The Concept of Mudarabah

Submitted to Prof. Hashim Khan

by Khawar aziz Roll# 08 S B. om ! R"#. $%.&'0'

Islamic modes of financing

Murabaha Musawamah Salam Ijarah (Leasing) Musharaka Mudaraba Istisna

Mudarabah

Def.

A form of financial contract in some Muslim countries in which the investor (rab(ul(mal) entrusts money to a financial manager (mudarib) and any profits and losses are shared between them in an agreed manner 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-ulMaal (Investor) while the management and work is an e!clusive responsibility of the other" who is called Mudarib (#orking $artner) and the profits generated are shared in a predetermined ratio

Types of )udarabah

Al Mudarabah Al Mu ayyadah (!estricted Mudarabah) Al Mudarabah Al Mutla ah ("nrestricted Mudarabah)

Al Mudarabah Al Mu ayyadah
(!estricted Mudarabah) Rabb-ul-Maal may specify a particular business or a particular place for the mudarib" in which case he shall invest the money in that particular business or place This is called %l Mudarabah Al Muqayyadah (restricted Mudarabah)

Al Mudarabah Al Mutla ah
("nrestricted 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) &owever" he is not authori'ed to( a) keep another Mudarib or a partner b) mi! his own investment in that particular Mudarabah without the consent of Rabb-ul Maal

Authority of !abb#ul#Maal
)abb*ul*Maal has authority to( a) +versee the Mudaribs activities and b) #ork with Mudarib if the Mudarib consents

Different Capacities of the Mudarib 1.Ameen (Trustee)( 2.Wakeel (%gent)

)abb*ul*maal
(

The money given by )abb*ul*maal (investor) and the assets re,uired therewith are held by him as a trust In purchasing goods for trade" he is an agent of

3.Shareek ($artner)( In case the enterprise earns a profit" he is a partner

of )abb*ul*maal who shares the profit in agreed ratio

4.Zamin (Liable):

If the enterprise suffers a loss due to his negligence or misconduct, he is liable to compensate the loss.

5.

Ajeer (Employee): If the Mudarabah becomes

Void due to any reason, the Mudarib is entitled to get a fee for his services

a*ital of )udarabah
+he ,a*ital in )udarabah may be either ,ash or in in -ind. its /aluation is ne,essary. without whi,h )udarabah be,omes /oid.-ind. 0f the ,a*ital is

Distribution of $rofit % &oss

Apart from the agreed proportion of the profit' the )udarib cannot claim any periodical salary or a fee or remuneration for the wor( done by him for the )udarabah.

The )udarib % Rabb(ul()aal cannot allocate a lump sum amount of profit for any party nor can they determine the share of any party at a specific rate tied up with the capital.

Distribution of $rofit % &oss Distribution of $rofit % &oss Termination of )udarabah

Mudarabah can be terminated any time by either of the two parties by giving If Mudarabah was for a particular term' it will terminate at the end of the

notice.

term. Termination of Mudarabah means that the Mudarib cannot purchase new goods for the Mudarabah. )owever' he may sell the e*isting goods that were purchased before termination. Distribution at Termination If all assets of the Mudarabah are in cash form at the time of termination" and some profit has been earned on the principal amount" it shall be distributed between the parties according to the agreed ratio

If the assets of Mudarabah are not in cash form" they will be sold and li,uidated so that the actual profit may be determined Distribution at Termination Collective Mudarabah -.ollective Mudarabah/ means a joint $ool created by many investors and handled over to a single Mudarib who is normally a juristic person .ollective Mudarabah creates two different relationships( )elationship between investors inter se" which is Shirkah or $artnership )elationship of all the investors with mudarib" which is mudarabah +hen Mudarib is a ,uristic $erson #ho is the Mudarib0 Shareholders0 Management or 1irectors0 2uristic $erson 3!penses of Mudarabah 1irect e!penses are borne by the Mudarabah pool Indirect e!penses are borne by the mudarib

!unning Mudarabah Investors come in and go out at different dates $rofits are calculated on daily product basis )edemption before maturity If the assets of mudarabah are in illi,uid form" an investor may redeem his share by selling it to the pool If the assets are in li,uid form" a provisional amount may be given to him subject to final settlement Modaraba companies on -./ Issue with modaraba contd )ecommendation contd contd

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