Working Capital Financing
By: Assistant Professor Abdul Qahar Azizi, Farhad Wahidi, Tasal Habib
Abstract
Financing of Working Capital is a share facility of both conventional and Islamic banking systems. Both banks provide this type of financing; however, in a different manner. The difference is interest or usury. Interest is the basic foundation for conventional banks, while Islamic banks prohibit it. Working capital financing is a loan, which is provided by conventional banks against a specific interest rate. Nevertheless, Islamic banks do not provide it in exchange for usury; instead, they provide the loan on the basis of a Musharikah –partnership- or Mudhariba -silent partnership- contract with a business concern. Bank is just one side of the contract as a partner in the agreement, although business concerns play a bilateral role: on the one hand, as a partner with investment of their own capital; on the other handو as a Mudharib -silent partner- with product activities. Finally, Islamic banks provide the services too, and get permissible gain instead of usury.