Mudaraba is a contract between a capital provider (rabbul mal) and an entrepreneur (mudarib) under which the rabbul mal provides capital to be managed by the mudarib and any profit generated from the capital is shared between the rabbul mal and mudarib according to mutually agreed profit sharing ratio whilst financial losses are borne by the rabbul mal provided that such losses are not due to the mudarib’s misconduct (ta`addi), negligence (taqsir) or breach of specified terms (mukhalafah al-shurut).
Full Partnership “Musharakah” ….
A joint enterprise in which all the partners share the profit or loss of the joint venture.
Diminishing Musharakah …
According to this concept, The share of the Investor is further divided into a number of units and it is understood that the Partner will purchase the units of the share of the Investor one by one periodically, thus increasing his own share till all the units of the Investor are purchased by him so as to make him the sole owner of the property, or the commercial enterprise, as the case may be.
Islamic Investment Funds …
A joint pool wherein the investors contribute their money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shari‘ah. The Islamic Investment Funds may accommodate a variety of modes of investment as below:
Equity fund is a type of mutual fund that invests shareholder money in ownership of publicly traded businesses by buying common stocks. Profits are mainly accquired through capital gains by purchasing stocks and reselling them when their prices rise. Profits are also earned through dividends distributed by the relevant companies.
Ijarah means leasing, in this fund the subscription amounts are used to purchase assets like real estate, motor vehicles or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rata to the subscribers.
In this type of fund, the subscription amounts are used in purchasing different commodities for the purpose of their resale. The profits generated by the sales are the income of the fund which is distributed pro rata among the subscribers.
This type of Islamic Fund is of a diversified nature where the subscription amounts are employed in different types of investment such as equities, leasing, commodities etc. This may be called a Mixed Islamic Fund.