Islamic finance in Europe (40)

Continuation

The difference between the two types of contracts is as follows.

Under a mudarabah contract:

-      Capital is wholly given by the bank, which also pays for losses.

Under a musharakah contract:

-      Both parties participate financially in the project.

Moreover, in the former case, the management of the project is in the sole responsibility of the mudarib.

While the responsibility about project management is shared in the latter case.

In addition, there is a difference regarding the assets purchased with the investment.

That assets remain the property of the bank under a mudarabah contract.

While their ownership is shared in the case of a musharakah contract.

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)