THE CONCEPT OF MUDARBAH

Aamir MalikHead of Product DevelopmentPresent at :

Post Diploma on Islamic Banking and finance Class

This is a kind of partnership where one partner gives money to another for investing in a commercial enterprise.

The investment comes from the first partner who is called “Rabb-ul-Maal” (Investor) while the management and work is an exclusive responsibility of the other, who is called “Mudarib” (Working Partner) and the generated profits are shared in a predetermined ratio.

Definition

Types of Mudarabah

1. Al Mudarabah Al Muqayyadah(Restricted Mudarabah)

1. Al Mudarabah Al Mutlaqah(Unrestricted Mudarabah)

Al Mudarabah Al Muqayyadah(Restricted Mudarabah)

In Al Mudarabah Al Muqayyadah, the Rabb-ul-Maal specify a particular business or a particular place to mudarib.

Al Mudarabah Al Mutlaqah (Unrestricted Mudarabah)

Rabb-ul-maal gives full freedom to Mudarib to undertake whatever business he deems fit, this is called Al Mudarabah Al Mutlaqah (unrestricted Mudarabah)

Profit & Loss Distribution

Profit is clearly mentioned in contract in percentage not Lump sum or the percentage of capital.

It is not permissible to earn a share of profit in addition to a fee in Mudarbah contract.

consent of partners on profit distribution it is permissible to amend the contract and

set the duration of contract.

If the profit ratio not decided at the conclusion of contract then

Custom practice Equal distribution Market Rate of Services

Demand of Lump sum Amount, contract will be void.

It is not permissible for the Capital Provider to provide two amount one for Mudarib and other for himself profit and financial period as well.

It is not permissible to assign the profit of specific transaction.

Profit Distribution will be after the maintained Capital.

Loss is compensate first If the total losses are greater then the

total revenues, they will be deduct from capital and Mudarib receive nothing.

Net profit is distribute It is permissible for Mudarib to Invest

capital in Mudarbah contract and also can enjoy the profit on share and Mudarib.

Duties and Powers of Mudarib

Best efforts to achieve goals Mudarib is free to manage if the contract is

unrestricted. appointment of another person Selection of market and places to minimize

the risk. funds are under custody of trustworthy

person or institution. Selling and buying on Deferred payments

Minimization of risk Custody of trustworthy place or person Buying and selling on deferred basis Restrictions on Mudarib by Rab ul Mall it is not permissible for Rab ul Mall to

stipulate Mudarib to act in Management but Mudarib can refer some activities.

Capital Provider cannot lay down restriction on the action of Mudarib like the partnership of another party or to stipulate to invest his funds in Mudarbah contact.

Mudarib responsibilities are set in the contract and if one of them activity is out sourced

Conversion of Mudarbah into Musharka Mudarib can accept the funds from third

party. It is permissible for capital provider to place

the restrictions on the action of mudrib (time, place, sectors,)but their availabity should be common.

Capital provider cannot stipulate on the right to work.

Mudarib can assign some activities. Capital provider can not impose the

condition which restrict the movement of Mudarib like he or she must enter in Musharkah contract.

Mudarib cannot outsource liability. Cannot sell the less than market price or

buy on high price. Loan or gift are not permissible Living expenses but as per approval of

capital provider.

Liquidation of Mudarbah

Non binding contract can be terminated unilaterally.

With the agreement of both parties On the date of maturity In case of losses Death of Mudarib or the liquidation of

institution acts as the Mudarib