Category : Others
Title : The Ja'ala Contract and its Applicability to the Mining Sector
Author(s) : Boualem Bendjilali
Published : 1425H (2004)
Pages : 56
ISBN : 9960-32-146-0
Price : 5.0 USD
Description:
The paper focuses its attention on the Ja'ala contract as an
alternative for the existing concession contract to develop a framework towards
formulating an Islamic contract theory with applications to the different
sectors of the economy.
Abstract:
This study constitutes an embryo that serves to develop in the future a general
framework towards formulating an Islamic contract theory with applications to
the different sectors of the economy. As a first step, we focus our attention
on the Ja'ala contract as an alternative for the existing concession contract.
The study discusses how the contract may be used to exploit the mining sector.
First, the study provides an overview of the Shari`ah framework that governs
the Ja'ala contract. It lays down the main features of this contract and spells
out explicitly one of its main features that says "The remuneration may be
agreed upon between the Jae'el and the Maj'ul to be part of the capital lost or
a fraction of the output". This feature serves as one of the key assumptions in
this research. A comparison between the main features of the Ja'ala contract
and other Islamic modes of finance is also given.
Second, the paper gives a full characterization of the Ja'ala contract in both
cases in discrete time as well as continuous time. It derives the bilateral
relationship between the Ja'eel and the Maj'ul and shows how the cost
efficiency parameter of the Maj'uul and the extraction rate of the mineral
interact in general. Moreover, the study shows how the trajectory of the
extraction rate of the mineral over the agreed period is determined based on
the information provided in the report of the Maj'uul.
Third, the paper studies in detail the symmetric information case. It derives
explicitly the optimality conditions and the trajectory of the extraction rate
of the mineral. It shows that the extraction rate of the mineral depends on
several parameters namely the cost efficiency parameter of the Maj'uul, the
social planner's time preference rate, the market price of the mineral and the
geological nature. It shows that the extraction rate of the mineral is
inversely related to the preference of the Ja'eel, but positively related to
the market price of the mineral. Moreover the study derives the cost efficiency
parameter of the Maj'uul and shows that it is positively related to the price
of the mineral and inversely related to the difference between the initial
stock and the stock left over as well as to the Ja'eel's time preference rate.
Finally, the study derives a critical value of the efficiency cost parameter of
the Maj'uul corresponding to the case where the left over of the mineral after
the agreed period is no more profitable. Lastly, the study gives some
indications on how this research can be extended to include the
exploration-extraction case and the asymmetric information case as well as on
the possibility of relaxing the assumption of the exogenous property of the
price of the mineral.
