1. Islamic Banking and Finance 17 February 2009 Mudarabah and Agency Costs Group Presentation of Francesco Grosso & Christine Reuther
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8. Main reasons that prevent Islamic banks from entering mudarabah contracts (range from 0 to 1) Reasons preventing Islamic banks from entering mudarabah contracts (range from 0 to1) Problem of Moral Hazard in Mudarabah Contract The combination of unilateral risk bearing and asymmetric information on the side of the Islamic bank provide the agent with the incentive to conceal actions taken and underreport profits made after the contract has been Completed. Level of the agent’s effort and his investment decisions determine the outcome of the investment; however, both may be unobservable to the Islamic bank.
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12. Mudarabah contracts in practice: case study of Bank Islam Malaysia Berhard (2005) Customer deposits by type of contract 3.Q 2005 (in USD) Performing financing by type of contract 3.Q 2005 (in USD) Performing financing by type of contract 3.Q 2005 (in %) Customer deposits by type of contract 3.Q 2005 (in %) Non-Mudarabah contract Mudarabah contract 43% 57% 70% 15% Bai’ Bithaman Ajil Murabahah Qard al-Hasan Musharakah: 0.5% Mudarabah: 0.1% Others: 0.4% Ijarah Bai al-Inah 9% 3% 2%
13. Case study of Bank Islam Malaysia Berhard (continued): Performing Financing by sector of investment 3.Q 2005 (in USD)