Disease burden of modern society are Life Style Diseases. These diseases are putting stress on healthcare system and human life. Lifestyle diseases are responsible for life threatening and disease burden. These diseases can managed, its effects can be reduced . The change is possible if Healthy Life Style is adopted. Key to Healthy and Happy Living is Healthy Lifestyle. Life style diseases are because of lifestyle decisions. Healthy eating is first step towards better life, healthy and happy life. Other key life style decisions are adopting balance lifestyle. Leaving the habits which are cause of problems.
Some lifestyle diseases examples are:
Heart disease Atherosclerosis Stroke Respiratory ailments Obesity Type 2 diabetes
Causes of lifestyle diseases
These diseases are typically the result of certain habits a person has developed, certain restrictions and limitations they have owing to their lifestyle or some kind of exposure or lack of it that their lifestyle necessitates. To simplify, we can categories causes into: Smoking, drinking, drugs Exposure to pollutants at work or home Lack of physical activity, restricted movement for prolonged hours Habits that cause direct damage to the body (earphones, poor seating) Poor or unhealthy eating habits (plenty of processed food, little or no nutritive value in diet, lack of hydration) High stress levels Poor and/or little sleep
Prevention of lifestyle diseases
The good news here is that it is possible to break the dangerous connection between lifestyle and diseases simply by making changes in the former. To keep lifestyle diseases away, these are the four key points to remember and follow: Track and maintain healthy weight Focus on nutritious food Stay active both mentally and physically Avoid smoking, drinking, drugs Go for regular preventive screening
Startup Ecosystem is essential to the Sustainable Growth. Small businesses are key driving force of the economy. Most of Employment is created by Small Business. Vibrant Small Business drive the growth. Every Big Enterprise essentially runs on inputs and supports given provided by Small Businesses. Startups and Small Business essentially needs environment which encourages and supports them. This Environment / Support Mechanism which make sure to build Success Story is called Ecosystem. This Ecosystem has many components, which make sure things can move in right direction.
Learning System
Early Education is first step. Education system should be creativity and curiosity driven. Enough importance should be given to building skills and knowledge driven by Creativity and Curiosity. Students should understand importance of learning to improve the lives. Building confidence to do something new, something different. Yes, I Can, Attitude Can only Bring Change. Which will develop creativity and curiosity
Training
Which will build Entrepreneurial Capabilities. Training is essential component of success. Entrepreneurship Training Programs which will cater essential skills to the Entrepreneurs. These training programs should be available to everyone and widely promoted. Programs should build Entrepreneurial skills. These training programs must also tell, Failure is not End, it is only a step to success. Right training will mentally strong Entrepreneurs who are ready to take risk. No Risk no Reward Entrepreneurship is all about taking risk. Putting your money and time to build bright future for self and society. Entrepreneurship is all about improving life for everyone, at the same time getting Rewarded. Training programs must preach importance of Risk Taking, and Rewards on success.
Idea Development
Developing Ideas is very important. Feasibility Study, Market Strategy, Evaluation of Idea is essential. Evaluation is required to see if idea is commercially viable. What is market potential, what are the challenges. Once basic questions are addressed, now it is ready for launch.
Support for building Ideas
Even though Idea may be very good. What is important is its Commercialization. Hand-holding is essential to building a Commercially viable Idea. Understanding the potential and then Monetization are very important.
Mentors
Mentors are essential for Hand-holding. Mentors provides essential inputs and knowledge to successfully implementing the Idea. The role of Mentor is multi-functional and needed at each step. Mentors are essential to the Success of Idea.
Seed Capital..
The First investment must come from the owner of the Idea. This is essential to the commitment of the project. After first money, next money should come from Near and Dear who trust the Owner of Idea and Idea. Once Idea starts moving, it is time for others to cheap in.
Commercialization Support
Every good Idea can not be monetize and make money. It is most important to understand the monetization potential of the Idea. Unless the Startup does not potential for mass acceptance and success, no investor will put his money. The Entrepreneur must prove the Startup can be monetize and has potential to grow.
