4.

ISLAMIC MODES OF FINANCING:

4.1.1 Qarz_E_Hasanah (Good Loan):

This is the type of loan which is given on goodwill basis and the debtor has to pay only the amount that he borrowed without any kind of interest. However if the debtor is willing to pay something for his kindness to lend him money, he can give it. Incase if the debtor does not pay any thing so this is know as pure interest-free loan. Most of the Muslim society thinks that it is the only type of loan that does not violate the prohibition of Riba since it is a type of loan, this does not compensate the creditor for the time value of money.

4.1.2

Riba:

It is a token given by the debtor to the creditor from his own without the demand of the creditor in return for his loan. Riba is usually used less by the Islamic banks and these are the conditions when the Islamic banks pay their customers some extra amount on saving businesses by themselves.

4.13 Musharakah:
Musharakah is basically an Arabic word which means sharing. Musaharakah comes into practice when two or more person wants share profit and loss in the business and establishing a relationship under a contract It is an agreement by which the Islamic bank provide funds and then those funds are mixed with the other business funds of the business. All the people who provides the capital can participate in the management but not necessarily required to do so. The profit is distributed among the partners on the basis of ratios on which they agreed and the loss is distributive among the partners on the basis of their contribution. Musharakah based on the Islamic principles can play a very vital role in the economy of the country. Interest predetermines a fixed rate of return on a loan given by financers irrespective of profit or loss done by the debtor But the return in Musharakah is based on actual profit earned by the joint ventures and when the joint venture is in loss so the Musharakah also faces loss. Islam has prohibited interest in business because interest results in injustice either to the debtor or the creditor. If the debtor suffers loss then it is injustice for the creditor to demand for interest or incase the debtor earns high profit, it is injustice to the creditor to give him a small portion of profit. Shrikah means sharing. Shrikah is the terminology of Islamic Fiqh and is divided in two kinds. That are:-

1.

Shirkat-Ul-Milk:

It means a property whose ownership is with two persons. As we know that Shirkah has two different ways. Sometimes it comes into operation at the opinion of two parties. For example if two or more persons purchased a bike and all of them will jointly use it then this is called Shirkat-Ul-milk. Here this principle is applied when all of them jointly gave opinion to purchase a bike

2.

shirkat-Ul-Aqd:

It is the second kind of Shirkah which means A partnership effected by a mutual contract. For the purpose of brevity it can also be called as Joint Commercial Enterprise. It is further divided into three types. That are:a. Shirkat-Ul-Anwal: It is that type in which all the partners contribute the same amount of capital into a commercial enterprise. b. Shirkat-Ul-Amal: When all the partners combine together a provide services to their customers and the fee charged on the customers is distributed among the partners on agreed ratio. For example if two persons agreed to provide laundry services to their customers and when the wages are received it is distributed among those partners on the basis of nature and quantity of work done by each partner. This type of partnership is called Shirkat-UlAmal and is also known as Shirkat-Ut-Taqabul. c. Shirkat-Ul-Wujooh: It is the third type of Shirkat-Ul-Aqd. In this type of partnership the partners have no investment at all. The purchase commodities on a differed price and sell them on the spot. The profit is distributed among them on agreed ratio.

4.2

DISTRIBUTION OF PROFIT

The proportion of profit which is to be distributed among the partners must be agreed upon at the time affecting the contract. If not then it not a valid contract in Shariah. The actual profit of a partner should be determined from the profit incurred by the business and not on the basis of share of capital invested by each partner. Any lump sum amount for any one of the partners is not allowed or any type of profit rate tied to his investment. For example if A and B have agreed to give 10,000 per month to A and the rest will go to B then this type of partnership is invalid. The correct type of partnership will be when the profit is calculated on the amount of profit the overall business made. If in case the lump sum amount or percentage of investment has been agreed for any partner then it should be expressed in the agreement that it will be subject to the final settlement at the end of the term. This means that the amount drawn by any partner shall be treated as On Account Payment and will be adjusted to the actual profit he may deserve at the end of the term. In the view of Imam Malik and Imam Shafi, it is necessary for the validity of musharkah that each partner gets a profit exactly on the proportion of his investment. On the contrary, According to the view of Imam Ahmad, that the ratio of profit may differ if the partners are agreed to it with free consent The third view is given by Imam Abu Hanifa which can be taken as via media between the two opinions discussed earlier. He said that the ratio of profit and investment may differ in normal

conditions. But in case if one partner puts a condition that he will work as a sleeping partner and will not work for the Musharkah then his share of profit can not be more than his investment.

4.3

SHARING OF LOSS:

When it comes to loss, the Islamic principles says that each partner will suffer this loss according to the ratio of investment. This is because in the opposite way one partner will suffer more which is injustice. For example if a partner has invested 40% of the capital and during loss, he must suffer 40% of loss. Not more nor less.

4.4

MUDARABAH:

Mudarabah is the arrangement of agreement between a capital provider and the entrepreneur and in this type of agreement the entrepreneur can mobilize the funds for the business activities. The entrepreneur provides the expertise and management and is referred as Mudarib. Any profit made will be shared between the entrepreneur and the capital provider on the agreed ratio. Here both parties will share profit while in case of loss the capital provider bears all the loss.

4.4.1 Business Of The Mudarabah:

The Rabb-Ul-Mal may specify a particular business for the Mudarib, in which case he shall invest money in a particular business only. This is called Mudarabah-Al-Muqayyadah,means restricted mudarabah, But if has left it open for the mudarib to undertake whatever business he wishes, The mudarib should be authorized to invest the money in any business he wants. This type of Mudarabah is called Mudarabah-Al-mutlaqah, which means unrestricted mudarabah. The Rabb-Ul-Mal can contract mudarabah with more than one person at a time through a single transaction. It means that he can offer money to all his partners so that each one of them acts as Mudarib and capital of the Mudarabah should be utilized by both of them jointly and share of Mudarib will be distributed between them on the agreed proportions.

4.4.2 Distribution Of The Profit:

For the validity of Mudarabah, it is necessary that all the partners should be agreed at the beginning on the profit sharing proportions. The Shariah has not described any particular proportion but is left to be done on the basis of mutual consent. It is their choice that they want to divide the profit into equal portions of different ratios. However they can not allocate lump sum amount of profit for anybody. They can neither determine the share of each party at a specific rate tied with the capital. It is allowed that different proportions are agreed in different situations. For example if they have 10,000 Rs capital, they can not agree on the condition that Mudarib will get 1000 of the profit and the rest will be given to the Rabb-Ul-Mal. They can agree when they say that 40% will be given to \mudarib and 60% will be given to Rab-Ul-Mal.