Murabaha

Profit promotes trade as an occupation and regards profit as a bounty from Allah. Mainstream economics too revolves around the notion of profit. Price theory the core of economics cannot stand firm without the assumption of profit maximization. In the practical affairs of trade, industry and commerce no concept is more pivotal than profit.

The word 'Riba' means usury and is generally forbidden in Islamic economic jurisprudence fiqh. It means excess, increase or addition, which according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money). According to Fiqh scholars profit is a justified increase which is usually generated by exchange of two goods while riba occurs in unjust inequitable exchange of one commodity against another.

Musharaka (joint venture) is an agreement between two or more partners, whereby each partner provides funds to be used in a venture. Profits made are shared between the partners according to the invested capital. In case of loss, each partner loses capital in the same ratio. If the Bank provides capital, the same conditions apply.

Mudaraba is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called "rabb-ul-mal", while the management and work is an exclusive responsibility of the other, who is called "mudarib". The difference between Musharaka and Mudaraba is that, in Musharaka, each partner contributes some capital, whereas in Mudaraba, one partner, e.g. a financial institution, provides all the capital and the other partner, the entrepreneur, provides no capital. Note that Musharaka and Mudaraba commonly overlap.