What does it mean? The reason for such a principle stems from the fact that bearing of loss is directly connected to the sustaining power. As such, it will be logical to make the capital provider Rab Al Maal endure the loss in Mudarabah since it is the one who has contributed the entire capital, whereas the entrepreneur Mudarib has not provided any part of the capital.
Hence, the Shariah contract must be carefully chosen given the situation. The circumstances surrounding a Mudarabah contract are indeed different than the state of affairs found in a Musharakah pact. In the case of the former, the counterparty does not chip in with capital in cash or kind but it is a must in the latter that all parties share the capital.
Another stark difference between the two is that the Mudarabah rule does not allow active participation by the investor or the capital provider in the day-to-day running of the business whereas in Musharakah there is no such Shariah restriction and all partners are equally eligible to share the operating responsibilities. I have underlined the word eligible with a purpose since I will come back later to elaborate on it. One wonders why the Rab Al Maal is prevented from managing the business affairs of Mudarabah despite the fact that it is the one who has provided the capital in full.
You see, the reason why in Shariah , the capital provider is not given the right to work with the Mudarib , or to get involved in acts relating to the Mudarabah operation, is because such a provision would curtail the freedom of the Mudarib , limit the investment scope and hinder the Mudarib in achieving the objective of the Mudarabah contract, which is to deploy the capital prudently, efficiently and profitably for the mutual benefit of both parties.
The Malaysian government is seen as a leader when it comes to Islamic finance globally. The UK has already tapped into the sukuk industry and will soon be the first Western country to allow banks to sell Islamic bonds. It seems Australia will follow the lead. The sukuk bond is growing rapidly and is viewed by Australia as one of the most appealing Islamic products because of its versatile nature and ability to adapt into the mainstream financial system.
This is why Senator Sherry recently identified the market for sukuks as a wholesale opportunity for the Australian financial sector. The Australian government has made several indications of its commitment to the Islamic banking and finance industry. Furthermore, the Johnson Report and the Henry Tax Review both called for an inquiry into Australian taxation law to ensure that shariah -compliant products are on a level playing field with conventional products.
From a taxation perspective this view will ensure a more level playing field. All these developments increase the importance of legal practitioners understanding the basic principles of shariah -compliant products and how they may be relevant to clients. In my opinion, however, what has been missing from the IBF conversation is whether the IBF products that will be introduced to the Australian financial market are compliant with shariah law or whether they are simply mainstream products under the guise of shariah terminology.
Her thesis focuses on the shariah -compliant nature of Islamic finance products introduced in Australia. She is also the recipient of the National Australia Bank scholarship in Islamic banking Join Sign In. Remember me. Select from any of the filters or enter a search term. Reset Search. Home About Contact Close About. Search for:. Twitter Facebook LinkedIn Blog. Get involved by joining a committee. Submissions, Projects and Initiatives Access past and archived submissions and the latest LIV advocacy and policy projects.
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