JURISTIC ANALYSIS OF THE PROFIT DISTRIBUTION METHOD OF MALAYSIAN ISLAMIC BANKS

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Abstract

The relationship between depositors and Islamic banks is governed by a mudarabah contract. In principle, the former are regarded as rabb ul-māl (capital providers) while the latter are considered as mudārib (entrepreneurs). Profit generated from the business will be shared between both parties according to a pre-determined ratio. The present article reviews some Sharīʿah issues which arise from the profit distribution method implemented in Malaysian Islamic banking institutions. It examines to what extent the current practices fulfil the principles and the ethical framework of the mudarabah contract as propounded by the classical jurists. The article analyses the justifications of the local Sharīʿah scholars in modifying the doctrine to adapt to the modern banking business. This includes their decisions in authorising the Weighted Method (WM), the Profit Equalisation Reserve (PER), the indicative profit rate and the interim profit payment.

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CITATION STYLE

APA

Shaharuddin, A. (2010). JURISTIC ANALYSIS OF THE PROFIT DISTRIBUTION METHOD OF MALAYSIAN ISLAMIC BANKS. ISRA International Journal of Islamic Finance, 2(2), 7–24. https://doi.org/10.55188/ijif.v2i2.110

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