Venture Finance.. Investment
Once Startup Idea is commercialize, and it started growing. This is stage when Venture Capital sees potential and invest. Investors see long term growth potential. They see market opportunity and invest. At this stage the the Idea gets big boost and growth speeds up.
Growth Capital.. Private Equity
Once the startup comes to the breakeven and see huge growth potential, Private Equity takes interest to invest more money. Speed up the growth, so that it can be listed or sold to another investor. Exit.. Exit is essential, it is life. IPO, sell out or Mergers, what ever may be the name, Exit is life.
Salam (Advance Payment against Deferred Delivery of Goods) Salam (also
referred to as Bai Salam, Al-Salam, Bai al-Salam) is an
ancient form of forward contract wherein the price is paid in advance at the
time of making a contract of sale for goods to be delivered at a future date.
What is given in exchange for the advance payment of the price
should not in itself be in the nature of money. For the payment in advance, the
contracting parties stipulate a future date for the supply of goods of
specified quantity and quality Salam may be considered as a kind of
debt, because the object of the salam contract is the liability of the
seller, up to the agreed future date, to deliver the object for which advanced
payment of the price has already been made.
There is consensus among Muslim
jurists on the permissibility of salam, because the object of the
contract is that the goods are a recompense for the price paid in advance, just
as the price is recompense paid for getting the goods in advance. Salam is
permitted, notwithstanding the general principle of the Shari´ah that
does not permit the sale of a commodity which is not in the possession of the
seller. When Prophet Muhammad (pbuh) came to Madinah (the second holiest city
in Islam, after Makkah), the people used to pay in advance the price of fruits
(or dates) to be delivered within one, two or three years. But such a sale was
carried out without specifying the measure, weight and the time of delivery.
Prophet Muhammad (pbuh) said: "He who sells on Salam (money in advance)
must sell a specific volume and a specific weight to a specific due date (to be
delivered later)". The practice of salam, as ordained by the
Prophet Muhammad (pbuh), continued during his life time and also in later
periods. The list of items covered by salam suggests that it benefited
the owners of farms and orchards. Barring a few exceptions, the Muslim jurists
have now expanded the list of items which can be sold under salam to cover all
homogeneous commodities that can be precisely determined in terms of quality
and quantity.
Rules for a Valid Salam Contract
Only those fungible (mithli) things which can be precisely
determined in terms of quantity and quality can be contracted in salam.
Besides, salam cannot take place between identical goods, e.g., wheat
for wheat, Dollar for Dollar and potato for potato. All goods that can be categorized
as belonging to the same species can be the subject of salam.
For example, wheat, rice,
barley or other grains of this type, motor cars of any trade mark, oil, iron
and copper can all be sold through salam. Similarly, electricity
measured in kilowatts can be considered a fungible commodity. In salam, it is necessary to fix
precisely the time of delivery of the goods. The buyer must unambiguously
specify the quality and the quantity of the goods and the specifications must
be applicable to the generally available items of the goods of the contract.
The specification of goods should particularly cover all those characteristics which
could cause variation in price. Thus the general terms and conditions of salam
should be binding in nature and Q2P2T be followed. The first Q stands for the
quantity of the commodity to be supplied. The second Q stands for the quality
or variety of the commodity. The first P stands for the price to be paid in
advance by the buyer and the second P stands for place of delivery. Finally, T
stands for the time of delivery.
The buyer in salam should advance the price of the commodity
at the time of making the contract
Risks in Salam-based Financing
Islamic banks may face the following risks in salam-based
financing:
a) Counter-party Risk (the client may default after taking the
payment in advance.)
b) Commodity Price Risk (at the time the goods are received the
price may be lower than the price that was originally expected).
c) Quality Risk/ Low investment Return or Loss (goods received
might not be of desired quality – unacceptable for the potential buyer)
d) Asset-Holding Risk / possibility of extra expenses on storage
and takaful (the bank might not be able to market the goods in time,
resulting in possible asset loss for the unsold goods and locking funds in the
goods until they are sold)
e) Asset-Replacement Risk (in case the bank has to purchase goods
from the market in parallel salam where the third party fails to supply
the specified goods under the parallel contract.
f) Fiduciary Risk in the case of parallel salam (original salam
seller might not deliver).
