Islamic Microfinance using Mudaraba

Kompanion Invest provides Sharia-compliant financial services in Kyrgyzstan. The following video from the Consultative Group to Assist the Poor (CGAP) examines Islamic finance funding for a nursery and a farm highlighting the profit and loss nature of the financing. In both cases the Mudaraba contract is used.

Kyrgyzstan customers seek Halal funding

Mudaraba is a contract of participation, a partnership where capital is provided, in cash or assets (no debt is accepted) by one party – the fund provider – and labour is provided by the other party – mudarib. Both parties agree in advance to the percentage profit to be received by the bank.

During the age of the Islamic Civilization Italian merchants doing business in the Middle East used the mudaraba partnership, which facilitated its spread into Europe, where it came to be known as commenda.

Eighty-five percent of the population in Kyrgyzstan is Muslim. “We established Kompanion Invest because some part of our population, who are Muslim, will not go to conventional financial institutions,” says Marlis Duishegulov, Chairman of Kompanion Invest. The organization is the first microfinance company in the country.