Mudarabah Model

Definition of "Mudarabah Model"

Based on the concept of two-tier mudarabah, refers to the model of Islamic banking proposed by several scholars in early seventies. The first tier of the mudarabah is between the bank and the depositors who agree to put their money in the bank’s investment account and share profits with it. In this case, the depositors are considered to be providers of capital and bank functions as the working partner. In the second tier, the bank provides funds to entrepreneurs who act as working partners and the bank acts as the provider of funds. The loss is the liability of the bank while the profit is shared by the entrepreneurs and the bank.