Islamic banks need to take proper measures for mitigation of the
above risks. They should purchase only those goods which have good marketing
potential; take proper security and a performance bond; insert a penalty clause
in the contract as a deterrent against late delivery; obtain a binding promise
from the prospective buyers along with a sufficient amount of earnest money in
deposit; and fulfil the responsibility of parallel salam-purchase
similar goods from the market on spot to supply these to the buyer and recover
the loss, if any, from the seller in the original salam.
Parallel Salam and Disposal of Salam Goods – to manage
and mitigate risk
For the disposal of goods purchased under salam, Islamic
banks have a number of options, including:
i) to enter into a parallel salam contract where the bank is
involved as a buyer on one side and as a seller on another side,
ii) an agency agreement with any third party or with the client
(seller) to sell the goods on behalf of the bank and / or
iii) a sale in the open market the bank itself by entering into a
promise with any third party or direct selling upon taking the delivery.
Where the bank (as buyer) enters into a parallel salam contract
there cannot be any condition or linkage to the first salam contract. (Parallel
Salam is allowed with a third party only. The seller in the first contract
cannot be made purchaser in the parallel contract of salam, because it will be
a buy-back contract, which is not permissible in the Shari’ah). Each one
of the two contracts entered into by a bank should be independent of the other,
but the bank (as seller) can sell the goods on parallel salam on similar
conditions and specifications as previously purchased on the first salam
contract without making one contract dependent on the other. This arrangement cannot
be tied up in such a manner that the rights and obligations of one contract are
dependant on the rights and obligations of the parallel contract. The period of
parallel contract in the second transaction is usually shorter and the price
may be a higher than the price of the first salam transaction. The
difference between the two prices is the bank’s profit
The parallel contract arrangement may not be an attractive mode of
disposal of goods for banks, as the amount invested by the bank (the advance
payment of the price in the first salam) would be disinvested when the
buyer in the parallel contract made the advance payment to the bank for the
purchase of the goods under the parallel contract. Under an agency agreement,
the Islamic bank may appoint the seller its agent to sell the salam goods
on its behalf at a given price which would include the bank’s profit. Some
Islamic banks are, therefore, using salam for purchasing goods and
appointing the sellers as their agent for subsequently marketing the goods at a
price with a suitable profit margin for the bank. In the case of an agency, the
salam contract and the agency agreement should be separate and
independent of each other. The purchased goods cannot be sold back to the salam
seller, hence a parallel salam cannot be entered into with the
original seller in the salam contract as it would be considered as being
a ‘buy-back’, which is prohibited under the Shari’ah rules.
In the third option, the Islamic bank (as buyer under salam)
may obtain a binding promise from a third party to purchase the goods from the
bank. This promise should be unilateral from the prospective buyer. The bank
(as buyer) will not have to pay the price in advance, as the prospective buyer
is merely making a promise and it is not an actual sale. However, the bank can
ask for earnest money (a security deposit as an act of good faith). As soon as
the bank purchases the goods, they will be sold to the third party at the
pre-agreed price, according to the terms of the promise. Banks may also wait
until receipt of the goods and sell them in the open market, but they will be
taking the asset-risk for the period the goods remain in the bank’s inventory.
It is important to note again that the salam goods cannot be sold back
to the original seller owing to the prohibition of the ‘buy-back’ arrangement.
Pricing is
a major element of marketing any product, and it is vitally important to set
the right price. A price that is too high or too low for the target market can
seriously affect sales. Premium pricing can use for several purposes. A premium
pricing strategy involves setting the price of a product higher than similar
products. This strategy is sometimes also called skim pricing because it is an
attempt to “skim the cream” off the top of the market. It is used to maximize profit
in areas where customers are happy to pay more, where there are no substitutes
for the product, where there are barriers to entering the market or when the
seller cannot save on costs by producing at a high volume. Premium pricing can
also be used to improve brand identity in a particular market. This is called
price-quality signaling, because the high price signals to consumers that the
product is high in quality. Competition
BRAND
AWARENESS
Some brands
can continue to charge a premium price because their entire brand image is
based around premium. Unique products usually have the best chance of
commanding premium prices.
