Modaraba is an Arabic word which means a business (project) in which capital is provided by one party (a company or individual) while effort and skill are contributed by the other party (beneficiary, entrepreneur or borrower). During the lifetime of the project the lender is the sole owner of the project and the borrower is the manager. In a Modaraba arrangement financial losses have to be borne exclusively by the lender. In Pakistan, the sponsor of a Modaraba has to be a company which must be registered under the Modaraba Companies and Modaraba (Flotation and Control Ordinance 1980).
Money market
The market for short-term investments. 'Short term' is usually defined as less than one year.
Money-market fund
An open-ended mutual fund that invests in very short-term instruments such as US Treasury bills, corporate commercial paper and certificates of deposit of US and foreign banks.
Mudarabah
Participation or trust financing. This arrangement involves two parties, the managing trustee (Mudarib) and the beneficial owner (Rab al Maal). Where Mudarabah is used as a method of financing, the financial institution will provide funds to the customer who then acts as Mudarib. The Mudarib will retain a fixed percentage of the profits, the Islamic financial institution’s reward is a fixed share in the balance of the revenue generated by the investments There is no guarantee that the Islamic financial institution’s investment will be returned or that a profit will be generated.
Multilateral Trading Facility (MTF)
An MTF is a multilateral system which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract.
Multiply-listed option
Any option contract that is listed and traded on more than one national options exchange.
Murabaha
Cost-plus profit financing. The Murabaha technique is used extensively to facilitate the trade finance activities of Islamic financial institutions. The financial institution purchases and takes title to the necessary equipment or goods from a third party (either directly or through an agent). The financial institution then sells on the equipment or goods to its customer at cost plus profit. All of the above contracts are undertaken at the request of the customer. Deferred payment terms may be agreed and the arrangement may be secured. Such arrangements are not considered to be contrary to Shari’ah law as, by taking title to the equipment or goods, the bank is assuming a risk and engaging in a sale transaction which entitles it to profit. As the price of the equipment or goods is fixed, the customer is not affected by fluctuations in the base lending rate.
Musharakah
Equity financing. This is very similar to the Mudarabah contract, except that the customer puts up part of the equity. The Islamic financial institution and the customer provide financing for a specified project in agreed proportions. All parties have the right to participate in the project but the parties also have the right to waive such rights. Furthermore, in the event of loss, both parties will bear the losses in proportion to their participation. Profits and losses are shared in direct proportion to the respective contributions of the participants. The Islamic financial institution may receive an agreed management fee.
Mutual fund
An open-end investment company. Equivalent to unit trust.
Nakadachi
Regular members of the Osaka Stock Exchange buy and sell securities on the trading floor through the medium of nakadachi members who serve as intermediate agents in transactions between members. Nakadachi members are prohibited from trading on their own account.
