Select an Islamic bank or Isla
Select an Islamic bank or Islamic banking window and analyse itsMusharakah financing facility. Identify the features that make itShari’ah compliant. Also critically analyse the whole procedure andidentify the non-Shari’ah compliance risks that Islamic bank mightface using your theoretical and practical understanding of Islamicfinance
Answer:
It is a Joint Arrangement / Partnership Agreement having thefollowing characteristics:
- More than one parties provides capital as well as skills.
- Profit is shared by all the parties in agreed profit sharingratio.
- Loss is to be borne by providers of capital only in proportionto the capital contribution.
Features that make it Shari’ah compliants are:
- Prohibition of interest (RIBA)
- Prohibition of speculation (GHARAR)
- Prohibition on forbidden goods.
- Profit and risk sharing.
Failure to comply with all applicable laws , rules, regulationsand regulatory guidelines will constitute a breach. It may resultnot only in the imposition of disiplinary , civil or criminalsanctions against the islamic financial institutions but alsodamaging one of ismalic financial institutions most important assetit’s reputation. In addition it may also result in the bankinglicense being suspended / withheld by the regulator.
Along with that it may also have to face credit risk, equityinvestment risk, market risk , liquidity risk, rate of return riskand operational risk.