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- Title
An Examination of the Underlying Rationale of the Profit and Loss Sharing System, With Special Emphasis on the Mudarabah and Musharakah Within the Context of Islamic Law and Banking.
- Authors
Khan, Omar Mahomed
- Abstract
The financial crisis which the world experienced recently in the global banking sector served as an eye opener to the world at large that the current financial system worldwide based on the interest system has failed humanity miserably. Many economist s worldwide reflecting on the causes and roots of the problem led them to question the role of Islamic banks as providing an answer and a way out of the current crisis. The prohibition of interest from an economy makes the Islamic banking system and Western Banking System structurally different from each other. In Islam business is based on capital and profit sharing and Islamic Banks do not grant loans on interest, instead borrowers become shareholders. Islam prohibits interest dealings but does not prohibit any gain on capital. This paper will therefore look into the underlying rationale of the Profit and loss Sharing System (PLS ) as it applies within the context of Islamic banking. The paper will lay emphasis on the two prominent types of profit and loss sharing contracts namely Al-Mudarabah (trustee profit sharing) and Al-Musharakah (joint venture profit sharing).
- Subjects
FINANCIAL crises; PROFIT &; loss; ISLAMIC finance; BANKING laws; PROFIT-sharing; ISLAMIC law
- Publication
Journal of Finance, Accounting & Management, 2012, Vol 3, Issue 1, p23
- ISSN
2153-2818
- Publication type
Article