Mudarabah

Mudarabah is a special kind of partnership where one partner providers the capital (rabb-ul-maal) to the other (mudarib) for investment in a commercial enterprise.

According to Mufti Taqi Usmani, a mudarabah arrangement differs from the musharakah in five major ways:

  1. The investment in musharakah comes from all the partners, while in mudarabah, investment is the sole responsibility of rabb-ul-maal.
  2. In musharakah, all the partners can participate in the management of the business and can work for it, while in mudarabah, the rabb-ul-maal has no right to participate in the management which is carried out by the mudarib only.
  3. In musharakah all the partners share the loss to the extent of the ratio of their investment while in mudarabah the loss, if any, is suffered by the rabb-ul-mal only, because the mudarib does not invest anything. His loss is restricted to the fact that his labor has gone in vain and his work has not brought any fruit to him. However, this principle is subject to a condition that the mudarib has worked with due diligence which is normally required for the business of that type. If he has worked with negligence or has committed dishonesty, he shall be liable for the loss caused by his negligence or misconduct.
  4. The liability of the partners in musharakah is normally unlimited. Therefore, if the liabilities of the business exceed its assets and the business goes in liquidation, all the exceeding liabilities shall be borne pro rata by all the partners. However, if all the partners have agreed that no partner shall incur any debt during the course of business, then the exceeding liabilities shall be borne by that partner alone who has incurred a debt on the business in violation of the aforesaid condition. Contrary to this is the case of mudarabah. Here the liability of rabb-ul-maal is limited to his investment, unless he has permitted the mudarib to incur debts on his behalf.
  5. In musharakah, as soon as the partners mix up their capital in a joint pool, all the assets of the musharakah become jointly owned by all of them according to the proportion of their respective investment. Therefore, each one of them can benefit from the appreciation in the value of the assets, even if profit has not accrued through sales. The case of mudarabah is different. Here all the goods purchased by the mudarib are solely owned by the rabb-ul-maal, and the mudarib can earn his share in the profit only in case he sells the goods profitably. Therefore, he is not entitled to claim his share in the assets themselves, even if their value has increased.

Types of Mudarabah

  1. The rabb-ul-maal may specify a business in which to invest, in which case the mudarib is restricted only to such business as pointed out by rabb-ul-maal. This is called restricted mudarabah or al-mudarabah al-muqayyadah.
  2. If rabb-ul-maal has not specified a business in which to invest, it is considered an unrestricted mudarabah or al-mudarabah al-mutalaqah.

Distribution of Profit

The distribution of profit must be pre-determined by the two parties. Furthermore, the amount of profit ascribed to either of the parties must be independent of the capital amount, dependent solely on the actual profit realized by the commercial enterprise. That is, the profit assigned to a party cannot be a percentage of capital amount contributed as that would be considered a fixed return, or interest. The profit assigned to either of the parties cannot be a lumpsum amount either as this would also constitute interest.

As such, the only determination of profit distribution that is permissible is based on the actual profit earned by the enterprise.

The Shari'ah does not restrict or specify proportions to be distributed between the parties, leaving it to the best judgement of the two independent parties.

Termination of Mudarabah

The mudarabah contract can be terminated by either of the two parties at any time as long as a notice, per the contract terms, is given to the other party.

Furthermore, Hanafi and Hanbali jurists are of the opinion that a maximum term of the mudarabah contract can be set, whereafter the contract is terminated automatically. The Shafe'i and Maleki jurists are of the opinion that no term restriction can be added to the mudarabah contract. All jurists agree that one may not specify a minimum term of the mudarabah contract.

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44 Comments

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44 responses to “Mudarabah

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  2. hakimuddin

    in musharaka of two partners if rabbulmaal who is active insists of partnership in loss while the working partner [mudarib] has not contributed any capital is it permissable? please advise

    • Amodu

      The owner of the capital [Rabiul Mal] does not have anything to do with the Mudarib everything is left for the Mudarib in Mudaraba But in Musharaka Both must partake in the Busness

    • deep shah(jain)

      in musharaka profit and loss are share in same ration as decided earlier .
      there is nothing like rabb-ul-mal or mudarib in musharka .

      rabb-ul-mal and mudarib are in mudarabah and in mudarabah the profit is share between both party according to the agreement but if there is loss then it is bear by rabb-ul-mal (bank) only.

  3. Ahmad

    The article on Mudarabah is informative and well balanced. God bless u

  4. maanshaa allaah, its really helpfull to understand about mudarabah and differences b/w mudarabah and musharakah which many people confused….. by the way thank ya very much and god bless you..

  5. hussein khamis hussein

    this is very nie one for muslim

  6. waji

    in mudaraba rabulmaal is sleeping partner wihle the active partner is mudarib.
    in case that mudarib also invest then the rabulmaal as a sleeping partner do not have the right to gain more thn he investment.

  7. Aden

    salam alleykum brothers and sisters.

    it makes a lot sense now, becouse i used get confuse between mudurab and musharak which is very similar. now i know the difference mudarabah is the finance comes from rabulmaal only while the labour comes from the other partners. allah make easy for us muslim. what a beautiful religoin we have.

  8. A

    Salams,

    We are trying to make a mudarabah contract, however couple questions:

    If the total profit to the rab-ul-maal is going to be 20%, but there are two rab-ul-maal’s investing, can the profit be proportional to their investment and be halal?

    Also, how would the mudarab begin “buying-back” the business? When they begin the buyback, does the share of profits the rab-ul-maal gets decrease?

