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Framework of Mudharabah and Issues
Transcript of Framework of Mudharabah and Issues
Banking product using Mudharabah
Mudharabah Term Deposit
Mudharabah Interbank Deposit and Placement & Mudharabah Corporate Deposit and Placement
Mudharabah Savings and Mudharabah Financing.
1) Mudharabah Term Deposit
2) Mudharabah Interbank Deposit and Placement
• a system where a Islamic bank obtains investment from corporate depositors or another Islamic bank on the basis of Mudharabah to source, invest and square their short term fund.
Types of Mudharabah deposits
(i) Mudharabah General Investment Account (MGIA)
(ii) Mudharabah Special Investment Account (MSIA)
(iii) Mudharabah Specific Investment Account (MCIA)
Mudharabah General Investment Account (MGIA)
In practice, when a Customer intends to open MGIA deposit account, the counter staff will provide the followings:
a) An application form (normally for first time applicant);
b) Bank will show the past few months profit rates that it had declared as an "indicative" of the future profit rates that the bank may be paying. Since actual profits will be declared at month-end (actually on 16th of each month), the bank
c) Bank will advise the Customer the applicable or standard profit sharing ratio (PSR) and the deposit tenor available for placement.
d) One very important document that the Customer must sign is a "Profit Equalisation Reserve" (PER) consent/waiver letter. By signing this letter, the Customer gave consent to the Bank to transfer certain percentage of the profits to PER and also agree whatever amount deducted by the Bank is to be treated as donation (tabarru')
e) Unlike savings deposit where depositors can withdraw their money anytime without notice, any premature upliftment of MGIA before maturity, the bank reserves the right not to declare the full income potentials of the deposit placed.
Mudharabah Special Investment Account (MSIA)
MSIA is normally used by Treasury Department when taking large deposit amount from Corporate Depositors or from another Bank for placement under Islamic Interbank Money Market (IIMM). Under MSIA, the depositor can negotiate the profit sharing ratio but minimum placement amount is at least RM50k.
Under this concept, the depositors shall entrust the bank to utilize the deposits for its financing and investment activities without any interference from the depositors.
Mudharabah Specific Investment Account (MSIA)
Under MCIA, the depositor is entitled to negotiate the profit sharing ratio (PSR) and also decide on the type of projects/risks that depositor intends to participate e.g. on telecommunication industry only. Profits earned from the specific project will be placed in a “special pool” where Bank share the profits/(or loss) solely with that particular “specific” depositor and specific depositor not allowed to uplift their MCIA prematurely
a contractual relationship executed between two parties, one supplying the capital (rabbulmal) and the other supplying the labor and skill as agent or manager (mudarib), for investing in a pre-determined activity, which grants each party a share of the earnings as determined at the time of the investment.
Legal aspects of Mudarabah
Essential features, binding
Legal Framework & Issues in Mudharabah
Nor Anis Liyana
Practice Guides (PG)
Optional features, non-binding.
In Accounting and Auditing Standards for Islamic Financial Institutions published by AAOIFI (1998), Financial Accounting Standard No.6, it is clearly stated that
“equity of unrestricted investment account holders shall be presented as an independent category in the statement of financial position of the Islamic bank between liabilities and owners’ equity. (paragraph 16)”
This standard was effective for the financial periods beginning 1 Muharram 1419H or 1 January 1999.
Accounting treatment for mudarabah regarding unrestricted investment deposits in Malaysian Islamic banks
Islamic banks in Malaysia have classified unrestricted investment deposits as liabilities which is not in line wih standards establishd by AAOIFI
Kahf (2005) : Unrestricted investment deposits may be included within the statement of financial position on the ground that the Islamic banks mixes them with its own personal funds and with funds sourced out in the form of pure liability and then uses/invests them at its own discretion
Ayub (2007) : policymakers and products developers of Islamic banking should stick to the standards issued by the AAOIFI
Karim (2001) : investment account are not a liability of the bank because they earn their returns by sharing in the profits generated from their funds and also bear their share in any losses incurred
Shari’ah and Ethical Issues in the Practice of the Modified Mudarabah Family Takaful Model in Malaysia
Profit ( surplus) sharing practice in the modified mudarabah model used in family takaful products
The opponents of sharing underwriting surplus put forward their argument that the practice of treating net underwriting surplus as mudharabah profit is not in line with the definition of profit according to the original mudharabah contact. It contradicts the general mudharabah rules
In addition, the AAOIFI Standard on takaful does not allow the takaful operators to share underwriting surplus as they believe the underwriting surplus exclusively belongs to the participants.
Shariah Advisory Council of Bank Negara Malaysia (SAC) has passed the resolution which allows the distribution of the surplus from the participant’s risk fund between the participants and takaful operator
The SAC considered the distribution as a performance fee for the takaful operator.