It stands for effective rate of return method; a method of allocating income from an asset or venture in a uniform and equitable manner over the course of the contractual period/ expected period during which the economic benefits from the asset or venture are expected to materialize. This aims to allocate the cash flows from the asset or venture through a uniform rate of return. The economic benefits or cash flows include all cash flows generated or expected to be generated excluding expected future losses. Broadly speaking, the cash flows include all fees paid or points received, transaction costs, premiums or discounts insofar as these are part of the base contract or are ancillary costs.
Islamic Finance
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