h is limited to the amount of capital provided and the creditors of a mudarabah have no recourse to other assets of the Islamic bank. Financial institutions can also mobilize funds for investment by issuing negotiable investment instruments called Mudarabah Certificates; they represent ownership in the funds collected. It would distribute a percentage of the profit earned from the investment of those funds on Mudarabah principles. Mudarabah Certificates are registered in the name of their owners in proportion to the each one s share therein. A Mudarabah Sukuk can also be issued on the Mudarabah principle.addition, Islamic banks can use Mudarabah to finance import trade on a single transaction or a consignment basis where the whole investment has to be made by the bank. Mudarabah can also be used for the purpose of securitization. Similarly, Mudarabah can be for the whole business of a company or for any specific project whose expenses and revenues can be set aside from the main business.in order to insure a mutual trust in this relationship, the accounts of Mudarabah projects are periodically audited in order to determine the distributable profit, after taking into account all expenses. Furthermore, in cross-border financings, exchange and political risks have to be taken into consideration before contracting any transaction of Mudarabah. The bank may also closely monitor the performance of the mudarib during implementation of the project in order to ensure that the project or the business is managed in accordance with custom and the original agreement. The bank may even appoint its representative to the boards of the financed institution. [10]
Scope of Musharakah and Mudarabah certificates
Musharakah is a mode of financing which can be securitized easily, especially, in the case of large projects that requires huge amounts which a limited number of individuals cannot afford to collect. A Musharakah certificate represents the proportionate ownership of the client in the assets of the Musharakah project. If all the assets of the joint project are in liquid form, the certificate will represent a certain proportion of money owned by the project.in Musharakah certificates is not allowed when all the assets are still in liquid form, as an increase would fall under the prohibition of riba. Therefore, after the project is started by acquiring substantial non-liquid assets representing tangible assets, Musharakah certificates can be treated as negotiable instruments and can be bought and sold in the secondary market. In fact, the subject matter of the sale, under the Shari ah, is a share in the tangible assets and not in money alone; therefore the certificate may be taken as any other commodity which can be sold at a profit or at a loss. when the money subscribed in Musharakah is employed in purchasing non-liquid asse...
