Joint Venture (Musharaka) Direct Investment/Equity Ownership or Partnership

In this model, the RF financial institution or its investment subsidiary enters into a direct investment with the customer in the form of equity ownership. Profit or loss would be assigned to each joint venture according to a well- defined distribution formula.

Money Management (Mudaraba)

In this model, the RF financial institution itself can act as a money manager through its investment banking company.

The RF financial institution can also delegate that portfolio management function, as a trusted and appointed representative through a valid proxy, to other qualified money managers.

The money management (mudaraba) contract would define the responsibility of the RF institution in its capacity as a money manager (mudharib) or as an agent of the client (wakeel, which means a representative with discretionary authority) who is responsible to find money manager(s) who will meet the client's defined investment objective, investment time horizon, and the risk tolerance.

Financing Future Production (Ba'i ul Salam)

This model is used to finance the cost of future production of a manufactured product or an orchard. The customer would agree with the RF finance institution to forward the cost of future production. The RF financial institution would come to an agreement to buy the production of an orchard, a farm, or a manufactured product (like equipment or automobiles) before it is produced, at an agreed-upon price. The money is paid in advance to the producer. The producer, in turn, would use the money to purchase the basic services, pay wages, and buy raw materials necessary for the production. This way, the RF financial institution would help in the growth of the economy by providing the liquidity needed by the producing entity. An important guideline that should be guarded against is the possibility of hoarding or “cornering” of free markets by the financing entity.

The preceding RF financing techniques are presented to familiarize the reader with the models used. For a detailed outline and description of these techniques, please refer to Chapter 13 and to an excellent book on the subject: Understanding Islamic Finance.[1]


1. Please explain the “Commodities” Hadeeth (sayings of Prophet Muhammad [pp]). Please elaborate on why he detailed it and how it impacts transactions.

2. Please explain the new Commodity Indexation Discipline proposed in the book and how it was based on the commodities Hadeeth.

3. Please explain how the Commodity Indexation Discipline can be used as a macroeconomic tool in trade, markets, and monetary policy.

4. Flow can the Commodity Indexation Discipline be used in developing a new monetary regime that is fair to all nations and can replace the Bretton Woods broken monetary regime?

5. What is the Marking-to-Market Discipline pioneered by Islam to promote free markets and trading between cities and nations?

6. How does it promote free markets and international trade?

7. What was it based on?

8. A person has a golden ring with a precious stone that weighs 15 ounces. It has gold content of 10 ounces. He wanted to exchange it for a gold bar. Please enumerate the steps and conditions of the exchange:

a. Can he exchange it today and receive the bar after 3 months?

b. Can he get the price in gold coins over 12 months in the future?

c. Can he receive the price in silver? How much silver?

d. If he gets the silver, can he pay back in 3 months or over 12 months?

9. How do you mark the following items to market?

a. A car

b. A house

c. A kidney dialysis machine

10. Where can we get information on a house that we intend to buy that would be representative to marking that house to market? Please list two sources.

  • [1] Muhammad Ayub, Understanding Islamic Finance (Hoboken, NJ: Wiley Finance, 2007).
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