Arabic (ربح المثل) for matching rate of profit or prevalent rate of profit or benchmark/reference profit rate. It refers to the rate of profit (ribh) that is decided by market forces in an environment of no material distortions. Contrary to conventional finance where only one benchmark or reference rate is used- namely the interest rate, Islamic finance uses- for equity or trading contracts- two reference rates: 1- the price (mark-up/rent) reference and 2- the sharing ratio reference, through the central bank mudaraba ratio or inter-bank mudaraba ratio.
Ribh al-mithl is a generally prevalent rate in the market at any point in time and under varying economic conditions. It is used as a general indicator in situations where profit is attributed to the market at a specific point in time. Ribh al-mithl is also referred to in cases where profit element is not clearly mentioned or specified in some contracting context.
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