The first
step is to understand that in the so-called luxury market, there are three
possible strategies, which I named in my book as luxury, fashion and premium.
The difference between these three strategies is huge. It does not change much
in the eyes of most basic consumers, at least in the short-term. But when one
has to manage a brand, the difference is pivotal. In fact, if you decide to
implement a fashion or a premium strategy, the classical marketing styles works
pretty well. But if you decide to implement a luxury strategy, you need to
reconsider all the aspects of your marketing management.
The luxury
strategy aims at creating the highest brand value and pricing power by
leveraging all intangible elements of singularity- i.e. time, heritage, country
of origin, craftsmanship, manmade, small series, prestigious clients, etc. The
premium strategy can be summarized as “pay more, get more.” Here the goal is to
prove -through comparisons and benchmarking- that this is the best value within
its category. Quality/price ratio is the motto. This strategy is, by essence,
comparative.
Here are
six factors that will influence your ability to establish and maintain premium
price position and reap the rewards:
Become a
Premium Provider. Identify the features that would be considered high-end on
the value scale, and then highlight those crucial elements in your marketing.
Resist the urge to offer a basic service level or baseline product. Stick with
the premium level of service if you plan to maintain your premium pricing
strategy.
Define Your
Value. Help your customers understand why your prices are higher. If you know
how competitors are undercutting your prices, and you feel the competitors'
lower cost equates to poorer quality or service, explain this difference. In
other words, don't hide your price; instead, explain your value to the
customer, and be prepared to demonstrate the ROI associated with your service
or product.
Go the
Extra Mile. You'd be surprised how many business owners declare they offer
superior service simply because their people are friendly. Successful companies
have more than friendly employees.
Don't
Sacrifice Price, Even When Times are Tough. Just explain why your product or
service is worth the investment, but be a little flexible for long-time
customers.
Don't Play
the Lowest Price Game. Weaker competitors are quick to cut prices to earn
business. Don't play their game.
Project
Financial Stability. A colleague told me about his expensive dilemma. He needed
to replace his entire home air conditioning system. He asked two local
companies for estimates.
Challenging
a Timeless Tradition
Ending
prices with the number nine is one of the oldest methods in the book, but does
it actually work? The answer is a resounding yes, according to research from
the journal Quantitative Marketing and Economics. Prices ending in nine were
able to outsell even lower prices for the same product.
Time Spent
vs. Money Saved
Stanford
University’s Jennifer Aaker argues that in many product categories, customers
recall more positive memories when asked to remember time spent with the
product over the money
saved.
Different
Levels of Pricing
Test #1
Four out of
five people chose the more popular premium option.
Test #2
The cheap option was ignored and it upended the ratio of standard to
premium purchases.
These
examples show just how important it is to test out different pricing brackets,
especially if you believe you may be undercharging. Some customers are always
going to want the most
expensive
option. Get smart with your pricing strategy. Great products and services are
priced on purpose. They have prices that develop over time and are guided by debate,
scrutiny, and, most importantly, feedback from paying customers.
Strategies
that help grow premium perceptions
Commenting
on a recent survey that found 88 percent of U.S. consumers love store brands,
Pat Conroy, vice chairman at Deloitte LLP and U.S. Consumer Products leader,
stated that many name brands suffer "from a crisis of the similar,"
giving consumers no compelling reason to choose their product instead of a
store brand. He is right.
Build
perceptions of product superiority
Innovation,
the type that produces a step change in product performance, is still the most
effective way to build competitive advantage. Tide Pods and Singapore Airlines
are good examples of brands that have used product innovation to improve
premium perceptions and justify prices. P&G's commitment to innovation paid
off in the U.S. with the introduction of Tide Pods—a three-in-one liquid tablet
that allowed the new product to gain market share at a significant price
premium.
