The net present value of mudharabah and musharakah models

Islamic banks in Malaysia offer varieties of products that use the Islamic concepts. Two of the concepts that are considered as dynamic concepts by most of Muslim economic scholars are mudharabah and musharakah. These concepts are also known as the equity-financing or the profit and loss contracts which to certain extend have some risks. Currently, less than 2% of Islamic products in Malaysia use these concepts which do not portray its dynamism. Hence by enhancing the quantitative research on the concepts, the Islamic banks may have more information in making decision of using these concepts. The paper introduces the net present value (NPV) equation for mudharabah and musharakah model. In NPV method, the investment should be accepted if the value of NPV is positive which means the investment will be profitable and the value of NPV will give the value in monetary units. This project shows that musharakah model gives higher NPV.