Mudharba Finance Islamic Banking System (mudaraba meaning)

“The Mudharabah is an Islamic financing contract that is used to finance trade activities. It is a type of partnership that involves the transfer of risk and reward. This type of financing is commonly used by merchants who want to expand their businesses without having to put up a large amount of capital. The main advantage of this form of financing is that the merchant does not have to spend money upfront. Instead, he receives periodic payments based on future sales. The merchant must pay interest on the funds received at the beginning of each month. He also pays a fixed fee to the financier for every transaction. ”
In summary:
1) A Mudharabah is a type of partnership.
2) It is used to finance trade activity.
3) Merchants use this type of financing because they do not have to invest much money upfront.
4) Interest is paid monthly on the funds received at inception of the financing.