Build
perceptions of value
By framing
perceptions of value premium, brands can gain competitive advantage over
cheaper brands provided the claim is defensible and not undermined by consumer
experience.
Build
premium credibility
Irrespective
of how the redesign impacts flyers in-flight experience, Singapore Airlines
sends a clear signal that they perceive themselves as a luxury brand by teaming
up with BMW. In China, Häagen-Dazs presents a unique, indulgent, and adult ice
cream experience, primarily through its retail stores. It justifies a
significant price premium through locating those stores in upmarket areas,
offering unique desserts, and selling wedding cakes designed to appeal to
wealthy celebrities. For Johnnie Walker, special blends and gift packs offer
the chance to ask a higher price for their well-known brand. Mechanisms like
these are designed to build credibility around a brand's premium positioning,
making it easier for consumers to justify why they are paying a higher price
for the brand.
Advantages
of Premium Pricing
The following are advantages of using the premium pricing method:
Entry
barrier. If a company invests heavily in its premium brands, it can be
extremely difficult for a competitor to offer a competing product at the same
price point without also investing a large amount in marketing.
High profit
margin. There can be an unusually high gross margin associated with premium
pricing. However, a company engaging in this strategy must attain sufficient
volume to offset the hefty marketing costs associated with it.
Mudarabah: mudarabah or partnership in the profits of capital and
labour, is a partnership in which one party is entitled to profit on account of
its capital while the other party is entitled to profit on account of its
labour. This is considered to be the purest form of Islamic financing, because
profits are shared in pre-agreed proportions and losses are shared in
proportion to the investment made by each investor. On loss, there is unanimity
among Muslim jurists on the principle that a party who has no capital invested
does not have to share the loss. Mudarabah
is an important variant of Shirkah (partnership), in which a
financier as an investor (rabbulmal) or a group of investors provides
capital to an agent or manager (mudarib), who undertakes to do business
with the capital provided and the profit is shared according to the pre-agreed
proportions. The term “Mudarabah” is interchangeably used with Qirad and
Muqaradah.
Rules relating to Mudarabah Capital
The rabbulmal (the capital-provider or financier) is
responsible for providing the capital for the business enterprise and should
hand over the capital to the mudarib before the mudarib starts
the business. The mudarib may also employ his capital with the
permission of the original capital provider. All losses must be borne by the
capital-provider, in other words the financier.
Rules regarding to Profit and Loss
Profit from the business under mudarabah is to be shared in
an agreed ratio. In Mudarabah, the payment of profit to the
capital-provider/financier cannot be in the form of a fixed amount or any
percentage of the capital employed. The risk for the investor is that any loss
is always exclusively borne by him. The risk for the mudarib is the loss
suffered by way of expended time and effort, for which the mudarib does not
get any remuneration on account of the loss in the business venture. Any ambiguity
or lack of clarity regarding capital or ratio of profit makes the mudarabah
contract invalid. The rabbulmal (the capital-provider) can contribute
his/her labour subject to the permission of the mudarib.
Both the parties of a mudarabah are at liberty to agree on
the proportion or ratio of profit-sharing between them with mutual consent.
They can agree on equal sharing or allocate different proportions. However, a
lump sum amount or profit/return on investment for any of the parties cannot be
agreed upon. The profit earned is to be divided in the strict proportion agreed
at the time of the contract. If loss occurs in some transactions and profit is
realised in some others, the profit can be used to offset the loss in the first
instance, then the balance, if any, can be distributed between the parties
according to the agreed ratio.
The parties in mudarabah can agree with mutual consent that
in the event the profit is over a particular ceiling, then one of the parties
would take the additional profit. However, if the profit is below, or equal to,
the stipulated ceiling, then the distribution will be according to the agreed
ratio. The profits realised from the mudarabah business cannot be
finally distributed until all the expenses have been paid, in accordance with
custom and the original agreement.
