Problems around the use of diminishing Musharaka in banking finance Research Paper

Problems around the use of diminishing Musharaka in banking finance and search for patricidal solution - Research Paper Example The Islamic banking has been popular over the ages and contributes a lot to the present world economy. In Islamic banking system Musharaka is the terminology use to denote the contract in the joint venture partnership. Our paper focuses on the concept of Musharaka and the diminishing Musaraka. The problem associated with the application of diminishing Musharaka is also studied in the current paper. A detailed analysis of the Islamic contracts and the terminologies are studied over here. Under the Islamic law which forms the guiding principle of the Islamic financial system there are seven different contracts in practice. According to Islamic system or Shariah the formation of contract requires both offer, which is termed as Ijab and acceptance which is termed as Qabul. The contracts are generally in verbal or in written form. The parties of the contract needs to be legally knowledgeable and should be in sound state of mind at the time of entering the contract. The contracting parties should not be forced to enter into the agreement under by any force or compulsion. The popular types of contracts are Al- Tamlikat, Al- Isqatat, Al –Itlaqat, Al- Taqdat , Al- Tauthiqat, Al- Ishtirak and Al- Hifz. The explanations of the different types of contracts are done below. Al- Tamlikat- The contract deals with the acquisition of properties and deals with the benefit associated with the properties. To classification of the contract is done as contract of exchange and contrcts of charity. The matters of dropping of right without exchange are handled by this contract. The release without compensation for the party is termed as absolute release whereas the release involving the compensation is known as release of exchange. Interest free finance is one of the basic guiding principles in Islamic banking. Among all forms of interest–free finance contract, mudaraba was considered the most suitable and practical mode for mobilizing financial resources to Islamic banks.