The Modaraba is a contract of sale at cost price plus a known profit margin agreed between buyer and seller. The Modaraba can have two aspects: Direct transaction between a seller and a buyer, (The Tripartite transaction between a final buyer or a first seller and an intermediary seller (executing the purchase order). This latter formula was adopted in Islamic banking practices. The Bank intervenes as the first buyer vis-a-vis the supplier and the reseller in respect of the purchaser (client).
Benefits of Using Modaraba Financing
Modaraba is a form of financing that enables Islamic banks to finance, in accordance with their principles, both the operational needs of their customers (stocks, materials, intermediate products) and their investment.