Islamic finance in Europe (37)

Continuation

For some instruments, there is an open discussion as to whether they are Shari’ah-compliant.

1.4.1 PROFIT AND LOSS-SHARING (PLS) CONTRACTS

Islamic doctrine considers PLS contracts to be closer to the dictates of the Shari’ah.

Being based on risk participation, they are not only halal (Shari’ah-compliant).

Also PLS contracts preferable to other types of contracts.

The most used contracts are those of medieval origin, namely those involving:

-      mudarabah;

-      and musharakah.

The musharakah contract was used in the Middle Ages to facilitate the joint ownership:

-      of property (sharika al-milk);

-      or of a commercial enterprise (sharikat al-’aqd).

From the research paper of European Central Bank

(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho, B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)