Sample Thesis Paper
4-1 Musharaka (equity participation) (Julius, et al., 2007) (Hassan, et al., 2001) involves a partnership among the bank and the entrepreneur: together contribute to the capital of the enterprise. An equity financing arrangement is commonly regarded as the purest form of Islamic financing, where partners contribute capital to a project and share in together its risks and rewards. An official contract is normally in place, outlining the obligations and rights of both parties: profits can be allocated in any pre-agreed ratio, and losses are borne in proportion to the capital of every partner.
4-2 Ijarah (leasing): (Julius, et al., 2007) (El-Gamal, 2001) (Iqbal, et al., 2005) The attraction of leasing the same as an asset class for Islamic banks is that due to the asset backed real of the transactions, the bank retains ownership of the asset awaiting maturity, helping to decrease the credit risk of the counterparty. The bank shares in the risk throughout its responsibility for maintenance and insurance.
4-3 Istisna: (Julius, et al., 2007) (El-Gamal, 2001) (Hassan, et al., 2001) the bank finances the work in progress or construction of a building or installation and after that sells it to the customer, payable in installments. One of the constraints to the development and globalization of Islamic finance has been the many dissimilar interpretations of Shari’ah law that is able to exist at bank and country level. Even though this has hampered product standardization, the resulting lack of product comparability and pricing transparency has help out to promote margins.