ABSTRACT
This chapter provides an overview of the nature of IFSs as well as their basic contract theory implications. It then discusses the four basic contracts known to the Islamic finance world, namely the cost-plus sales, hire/lease, silent partnership, and capital partnership contracts. In Islamic commercial law, the form of contract is applicable to the leasing of assets and the hiring of workers. The common thread between the two activities is the exchange of a provided benefit, referred to as the usufruct, for a certain consideration instead of an actual asset. The mudarabah contract effectively refers to high-powered incentives as it caters to risky tasks and incentivizes agents through profit-sharing ratios. In regards to the conditions for capital that can be contributed, both Al-Zuhayli and Usmani find that monetary assets are acceptable but there is a difference of opinion regarding the inclusion of other types of assets such as commodities and machinery.
