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Mudharib or the entrepreneur can take the opportunity to report a lower profit or loss due to business risk. This reason allows him to be freed from the legal responsibility. Consequently, shahibul mal or the financier has to absorb the loss. This paper attempts to find a solution to overcome this moral hazard. This paper employs the components of the Business Judgment Rule (BJR) that analysed to compare them with the related stipulations in the Islamic law. The finding concludes that in light of the fiduciary relationship, mudharib must fulfill the fiduciary duties being equal to the concepts of tabayyun and amanah in Islam. Based on freedom of contract, the parties can agree to insert the clauses to specify such legal duties in the contract. His legal responsibility can be determined, if mudharib has made an effort to mitigate the business risk, and taking no financial benefit behind the loss. This can serve as a solution to use mudharabah contact more frequently.

Purpose This paper aims to find out the similarities and differences in meaning between the word “al amanah” and trust. Design/methodology/approach As a qualitative research, a content analysis is used in three stages. First, to elaborate the exegesis of the related Qur’anic verses together with the background narration or asbab un-nuzul if any and the Prophetic hadith where the word amanah is and to analyse and conclude its meanings. Second, the word “trust” is analysed based on the discussions in the literature which will lead to its specific meanings. Third, the concluded meanings of amanah and trust are to be compared to find out their similarities and differences. Findings Amanah and trust have the similar meanings: safe, confident, ability to fulfil the expectation of the person who trust, having competence or expertise to perform duty, deliver commitments, keep promises, work with a full of responsibility, integrity or obedient to moral principles. Differences: Amanah is not only oriented to humanity and responsibility in human’s relations but also, more importantly, to God Allah the Almighty, obeying His commands to make it as ibadah or acts of worshipping Allah the Almighty for maslahah or welfare for society. Practical implications The findings are considered important for companies or organisations. Before doing a commercial transaction or entering a contract or hiring an employee, they must study the quality of the counterparty whether they are capable to do the job as expected or not. In addition, the findings indicate that Islamic teachings concerning muamalat or Islamic rules for social dealings is universal in nature. Originality/value Being the first time to compare the word al amanah to trust, the findings point out the important elements to be evaluated when assigning a certain duty to an agent.

<p>This study begins to approach the issue by applying the agency theory, moral hazards theory, and stakeholder theory, as well as the “Adverse Selection” theory by Stiglitz and weiss (1981) and “Bad Management” by Berger and Young (1997). The last two theories mainly refer to the processing part of the matter to start with, but the last one uses a concept where it is the management (of a<br />bank) that must be questioned how efficient they do their job. Management is a wide concept, and such as, which managerial factors that could affect the creation of NPL/NPF must be detailed. <br />This study could be breakdown the three group attributes above to constitute eleven factors, i.e. credit knowledge and skills, integrity and professionalism, spirituality level, moral leadership, corporate culture, hard budget policy, reward and penalty system, credit culture, reputation checking, due diligence and care, and supervision or audit. Further this study hypothesizes that these eleven factors could affect the creation of NPL/NPF, and the creation of NPF is lower in<br />Islamic bank than that of NPL in conventional bank, because the application of those factors is hypothesized stronger or better in the first type of bank by its management than in the second, due to its philosophy and the laws that govern. A research has been completed, employing statistical variance and F test on the data gathered from all the 28 islamics bank/banking units in existence, and 28 conventional banks. The study has concluded that all the eleven factors of the internal management can influence the creation of NPL/NPF in both banks. The study further proves that these factors, independently or as the combination of all, are applied better in Islamic bank than in conventional bank, due to the fact that the syariah concept itself not only applied in conducting the business, but also used as a moral reference in dayly working environment. As a result, the<br />average level of NPF is lower in bank syariah than NPL level of conventional bank under study.</p>