or a percentage of the Capital.

The parties should agree on the ratio of profit distribution when the contract is concluded. However, it is permissible to change the ratio of distribution of profit at any subsequent time.

5.2.1.8 Rules regarding Roles of Sahib al-maal.

In Mudarabah, Sahib al-rnaal provides the capital and Mudarib Undertake the management. Therefore, the Sahib al-maal should hand over the agreed capital to Mudarib and leaves everything to Mudarib with no interference from his side but he has the authority to:

A) Oversee the Mudarib's activities and

B) Work with Muclarib, if the Mudarib consents.

5.2.2 Musharaka Investment:

5.2.2.1 Definition of Musharaka.

Musharaka may be defined as a contract of partnership between two or more individuals or bodies in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or is per pre-agreed ratio

and bear the loss, if my, in proportion to their capital/equity ratio. As per this definition the Bank may take part in a business with its Client(s), where both the Client and Bank provide capital in fixed proportions, take part in the Management of business and share the profit in proportion to their Respective capital ratio or at pre-agreed ratio and bear the loss, if any, in proportion to their respective capital/equity ratio.

5.2.2.2 Basic Feature of Musharaka:

Musharaka is the second basic investment mechanism of Islamic Banking. The Arabic term Musharaka has been derived from the word "Shirkat". The very word "Shirkat" means "partnership". Musharaka is a partnership concern wherein two or more persons/firms invest capital with a view to earning profit. In doing so they take part in the management activities & undertake to earn/sustain profit/loss. The profit so earned in the enterprise to be distributed between/among the partners as per pre-agreed ratio. In the case of sustaining any loss, the entire amount of the same to be borne by the partners as per their capital ratio,

In the Musharaka investment mechanism the Bank as well as the client provide required capital. As stated above the term Musharaka has been derived from Arabic word 'Shirk" which means partnership. No specific rule is there regarding capital participation of the parties. The capital participation may be equal or unequal. Both the parties’ i.e., Bank as well as the client can take part in the management activities. Provision is also there to empower one party to lake part in the management activities on behalf of another party is the trusty or agent thereof. The profit so earned in the enterprise to be distributed between/among the partners as per pre-agreed ratio. In the case of sustaining any loss, the entire amount of the same to be borne by the partners as per their capital ratio.

5.2.2.3 Types of Musharaka:

Musharaka, in the context of Islamic modes of financing, may be of two types:

1. Permanent Musharaka

2. Diminishing Musharaka.

(i) Permanent Musharaka:

In this type of Musharaka, the Bank participates in the equity of a company either in equal or unequal ratio and shares the annual profit at a pre-agreed ratio or bear the loss, if any, in proportion to the ratio of equity where termination period of the contract is not specified. This is also called continued Musharaka. Though such type of Musharaka is originally intended to continue up to the dissolution of the enterprise/company, but one can sell his share of equity before dissolution.

Islamic Banks can use this mode of permanent Musharaka to finance their Clients to establish a new income generating project / enterprise or to participate in an existing one where the Bank will own a share in the capital permanently and also share the profit as per agreed upon ratio or bear the loss as per equity participation ratio. Though the Bank has got the right to participate in the management, yet may not take the responsibility of management but can supervise and follow up. This type of Musharaka is preferable for the Bank to finance the big and long-term projects. However, Bank may use this mode in financing small enterprise/client also.

(ii) Diminishing Musharaka: -

This is a special type of Musharaka where the share of capital or ownership of the assets/property of the Bank gradually reduces and goes to the account of the Client with the payment of share value by the Client in addition to share in profit as per agreement. Under this concept of Musharaka, a Bank and its Client participate either in the joint ownership of an assets/property/equipment or in a joint commercial enterprise. The share capital of the Bank is divided into a number of units and the Client undertakes to purchase the units of share capital of the Bank one by one periodically and thus the share capital of Client increases till all the units of the Bank's shares are purchased by him (the Client) so as to make him the sole owner of the assetsjproperty/equiprnent or the commercial enterprise as the case may be.