Use of Mudarabah by Islamic Banks
Mudarabah is a viable basis for Islamic banking whereby an Islamic bank
plays the role of a financial intermediary. The arrangement can be made
adopting a two-tier mudarabah agreement. The first tier of the mudarabah agreement
is between the bank and the depositors, who agree to put their money in the
bank’s investment account and to share the profit with it. In this case, the
depositors are the capital providers (rabbulmal) and the bank functions
as a manager of the funds. The second tier of the mudarabah agreement is
between the bank and the entrepreneur, who seeks financing from the bank; they
agree that the profits accruing from the business will be shared between them
and the bank in an agreed proportion, but any loss will be borne by the
financier only (the bank). In this instance; the bank functions as the provider
of the capital and financier while the entrepreneur works as a manager. In cases
where there is more than one financier of the same project (one project jointly
financed by several banks), profits are to be shared in a mutually agreed
proportion previously determined, but any loss is to be shared in the
proportion in which the different financiers have invested the capital.
Mudarabah is the basis of Islamic banking in the sense that funds are
mobilised by banking and non-banking financial institutions mainly under this
arrangement. Islamic banks, other financial institutions, a mutual fund or a
company can also mobilize funds for investment by issuing negotiable Mudarabah
Certificates, representing ownership in the funds collected and providing for
the profit earned from the investment of those funds to be distributed on mudarabah
principles. The investment can be related to the financing of specific
projects for a fixed duration. As defined by the Islamic Fiqh Academy of the
OIC, Mudarabah Certificates are investment instruments, which mobilise
the mudarabah capital by floating certificates as evidence of capital
ownership, on the basis of shares of equal value, registered in the name of
their owners, as joint owners of shares in the venture capital or whatever shape
it may take, in proportion to the each one’s share therein. If the funds so
mobilised are also invested on the basis of mudarabah, it will be arrangement
of a two-tier mudarabah and the investors would get a variable return or
bear loss according to the result of the economic activity conducted by the
institution.
If any individual or institution serving as mudarib is
doing business on the basis of trade and ijarah-(leasing)-based modes,
the investors / financiers receive a fixed or quasi-fixed return to be
distributed on mudarabah principles. A Mudarabah Sukuk (bond) can
also be issued on the mudarabah principle. On the assets side, mudarabah
is best suited for project-and trade-financing. Islamic banks can undertake
project financing through a mudarabah singly or through syndication with
other banks. It can be used for financing import trade on a single transaction
or a consignment basis in the case of a firm order and a letter of credit without
margin, where the whole investment has to be made by the bank. Its use is also
possible for running businesses and for the purpose of securitisation. In a
twotier mudarabah arrangement, the bank acts as a mudarib (agent
of manager) for the savers / investors and as financier for the entrepreneurs.
If the bank employs the client’s deposits without committing any of its own, it
acts as mudarib for the client until the conclusion of the business
transaction for which the funds were invested. The bank receives an agreed
share of the profit for services rendered. Banks provide funds on the basis of mudarabah
usually for single transactions or for fixed durations. Similarly, mudarabah
can be for the whole business of a company or for any specific project
whose expenses and revenues can be segregated from the main business. The
accounts of mudarabah projects are periodically audited in order to
determine the distributable profit, which is arrived at after taking into
account all expenses. The liability of the Islamic bank under mudarabah is
limited to the amount of capital provided by the bank and the creditors of a mudarabah
have no recourse to other assets of the bank.
In cross-border financings, exchange risk, political risk and the
stability of the country concerned have to be taken into consideration before
signing a financing contract on the basis of mudarabah. The bank may
also closely monitor the performance of the mudarib during
implementation of the project in order to ensure that there are no completion
delays, cost overrun, material pilferage, etc. If the financing contract permits,
the bank may appoint its representative to the Boards of the financed institution.
