od.2. Mudarabha (trust financing) where the bank contributes the finance and the client provides the expertise, management and labor. Profits are shared by both the partners in a pre-arranged fashion, but when a loss occurs, it is completely borne by the bank. This type of contract is also used in fund management where the fund manager is the mudarib who is entrusted to manage clients' money.3. Financing on the basis of an estimated rate of return. Here, the bank estimates the expected rate of return on the specific project it is asked to finance and provides financing on the understanding that at least that rate is payable to the bank. If the project ends up in a profit more than the estimated rate, the excess goes to the client. If the profit is less than the estimate, the bank will accept the lower rate. If a loss occurs, the bank takes a share in it.Trade Financing:This is also done in many ways. They are:1. Murabaha (Cost-Plus Financing): a contract between the bank and its client for the sale of goods at a price plus an agreed profit margin for the bank. The contract involves the purchase of goods by the bank, which then sells them to the client at an agreed mark-up. Repayment is usually in installment. This type of financing is very commonly used for various installment related financing needs. As an example, we can look at a customer who wants to finance a car purchase for $10,000 but cannot afford to pay the full amount now. The bank buys the car on the customer's behalf and sells it to the customer for $15,000. The bank charges a mark-up because it is willing to accept installments (over 60 months) instead of one lump sum payment. The mark-up is profit as the bank acted as a middleman; no money was lent, a product was only bought and sold. If the customer decides to pay off the entire amount next month or at the end of the 60th month, he will still owe the same amount.2. Leasing where the bank buys an item for a client and lea...