This type of Musharaka is suitable for the finance of the assets/property having regular income. It encourages the Client, as he becomes the owner of the entire assets/property after a certain period.

Islamic Banks can apply this mode of Dimmishung Musharaki in the following way:

(i) The client can participate in the Musharaka, with a provision in the contract that the Bank will sell its shires to [lie client gradually or at a time & the ciient shall undertake to purchase the dame.

(ii) The Bank can participate in the Musharaka with a provision in the

Contract that the client shall purchase a certain number of shares owned by the Bank each year thus the shares owned by the Bank is reduced until the client

becornes sole owner of the property. In this case the shares of the Bank are divided into a number of units.

5.2.2.4 Shariah Rules for Musharaka:

(i) Capital contribution of the partners may be equal or unequal.

(ii) Capital can be contributed either in cash or in the form of commodities/assets/property/equipment.

Inlatercase,theagreeduponvalueoftliecomm.odities/assets/property/e quipment shall determine the share of the partner in the capital.

(iii) The capital contributed by the partners constitutes equity & Comprises a single fund.

(iv) Musharaka is based on the principal of Alghurm-bil-ghuntn (the entitlement to return is related to exposure to risk). So, no partner can guarantee the capital of others. However, a partner may request another partner to provide a guarantee against the latter's negligence or misconduct or violation of contract.

5.2.2.7 Rules for Distribution of profit:

Profit should be quantifiable. If it is not, there may be a dispute at the time of profit allocation or liquidation of the partnership. The ratio of sharing profit by each partner shall have to be determined on the basis of actual profit accrued to the business and not on the ratio of the capital invested by him or not to fix ,I ulop sum amount for any partner. If it is agreed that a specified partner will get 1% of his investment or Tk.50, 000/per year as his share of profit, the Musharaka is invalid.

If it is agreed that each partner will get certain percentage of profit based on capital ratio, whether they are sleeping or active, it is permissible.

If a partner is active, his profit sharing ratio could be more than his capital ratio irrespective of whether the other partner is working or not.

If all the partners are active, the share of profit can differ from the ratio of their capital.

5.2.2.8 Rules for Distribution of loss:

The loss, incurred in the business, shall be borne by the partners exactly according to the ratio of their respective capital. All the Muslim Scholars are unanimous on this principle. Any condition contrary to this shall render the contract void.

5.3 Isarah-Mechanism

5.3.1 Isarah/Leasing

5.3.1.1 Definition of Ijarah/Leasing:

The term Ijarah has been derived from the Arabic works Ajir and Ujrat which means consideration, return, wages or rent. This is really The exchange value or consideration, return, wages, rent of service of an ASSET. Ijarah has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.

Ijarah is a system in which a non-fungible type of goods is produced & the same is let out to someone on rental basis to enjoy the utility thereof. The recipient of Ijarah enjoys benefit through using the goods & pays rent in exchange thereof. On the other hand the provider of Ijarah realizes his capital expenses from the rent & thereby earns profit. This system is more or less well known in all societies. Land, vehicle, apartment, ship, machinery etc. Are such type of goods, wl-dch can be lot out on rental basis. The system of Ijara is allowed in Islamic Shariah.

5.3.1.2 Types of Ijarah:

Ijarah may be of 2 (Two) types:

(1) Irrevocable Ijarah.

(2) Revocable Ijarah

(1) Irrevocable Ijarah: Under the agreement of irrevocable Ijara Islamic Bank procures a non-fungible type of goods/property & let it out to the client on mid-term or long-term basis. The ownership of the goods/property remains in the name of the Bank. The client uses the some & enjoys its possession against regular payment of monthly or yearly rent. On expiry of the period of Ijara the Bank likes back the

goods/property or let the same on rent for second time under new Ijara agreement. From the rent the Bank can realize the capital cost.

