Modaraba

It is another form or mode of Islamic financing. it is more popular and practiced than musharaka. Modaraba can be defined as, " an agreement between the investor (Modarib) and the modaraba company allowing the company to carry out business with the invested amount and pay profit to the investor according to the ratio of the borrowed amount" Here the lender is the capitalist, individual, or the investor. The borrower is the business corporation operating on the modaraba principle. If the modaraba company ( the borrower) earns profit, it will pay prorata profit to the lender, In case of no profit, no loss the borrowed or lent amount will remain intact and hence no profit will bepaid to the lender. In this case, in fact, the borrower ( the modaraba company ) is the loser since its labor has gone wasted. In the third possible situation, the modaraba company ( the borrower) may suffer a loss. here the lender will lose the money to the maximum extent of his investment. The loss will be prorata to his lent amount. Hence, the lender is the loser.