What Is Mudaraba in Islamic Finance and Banking?

styles of Mudaraba: There are two kinds of Mudaraba, and they may be noted under:

(1). Al Mudaraba Al-Muqayadah:

Rab’ul-Maal may additionally specify a particular business or a particular area for the Mudaarib, wherein case he will make investments the money in that unique company or area. this is known as Al Mudaraba Al-Muqayadah (restricted Mudaraba).

(2). Al Mudaraba Al Mutlaqah:

but if Rab’ul-Maal offers complete freedom to Mudaarib to undertake whatever commercial enterprise he deems in shape, that is called Al Mudaraba Al Mutlaqah (unrestricted Mudaraba). however Mudaarib cannot, with out the consent of Rab’ul-Maal, lend cash to in reality anybody. Mudaarib is authorized to perform a little thing, that’s typically completed in the path of commercial enterprise. but in the event that they need to have an great paintings, it is beyond the ordinary recurring of the consumers, he cannot reap this without unique permission from Rab’ul-Maal. He is also no longer prison to:


a) keep any other Mudaarib or a partner

b) mix his non-public investment in that particular Modarabah without the consent of Rab-ul Maal.

situations of offer & acceptance are applicable to each. A Rab’ul-Maal can agreement Mudaraba with multiple person thru a unmarried transaction. It way that he can provide his coins to ‘A’ and ‘B’ each so that each one of them can act for him as Mudaarib and the capital of the Mudaraba shall be utilized by each of them together, and the share of the Mudaarib.

distinction among Musharaka and Mudaraba

(1). In Musharaka, all companions make investments, but in Mudaraba Finance, nice Rab’ul-Maal invests.

(2). In Musharaka, all partners participate within the control of the commercial enterprise and can paintings for it. however, in Mudaraba, Rab’ul-Maal has no right to participate inside the management this is completed via the Mudaarib simplest.

(3). In Musharakha, all companions share the loss to the extent of the ratio of their investment. but in Mudaraba, only Rab’ul-Maal suffers loss because of the truth the Mudaarib does now not invest some thing. however this is challenge to a condition that the Mudaarib has worked with due diligence.

(4). In Musharaka, the liability of the partners is commonly limitless. If the liabilities of corporation exceed its belongings and the economic corporation is going in liquidation, all of the exceeding liabilities shall be borne pro rata with the aid of way of all companions. however if the companions agree that no associate shall incur any debt at some level within the course of enterprise, then the exceeding liabilities will be borne thru that associate on my own who has incurred a debt on the economic corporation in violation of the aforesaid condition. but in Mudaraba, the liability of Rab’ul-Maal is confined to his investment till he has authorised the Mudaarib to incur debts on his behalf.

(five). as soon as the partners combo up their capital in a joint-pool in Musharaka, all of the property turn out to be at the same time owned thru all the partners, regular with the proportion of their respective funding. All partners enjoy the appreciation inside the price of the belongings despite the fact that income has now not gathered through profits. In Mudaraba financing, the goods bought thru the Mudaarib are entirely owned through manner of Rab’ul-Maal and the Mudaarib can earn his percent in the profits handiest in case he sells the products profitably.

Distribution of profit & Loss

it is vital for the validity of Mudaraba that the activities agree, right on the begin, on a specific percentage of the actual income to which every one in all them is entitled. The Shariah has prescribed no precise proportion; as a substitute it has been left to their mutual consent. they can share the earnings in same proportions and they also can allocate distinct proportions for Rab’ul-Maal and Mudaarib. but in severe case wherein the events have no longer predetermined the ratio of profits, the earnings will be calculated at 50:50.

The Mudaarib & Rab’ul-Maal cannot allocate a lump sum amount of profits for any celebration nor can they determine the percentage of any birthday celebration at a specific rate tied up with the capital. for example, if the capital is 10,000 Pound Sterlings, they cannot agree on a situation that 1,000 Pound Sterlings out of the profits shall be the share of the Mudaarib nor can they say that 20% of the capital can be given to Rab’ul-Maal. but they could agree that 40% of the real earnings shall visit the Mudaarib and 60% to the Rab’ul-Maal or vice versa.

it’s far likewise allowed that unique proportions are agreed in special conditions. for example, the Rab’ul-Maal can say to Mudaarib “if you exchange in wheat, you’ll get 50% of the income and in case you trade in flour, you will have 33% of the income”. in addition, he can say “if you do the enterprise for your city, you may be entitled to 30% of the income and if you do it in some other town, your share can be 50% of the income”.

aside from the agreed percentage of the profit, as determined within the above way, the Mudaarib can’t claim any periodical earnings or a charge or remuneration for the paintings carried out thru him for the Mudaraba. All schools of Islamic Fiqh are unanimous in this element. but, Imam Ahmad has allowed for the Mudaarib to draw his every day fees of meals first-rate from the Mudaraba Account. The Hanafi jurists limit this proper of the Mudaarib handiest to a scenario while he is on a industrial enterprise adventure outside his own city. In this example he can claim his non-public expenses, accommodations, meals, and so forth. but he isn’t always entitled to get some element as each day allowances when he is in his personal town.

Leave a Reply

Your email address will not be published. Required fields are marked *