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MUDARABA

(Trustee Finance Contract)

Mudaraba is essentially an agreement between a financier and an

entrepreneur — the principals. It is a contract whereby one side the

investor or Rabb ul Mal contributes money and the other side work, being

the manager or Mudarib. The Rabb ul Mal bears all losses, and the

Mudarib earns a profit share. Mudaraba is a concept to provide capital to

somebody undertaking the work. It could be understood as being similar 

to the function of an asset manager or employed manager of a company.

Participatory Financing

The central idea in the concept of mudaraba is that two parties, one with

capital and the other with know- how, get together to carry out a proect.

The financier provides the capital and plays no further part in the proect!

specifically, he does not interfere in its e"ecution, which is the e"clusive

 province of the entrepreneur.

If the proect ends in profit they share the profit in a pre-arranged

 proportion. If it results in loss the entire loss is borne by the financier, and

the entrepreneur gains no benefit out of his effort, which was his part of 

the investment. #owever, in cases of proven negligence or 

mismanagement by the entrepreneurs, they may be held incurred.

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