    Jazak Allahu Khairun

  9. Dr Mohammad Nawaz {al hassani}

    It is submtted for information that Mudarbah is the name of single transaction e,g: export and import of commodities and wehen commodity is exported or imported it should be sold and the profit should be divided among the {Rabul Mal} and working person{mudarib} immidiately and it is not long tem partnership as it is explained by moulanas otherwise it is converted to Musharkah which is totally diffirent in its nature from Mudarbah, so the chance of loss of copital is rear in the Mudarbah provided that the Mudarib is expert in his feild, if there is loss in the Mudarbah then Mudarib will bear loss of his struggle of work and rabul Mal will face the loss of capital as truck was louded by commodity of Coca Cola for other city and there is exident in the way, the both Rabul Mal and Mudarib will face loss togather as explained above.
    Dr Mohammad Nawaz çal hassani )
    nawaz.hassani@gmail.com

    • It is the view point of respected teacher of faculty of Shariah and law Imran Ahsan NIAZI WHILE MY ARTICLE IS EXPLAINING THIS VENTURE OF BUSINESS CMPRISING FROM MANY CONSECUTIVE TRANSACTIONS EXPANDING TO TIME PERIOD ACCORDING TO THE NATURE OF BUSINESS. Dr Mohammad nawaz al hassanI.

      • Nawaz Hassani

        Dear Sir/ Madam, What do you mean by concepts of Islamic Economics? Best regards, Dr Hassani

        On Mon, Dec 28, 2015 at 12:31 PM, Concepts in Islamic Economics and Finance

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  11. investment is the sole responsibility of rabb-ul-maal in mudharabah
    confusing about this, pls explain more, thanks

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  14. i have one question about Mudarabah ?????

    in our city there is a person named as Double Shah who receive capital from people (even he receive deposite 10000 rupees) , according to him he invest this capital of people in different tasks where he think that this can give him profit , thereafter he receive deposited, i.e. money of people on base of Mudarabat (profit and loss) and then this Mudarib distribute profit in 60 days, and the profit rate is not fixed ……………… so my question to molana is ………… Is this business is halal or Haram

  15. Zameer Ullah

    To Salem Bangash
    First of all I am not molana, I am answering this question according to my own knowledge. If that person doing a formal sort of contract ( which is for 60 days ) and the business is Shariah permissible and the people who deposit money should know about the business,than this business is halal, because the profit rate is not fixed, and the profit is distribute according to realize profit.

  16. ameeen

    Salam to All.

    Here is a sample of practice in our town. I have money, let say 1000. I give it to a businessman, car dealer, the terms are after two months my money will earn 50%, provided that he is still alive and not loosing. is this mudaraba?
    shokran

  17. ameeen

    Can some one shade light what is riba? Is giving money to a businessman that will earn 50% after 60day is a riba or mudarabah?

    • Zameer Khan

      to ameeen, the riba is interest (return or profit you make on money without taking any risk). In Mudarabah the return is never fixed, you get return according to the net profit. If person giving you fixed return of 50% after 60 days that is riba not a mudarabah return. because you not taking any risk and getting 50% profit on your money.

      Thanks and I am sure this answer will help You.

  18. Zameer Khan

    to ameeen, if business man giving 50% share on realized profit than it is not riba and if business man giving 50% share on actual amount than it is riba (interest).

  19. Joy

    Based on the understanding of mudarabah, profit sharing of 50% is consider predetermine. Therefore it is riba. However, if profit sharing ratio has been agreed upon in range, it may fit into mudarabah application. In sha’riah compliance, profit can never be determine unless the goods are sold less cost then distribution. Without any goods sold, any appreciation of value would be consider as Riba because it is consider speculative in natures.
    Hopefully my understanding of mudarabah is correct.

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  21. Thanks for the information, but could anyone please site me some Sahih Hadith on Mudarabah? and did Prophet Muhammad (s.a.) approved such thing like mudarabah? Please help me know this.

    One thing we need to make sure that any new analogy like mudarabah should be based on Quran and Sunnah… or at least from the lifetime of the Sahabi…

    Hope someone could enlightened me with the Grace of ALLAH(swt)!
    Jazak ALLAH!

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  25. THASARATHAN

    did this concpt are comfortable with indian banking syatem

    • deep shah(jain)

      this concept is comfortable with indian banking but the RBI thought that islamic banking is not work in india due to some reason. so there is very less chance of islamic banking appear in india.
      i am research on islamic banking in india and gathering the requirement for making the core banking software for indian islamic bank.

      and islamic banking is for all people not only for muslims it is a great advantage of it

  26. masha ALLAH its very comprehensive and informative for better understanding.

  27. Muhammad Zeeshan

    In musharaka just rab ul mal will face the loss because they will have decided that you will put the money and i will work more than you to take care of business.

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  33. Arifuzzaman

    plz references from the Quran and Sunnah..

  34. Muhammad Fayyaz

    Whenever a business starts on the basis of Mudarabah in which there is only 01 Rabbul Maal & 01 Mudarib.At the start if they agreed that Mudarib will invest after some time from his Profit share to strengthen or expand the business because Rabbul Maal may not re-invest in future, so in this particular case what is the business type in the start & when Mudarib invest in future so the business type will be changed to Musharakah?Please brief on Islamic Scool of thought with athenticity.
    Jazak Allah

  35. nakiyimba Hasipher

    How are mudharaba accounts operated?

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