80 Islamic Finance in Practice
financing period−often short term). The customer will immediately sell the
metals contracts to a broker (usually not the broker that sold the contracts
to the Islamic financier) for spot (ie $100,000 less the brokers’ charges). If
increasing amounts of financing is required over an extended period, then,
as eachmurabahacontract ends, it is replaced with amurabahafor a larger
amount.
However, as stated above, many Islamic scholars do not accept this type
of structure.Mudaraba
Amudarabais a contract in which an investor gives a cash amount to
another person in order to use it to generate a profit which will be split
between the parties. The person supplying the asset (such as money in the
case of an Islamic financier, or investor) is called therabb al-maal,and the
manager is called themudarib.
Themudaribwill not, in that capacity, provide funds but will contribute
its skill and expertise in deploying those assets to make a return. If there
are no profits then themudaribwill not receive anything. It is acceptable
for themudaribto share in the profits as it is taking the risk of receiving
nothing if the venture is not successful.
If there is a loss, themudaribwill not be responsible unless it was caused
due to its negligence or default. It would appear that, under Shari’a
principles, if a loss is proven, then the burden of proof is on themudaribto
show that it was not responsible for the loss.
The capital provided to themudaribremains the property of therabb al-
maal, which is why it bears any loss to the property (subject to themudarib
being liable on the grounds mentioned above). While the property is in the
hands of themudarib, he acts as a trustee in relation to that property in the
sense that he is obliged to take care of it but he is not liable for any loss
unless caused by his negligence or default. He can also be viewed as acting
as the agent of therabb al-maalin deploying the property of therabb al-
maal. It is also possible for themudaribto be paid an incentive fee which is
a technique often used to reduce the return to the Islamic financier to what
would have been achieved under a conventional financing.
Themudaribshould produce a business plan and a feasibility study
relating to the proposed venture. It would normally be expected that
projected (although not guaranteed) profits would be detailed. These
documents could be very important if there were a loss because an analysis
as to whether themudaribhad been negligent might be benchmarked
against statements contained in these documents.
In the context of project financing, this structure has been used, including
in relation tosukuk. Using this approach the investors would pass their
funds to the developer. There would be a business plan and a feasibility
study in which the developer would describe the types of real estate projects