Islamic economic system is interest less. People do the business on profit and loss sharing. In Modarba business some persons participate with their money while other with their, efforts and skill. If profit earned, it is distributed among the entrepreneur and financier according the agreed ratio.
In case of loss financier shares the loss according the capital invested in the business.
Note :- If losses occur due to the negligence of the manager or breach of agreement then he will bear the losses. A modarba (Manager) is a legal person, Modarba companies ordinance was issued in 1980.
Modarba company can be registered under the ordinance and it should fulfill the conditions mentioned in the ordinance. There are two kinds of modarba company, one is multipurpose and other is specific purpose.
CONDITIONS FOR MODARBA COMPANIES :
Following are the important conditions for Modarba companies :
1. According to Islamic Shariah :-
The first and important condition for the Modarba company is that its business should be operated according the law of shariah. It should be halal.
2. Permission from Religious Board :-
One religious board is established which gives clearance that business is halal. There are three members of the board. One is high court judge and two are religious scholars.
3. Prohibition of Loan :-
Any director or the officer or their relatives can not take the loan from the Modarba company. Even they can not get the loan against the security of the company.
4. Mobilization of Resource :-
Modarba company generate its resources by selling its shares or Musharika certificates. Some Modarba have the "Income note" which are another mode of finance.