Question

Under the mudarabah banking system, when an Islamic bank lends money to a business Multiple Choice it charges that business interest on the loan. the business needs to pay back the loan with an additional markup. it has to donate the interest received on the loan to a charitable trust. it takes a share in the profits that are derived from the investment.

Answer 1

Answer:

It takes a share in the profits that are derived from the investment.

Explanation:

The Mudarabah banking system is a financial concept that is structured on partnership, wherein one partner is the financier (rabbulma) while the other partner is responsible for the supply of labor and skills (mudarib) for the management of the capital invested in the business. Consequently, the factors of production in this system are, labor, capital and entrepreneurship.

The Mudarabah is of two types:

1. Restricted mudarabah: if the financier states a particular business for which the capital is to be invested in.

2. Unrestricted mudarabah: if the financier permits the fund manager or entrepreneur (mudarib) to invest the capital in any business of choice.

Under the mudarabah banking system, when an Islamic bank lends money to a business, it takes a share in the profits that are derived from the investment for a specific period of time.

Hence, it's a banking system peculiar to the Islamic world and the contractual partners shares profit and loss based on a pre-defined and agreed ratio.