Under the Islamic banking method of mudarabah, when an Islamic bank le

QUESTION

Under the Islamic banking method of mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment.

Indicate whether the statement is true or false.

ANSWER

TRUE
The Islamic banking method of the mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment.