| Within the Islamic financial system the real alternative to charging and receiving interest is financing on a profit and loss partnership basis (PLS).The basic principle of profit and loss sharing is that, instead of lending money at a fixed rate of return, the banker forms a partnership with the borrower sharing in a venture‘s profits and losses. If the returns are good the profits are shared equitably and similarly with losses. So the return to the investors depends on the productivity of the investment. Nothing is pre-fixed. The system allows a capital- poor, but promising, entrepreneur to obtain financing. The bank being an investor has a stake in the success of the venture. This case describes two commonly applied techniques in Islamic project finance, Mudaraba and Musharaka.. |
