Mudharabah

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DEFINITION OF MUDHARABAH A Mudharabah transaction is derived from a partnership based on risk and profit sharing. This partnership is a collaboration between an investor (Rabbul Mal) and an entrepreneur (Mudharib) under which the former provides funds to the latter for the purpose of investment and profit sharing. This is how it works in practice - you, the investor will deposit an amount of money with the bank, which acts as the entrepreneur. This investment is utilised as business capital by the bank. In this contract we have no authority to interfere in the management of our investment. On the other hand, the bank will have the right to manage our investments as it thinks fit by placing it into businesses that are permissible in Islam, and which it thinks are profitable. Depending on the tenure of our investment, we will be offered a profit sharing ratio which will form the basis of the agreement made between us and the bank. On the date that our investments mature, the bank will distribute our share of accumulated profit into our investment account. As in Musyarakah financing, Mudharabah financing is a form of partnership where the Bank will provide the capital and the customer will provide the expertise. Both will agree on a profit sharing ratio. The customer will be solely responsible for running the business, project or contract without interference from the Bank. All forms of capital loss, if any, will be borne by the Bank and all forms labour loss, if any, will be borne by the customer. ISSUES ON MUDHARABAH Government Investment Certificates were introduced in 1983, with the establishment of the Islamic bank. The government issued for the first time non interest bearing Government Investment Certificate to meet the special needs of the bank and other corporations who are interested in these securities. The Islamic bank governed by Shariah law, is not allowed to hold interest bearing government securities. The Government Investment Act 1983 under which certificates are issued provides certificates with maturities of one year or more to be issued and for dividend instead of interest, to be paid on the certificates in this Government Investment Certificates. Cagamas Mudharabah Bonds were introduced in 1 March 1994. Cagamas Mudharabah Bonds involved with the purchase of Islamic housing debts by Cagamas from institutions that provide Islamic housing finance to their clients and staff. The issuance of bonds are based on Al-Mudharabah concept by Cagamas for finance these purchases. The purchase of housing debt on Islamic principles by Cagamas is managed based on the Bai’ Al-Dayn concept whereas the issued of Cagamas Mudharabah bonds is based on the All-Mudharabah concept. Under this concept the bondholder and Cagamas will share profits according to ratios agreed earlier together. The agreements pertaining to the purchase of housing debt based on Islamic principles will be sealed between Cagamas Berhad and Bank Islam Malaysia Berhad. Cagamas will purchase housing debts amounting RM30 billion from Bank Islam. As a result of this agreement, a total of RM30 billion of Cagamas Mudharabah Bonds is created. Government has distributed RM30 billion worth of bonds to financial institution that offer Islamic banking. Mukah Power to Issue Sukuk Mudharabah for 100% Financing of Power Plant Kuching, 2 October 2006: RHB ISLAMIC Bank Berhad (RHB ISLAMIC) has successfully structured and lead arranged highly innovative sukuk issuances for Mukah Power Generation Sdn Bhd (MPG) and Sarawak Power Generation Sdn Bhd (SPG), in relation to the Mukah power plant project. Both MPG and SPG are wholly-owned subsidiaries of Sarawak Enterprise Corporation Berhad (SECB). MPG is currently undertaking the construction of a 2x135 megawatt (MW) total installed capacity coal-fired power plant, comprising two boiler turbine generator units, each unit with a nominal 135 MW capacity, in Mukah, Sarawak. The Mukah Power Plant project,...
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