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Islamic Finance by Keon Chee, Daud Vicary Abdullah

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EQUITY-BASED FINANCING METHODS

There are two main kinds of profit-loss sharing (or equity-based), financing contracts:

pg187_01  mudharabah; and

pg187_01  musharakah.

They are far less popular than debt-based financing methods because, as we will see, they are more challenging to implement. Nevertheless, while equity-based methods are less popular, they are ideal for community building.

Consider the plight of the entrepreneur who has a promising idea for a new venture but does not have sufficient capital. If he were to go for debt-based financing, the bank would ...

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