Musharaka & Mudarabah - As Modes of Financing

However cannot be traded for less than 60 hanafi

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However, cannot be traded for less than 60. Hanafi School: No specific proportion of liquid-to-assets is prescribed. All Schools: Trading only if more than 51% are non-liquid assets. 6
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Financing a Single Transaction - Imports Can be used in Trade Financing. Import L/C if without margin, it can be a Mudarabah, if with a margin, it can be a Musharakah, or a combo. Once the goods are cleared from port, sale proceeds can be shared by both in a pre-agreed ratio. Ownership of goods to the extent of financing. If goods are not sold, then the importer can purchase the goods, however, this should not be done on a “pre -agreed price” rather it should be done on the prevailing market price of these products in order to reflect any loss accrued. 7
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Financing a Single Transaction - Exports Can be used for export financing. Proceeds from exports can be shared in a pre-agreed ratio. In case there is a loss, both the parties will share it in terms of their ratio of investment. In case the loss is due to negligence on part of exporter, he shall be liable. 8
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Financing a Working Capital Existing business assets can be valuated. Imam Malik’s view can be used where non-cash assets can be contributed as capital. The asset’s value can be broken down in units and the investment of entrepreneur and the bank can be represented by units. This can be for a particular time period. Profit can be determined by re-evaluation of assets and distributed called “constructive liquidation” by the consent of partners. 9
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Financing a Working Capital - Profit Sharing 10 Original Worth of Business Assets 50 Revaluation of Assets after Maturity 100 Profit = 50 Partner - A Contribution 30 units (60%) Profit Ratio 80% Partner - B Contribution 20 units (40%) Profit Ratio 20% Partner - A 80% of Profit (50) = 40 units Partner - B 20% of Profit (50) = 10 units Partner - A Total units 30 + 40 = 70 units Partner - B Total units 20 + 10 = 30 units
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Financing a Working Capital - Loss Sharing 11 Original Worth of Business Assets 50 Revaluation of Assets after Maturity 40 Loss = 10 Partner - A Contribution 30 units (60%) Profit Ratio 80% Partner - B Contribution 20 units (40%) Profit Ratio 20% Partner - A 60% of Loss (10) = 6 units Partner - B 20% of Loss (10) = 4 units Partner - A Total units 30 - 6 = 24 units Partner - B Total units 20 - 4 = 16 units
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Accounting Problems in Revaluation Depreciation Expenses. Use of resources for other businesses being undertaken by the client (other than the one on which a musharakah has been obtained) The profit is then distributed in terms of Gross Profit. The client bears indirect expenses voluntarily.
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