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Islamic banks rarely engage in Mudarabah and Musharakah contracts due to high risk and agency problems. Murabahah contracts are more common as they are similar to conventional credit with more certain earnings. Mudarabah and Musharakah can encourage moral hazard as clients may invest in risky projects knowing losses will be borne by the bank. There are also issues of adverse selection and lack of bank control over projects. However, scholars argue high risks can be mitigated by stronger bank-customer relati

Author

ahmedin84

Language

EN