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Q3

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Q3. You are the manager of an Islamic Bank and a client with a really attractive business idea approaches you for financing. The business is completely Shariah based and there is no element against Islamic rules in that. Upon scrutiny and detailed analysis of the case it was revealed that the chance of loss and risk is a bit higher in that business than the usual other clients for other businesses with the same bank. Customer agrees for a partnership type solution for this financing on a Prfit/Loss sharing basis. There are two solutions for the bank to offer to this customer i) Enter with the client in a Musharakah Contract with the bank acting as a dormant/sleeping partner ii) Enter with the client in a Mudarabah contract.

particular situation of the customer suggests that in this case only one of the above two contracts is safer and suitable for the bank. Discuss which one should the bank go for and why would that be suitable as compared to the other one? (10 Marks) (Not more than one Page)