Why has Mudaraba and Musharaka financing been slow to take off In Islamic finance?
Mudaraba and Musharaka financing in Malaysia is lacking. But it depends on the market as well. Normally, Musharaka financing involves a higher return for the bank but also higher risk for the bank. So for companies that are already established, they always take the view that there is no point forgoing profit to the bank if it can be kept. Companies look to minimise the costs of funds and that is why they are they are reluctant to enter into Musharaka financing. They are more comfortable with a fixed rate type product such as Murabaha and Bai Bithaman Ajil. We don’t have enough expertise in Musharaka financing. I am not sure whether banks are willing to take the risk of Musharaka because it is a partnership and a totally clean facility. Under the Malaysian BAFIA (Banking and Financial Institutions Act), lending on the clean facility is restricted as we cannot provide more than 15 per cent of a company’s portfolio. However, we are trying to promote this type of financing slowly. We have
