Towards Optimal Risk Management for Profit-Sharing Finance

Seif I. Tag El-Din

in Islamic Perspectives on Wealth Creation

Published by Edinburgh University Press

Published in print May 2005 | ISBN: 9780748621002
Published online March 2012 | e-ISBN: 9780748653096 | DOI:
Towards Optimal Risk Management for Profit-Sharing Finance

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This chapter addresses the question of efficient financial structuring in relation to profit-sharing muārabah, which is typically characterised by two parties contracting for any profitable project a capital provider (rabb al-māl) and a manager or entrepreneur (muārib). Its focus is on the profit-sharing muārabah, since it is particularly relevant to the demand for banking finance. In principle, banks's clients are assumed to be a ‘deficit’ group with little funds to participate with banks, which explains why the basic theory of an Islamic bank has been developed along the principles of muārabah. The chapter elaborates the economic appeal of profit sharing, as opposed to fixed interest rate financing, in the current Islamic literature.

Keywords: financial structuring; profit sharing; muārabah; capital provider; entrepreneur; rabb al-māl; muārib

Chapter.  6286 words. 

Subjects: Society and Culture

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