ExpertMedium2 marksMultiple Choice
ACCA · Question 07 · Business Finance
Section A
Crescent Infrastructure is seeking Sharia-compliant financing for a new toll road project. They are considering a contract where one party provides the capital and the other provides the expertise and management. Profits are shared according to a pre-agreed ratio, but financial losses are borne solely by the capital provider.
Which Islamic finance term describes this specific arrangement?
Section A
Crescent Infrastructure is seeking Sharia-compliant financing for a new toll road project. They are considering a contract where one party provides the capital and the other provides the expertise and management. Profits are shared according to a pre-agreed ratio, but financial losses are borne solely by the capital provider.
Which Islamic finance term describes this specific arrangement?
Answer options:
A.
Musharaka
B.
Mudaraba
C.
Murabaha
D.
Sukuk
How to approach this question
Identify the key characteristics of the contract: one party provides capital, the other provides expertise, and financial losses are borne only by the capital provider. Match this to the definitions of Islamic finance instruments.
Full Answer
B.Mudaraba✓ Correct
Mudaraba is a form of partnership where one party provides the funds while the other provides expertise and management. Profits are shared based on a pre-agreed ratio, but any financial loss is borne entirely by the capital provider, provided there was no negligence by the manager.
Common mistakes
Confusing Mudaraba with Musharaka. In Musharaka, all partners contribute capital and share losses in proportion to their capital contributions.
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