ABSTRACT
This chapter examines the concept of trust from an Islamic perspective. It identifies the features and circumstances of the mudarabah contract as well as its application in Islamic banking transactions. A trust is a unique form of collaboration in which one partner transfers funds to another for investment in a business. The first partner, referred to as ‘rabb-ul-mal’, is responsible for the trust, while the other, referred to as ‘mudarib’, is solely in charge of management and work. This chapter also describes partnership in different Islamic schools of thought and discusses how to apply partnership theory in Islamic finance. According to Islamic law, equity finance is given express precedence over debt financing. The traditional forms of equity finance (musharakah and mudarabah) necessitate partnership and profit sharing, which can be compared to the modern devices of venture capital, investment management and project financing.