Musharakah is a term
used by contemporary Muslim jurists for both broad and limited connotations. It
is a term frequently referred to in the context of Islamic modes of financing,
but is a little more limited than the term shirkah, which is
more commonly used in Islamic jurisprudence. In traditional books, joint
businesses have been discussed mainly under the heading of shirkah,
which is regarded as a set of broad principles that can accommodate many
forms of joint business. Contemporary Muslim jurists use the term musharakah
in a limited sense to mean a contractual partnership in which all
partners provide funds or capital, through not necessarily equally. They have
the right to work for the joint venture, conduct it jointly and agree to share
the profit on a pre-determined ratio and to bear the loss, if any, to the
extent of the investment of each partner. In a specific sense, it is an amalgam
of musharakah and Mudarabah, where a mudarib
(the entrepreneur partaking in a mudarabah), as well
as the financier partner, also invests in the capital. This arrangement is also
permissible, according to Muslim jurists. Another form of musharakah, developed
more recently, is
'Diminishing Musharakah'.
According to this concept, a financier and his client participate either in the
joint ownership of a property, or piece of equipment, or in a joint commercial
enterprise. The share of the financier is further divided into a number of
units and it is understood that the client will purchase the units of the share
of the financier, one by one, periodically, until all the units of the
financier have been purchased by the client so as to make the client the sole
owner of the property or the commercial enterprise. 'Diminishing
Musharakah' will be discussed more fully in a separate lesson.
Musharakah
Musharakah is a
relationship that is established between parties by a mutual contract, so all
the necessary ingredients of a valid contract must be present here also. It is
the modern term for Shirkah Al Amwal structured
on the basis of “inan”. In addition, there are
number of conditions that are special to the contract of musharakah. Musharakah
is not a binding contract and any partner may unilaterally terminate it
unless provided otherwise in the contract.
The key features of musharakah
may be summed up as below:
(a) All the partners provide capital
(b) Profit sharing may be based on capital
contribution, or negotiable, or depending on the work performed by a partner
(c) Loss will be shared only according to capital
contribution
(d) Management by all the partners is not a
requirement
(e) Musharakah is not a
binding contract
Musharakah Agreements
by Islamic banks
An Islamic bank can finance industry, trade, real
estate, contracting and almost all legal enterprises through partnership. Musharakah
is arranged on the basis of a written agreement between the bank and the
client for a specific transaction, consignment, or project or for a fixed
period of time that can be renewed. They can also enter into musharakah
with interest-based banks to carry out operations acceptable in the Shari´ah,
provided it is ensured that the rules and principles of the Shari´ah
are observed during the operation of the partnership. A partnership
business or its assets can also be securitised, giving Musharakah
Certificates or Sukuk (bonds) to the investors.
Clients desiring to raise funds for investment in a large project can use musharakah
and offer to sell Musharakah Certificates
in the market. The Musharakah Certificaterepresents
the direct pro-rata ownership of the holder in the assets of the project. Ifall the
assets of the project are in liquid form, the certificate will represent a
certainproportion of money at face value owned by the
project; in such cases the Musharakah Certificates
cannot be sold in the market except at their face value, asan increase
would fall under the prohibition of riba under the Shari’ah. However, afterthe project
is started and has acquired non-liquid assets representing tangibleassets, these
certificates can be traded in the secondary market and above the parvalue. It
is allowed under the Shari’ah, as the
subject matter of the sale is a share inthe
tangible assets and not in money alone; therefore the certificate may be taken
asany other commodity which can be sold at a profit
or at a loss. In the case of a completed project, the business will involve a
combination of tangible assets andnon-liquid assets arising from the sale in business
transactions. In such cases, theMuslim jurists generally find it acceptable to
trade in Musharakah Certificates, wherethe musharakah
portfolio should not comprise more than 50% in the form of nonliquidassets.
Profit projections can play an important role in
the musharakah operations. The client is required to provide the
bank periodically with the results of operations of the business. Disputes can
be resolved through a Review Committee comprising persons to be named in the musharakah
agreement or separately with the mutual understanding of the parties. Musharakah-based
applications and instruments will be discussed in detail in the Modules on
Islamic Banking Operations and Islamic Financial Markets.
