Musharakah:

Musharakah is one of the two ideal modes of Islamic financing. The other one being Mudarabah. Musharakah is a contractual relationship formed through mutual consent of the parties for sharing of profits and losses in a joint venture. Assets in the venture are jointly owned in proportion to each partner’s contribution. The profits are shared in a pre-agreed ratio. Losses, however, are incurred in proportion to each partner’s investment. Islamic Bank representing share of its depositors invests funds in the joint venture alongside other investor(s).
 

Mudarabah:

Like Musharakah, Mudarabah is also a form of partnership. Whereas all partners in Musharakah contribute capital, under Mudarabah partnership is formed between provider of capital and provider of expertise or human resource. Proportions for sharing profit are decided upfront. Losses are incurred solely by the partner contributing capital.
 

Murabaha:

Murabaha is a non-participatory mode of Islamic financing where the bank sells the asset required by its client to the client on cost-plus basis. The asset is first purchased by the bank and the bank incurs the risk of any loss or damage to the asset as long as the asset remains under its ownership. Upon sale of the asset, the Islamic bank is obligated to inform the client of the exact cost incurred in the purchase of the asset and the margin of profit incorporated in the sale price. Payment by the client of the sale price may be deferred in which case it would become Muajjal. The selling price once agreed cannot be changed even when the client fails to pay on the agreed date.
 

Ijara:

Under this facility a client may take on rent, property, vehicle or any other real asset belonging to the bank. The bank transfers the right of use of the asset to the client, while retaining the ownership of the asset. The client pays periodic rent to the bank for the use of the asset. Basis for rentals can be fixed as well as floating. Any change is rental may be made through mutual consent.

Salam:

Salam is a contract of advanced payment against deferred delivery of goods. Goods paid for in advance by the buyer are delivered by the seller after an interval of time. The Seller receives in advance fully paid price of the goods at the time of contract undertaking to deliver the goods specified by the buyer at a future date.
 

Istisna:

Manufacture of a specific product against precise specifications by a manufacturer for delivery to buyer. It is necessary that the price of the product and product specifications are fully agreed upon by the manufacturer and the buyer, and that the material required for manufacture is arranged by the manufacturer.