Question

Discussion Questions

• What are the problems faced by the Islamic banks and/or their clients in using Musharaka contracts?
• Discuss the practical uses of Musharaka in modern Islamic banks.
• Compare Musharaka with interest-based financing.

Answer 1

1. Problems which are faced by Islamic banks and their clients in using musharakah contracts are as follows -

A. financial risk which are directly associated with these contracts which can lead to direct financial loss to Assets and liabilities of the bank.

B. There are various business risk which are impacting the performance of the business because businesses are exposed to macroeconomics situations and banking are also exposed to macroeconomics situations.

C. There is a high risk of loss related to these musharaka contracts as these musharaka contract are are not having any kind of interest benefits because interest is completely haram in Islam.

D. The separation of banking from the financing is also creating another problem for musharakah contract because it is not having a clear direction of risk management

2. Practical use of musharakah in Islamic banking -

A. Purchases of property and real estate

B. Providing of credit for investment project

C. It also helps in financing large purchases.

3. Musharakah does not offer with interest-based financing because musarakah is Islamic contract and there is no allowance for interest in Islamic Finance.

Musharakah will be having a very limited scope and it is only limited to Muslim countries whereas interest based financing is expanded into all of the Global world.