(2) Revocable Ijarah: Revocable Ijarah is made generally on short term basis. Since the Revocable Ijara is a short term one, the Bank can not realize its total capital cost within the specified period. The Bank is to sell the property/goods to realize its remaining capital cost & to earn profit. In Islamic Shariah no scope is there to earn rent against financial capital, as because, finance looses its entity or transforms into other whenever it is used. And a thin& which looses its entity due to being used, can not be let out on rental basis. In Islamic Shariah, it is permissible to let out a non-fungible type of goods. Because, this type of goods/Lhing docs not loose its entity while being used, rather it is to face risk of damage or breakage. Besides, the owner thereof is to bear the risk relating to buying as well as selling of the goods/property.

5.3.1.3 Related Terminologies or Elements of Ijarah:

According the majority of Fuqaha, there are three general and six detailed elements of Ijarah:

1. The wording: This includes offer and acceptance

2. Contracting parties: This includes a lessor, the owner oi the property, and a lessee, the party that benefits from the use of the property.

3. Subject matter of the contract: This includes the rent and the benefit.

5.3.1.4 Rules for Ijarah.

It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.

1. It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which can not be used more that once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the uselbenefit/service of which can be separated from the assets itself.

2. It is a condition that the subject (benefit/service) or the contract must actually and legally be attainable/derivable. It is not permissible to lease something, the handing-over of the possession of which is impossible. If the asset is a jointly owned property, any partner, according to be majority of the jurists, may let his portion of the asset(s) to co-owner(s) or the person(s)

other than, the co-owners. However, it is also permissible for a partner to lease his share to the other partner(s),

3. It is a condition that the lessee shall ensure that he will make use of the asset(s) as per provisions of the Agreement or as per customs/norms/practice, if there is no expressed provision.

4. The lease contract is permissible only when the assets and the benefit/service derived frorn it are within the category of 'Halal' or at least'mobah' as per Islamic Shariah.

5. The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the Asset(s) at his disposal in useable condition at the commencement of the lease period.

6. In a lease contract, the period of lease and the rental to be paid in terms of time, place or distance should be clearly stated.

7. Everything that is suitable to be considered a price, in a sale, can be suitable to be considered as rental in a lease contract.

8. It is a condition that the rental falls due from the date of handing over the asset to lessee and not from the date of contract or use of the assets.

9. It is permissible to advance, defer or install the rental in accordance with the Agreement.

5.3.2 Hire Purchase

5.3.2.1 Meaning and Definition of Hire Purchase:

Hire purchase is another type of investment mechanism, which is something similar to that of Ijara mechanism. In this system, the Bank invest in a project or procure any non-fungible type of asset/property & establish ownership thereon, then rent out that project or property to the client against purchase agreement. The client gains the right of possession as well as enjoys the utility of the same subject to regular payment of monthly/yearly rent & principal installment. The amount of rent gradually gets reduced with the adjustment of principal liability. The more the principal is adjusted the more the amount of rent is reduced.

5.3.3 Sirkatul Meelk]Hire purchase under Sirkatul Meelk.

5.3.3.1 Meaning and Definition of Hire purchase under shiricatul Meelk:

Hire Purchase under Shirkatul Meelk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

I) Shirkat

Ii) Ijarah and

Iii) Sale

These may be defined as follows:

(1) Shirkat:

Shirkat means partnership. Shirkatul Meelk means share in ownership. When two or more persons supply equity, purchase assets, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Meelk contract.

(2) Ijarah:

The term Ijarah has been derived from the Arabic works Ajir and ujrat which means consideration, return, wages or rent. This is really [lie exchange value or consideration, return, wages, rent of service of an ASSET. Ijarah has been defined as a contract between two parties, [lie Hiree and Hirer where the Hirer enjoys or reaps a specific ~ervice or benefit against a specified consideration or rent from the asset owned by the Hiree. 11 is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

(3) SALE:

This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid I to be paid by the buyer.

Thus, in Hire Purchase under Shirkatul Meelk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transports etc. Purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the Client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of it's share / part / portion to the Client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

5.3.3.2 Stages of Hire Purchase under Shirkatul Meelk.

Thus Hire Purchase under Shirkatul Meelk Agreement has got three staces:

I. Purchase under joint ownership.

Ii. Hire and

Iii. Sale and/or transfer of ownership to the other partner Hirer.