The Concept of Mudarabah
Session 9
Definition
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 profits generated are shared in a predetermined ratio.
Types of Mudarabah
Al Mudarabah Al Muqayyadah
(Restricted Mudarabah)
Al Mudarabah Al Mutlaqah
(Unrestricted Mudarabah)
Al Mudarabah Al Muqayyadah (Restricted 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 Al Mudarabah Al Muqayyadah (restricted Mudarabah).
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).
However, he is not authorized to:
a) keep another Mudarib or a partner
b) mix his own investment in that particular Mudarabah without the consent of Rabb-ul Maal.
Authority of Rabb-ul-Maal
Rabb-ul-Maal has authority to:
a) Oversee the Mudarib’s activities and
b) Work with Mudarib if the Mudarib consents.
Different Capacities of the Mudarib
Ameen (Trustee): The money given by Rabb-ul-maal (investor) and the assets required therewith are held by him as a trust.
Wakeel (Agent) : In purchasing goods for trade, he is an agent of Rabb-ul-maal.
Shareek (Partner): In case the enterprise earns a profit, he is a partner of Rabb-ul-maal who shares the profit in agreed ratio.
Capital of Mudarabah
The capital in Mudarabah may be either cash or in kind. If the capital is in kind, its valuation is necessary, without which Mudarabah becomes void.
Distribution of Profit & Loss
Distribution of Profit & Loss
Apart from the agreed proportion of the profit, the Mudarib cannot claim any periodical salary or a fee or remuneration for the work done by him for the Mudarabah.
The Mudarib & Rabb-ul-Maal 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.
Termination of Mudarabah
Mudarabah can be terminated any time by either of the two parties by giving notice.
If Mudarabah was for a particular term, it will terminate at the end of the term.
Termination of Mudarabah means that the Mudarib cannot purchase new goods for the Mudarabah. However, he may sell the existing 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 liquidated so that the actual profit may be determined.
Collective Mudarabah
“Collective Mudarabah” means a joint Pool created by many investors and handled over to a single Mudarib who is normally a juristic person.
Collective Mudarabah creates two different relationships:
Relationship between investors inter se, which is Shirkah or Partnership.
Relationship of all the investors with mudarib, which is mudarabah
When Mudarib is a Juristic Person
Who is the Mudarib?
Shareholders?
Management or Directors?
Juristic Person
Expenses of Mudarabah
Direct expenses are borne by the Mudarabah pool.
Indirect expenses are borne by the mudarib.
Running Mudarabah
Investors come in and go out at different dates
Profits are calculated on daily product basis.
Redemption before maturity
If the assets of mudarabah are in illiquid form, an investor may redeem his share by selling it to the pool..
If the assets are in liquid form, a provisional amount may be given to him subject to final settlement
by: lecturer of FEUI
If you find something wrong, unclear or the interesting one, please comment
Session 9
Definition
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 profits generated are shared in a predetermined ratio.
Types of Mudarabah
Al Mudarabah Al Muqayyadah
(Restricted Mudarabah)
Al Mudarabah Al Mutlaqah
(Unrestricted Mudarabah)
Al Mudarabah Al Muqayyadah (Restricted 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 Al Mudarabah Al Muqayyadah (restricted Mudarabah).
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).
However, he is not authorized to:
a) keep another Mudarib or a partner
b) mix his own investment in that particular Mudarabah without the consent of Rabb-ul Maal.
Authority of Rabb-ul-Maal
Rabb-ul-Maal has authority to:
a) Oversee the Mudarib’s activities and
b) Work with Mudarib if the Mudarib consents.
Different Capacities of the Mudarib
Ameen (Trustee): The money given by Rabb-ul-maal (investor) and the assets required therewith are held by him as a trust.
Wakeel (Agent) : In purchasing goods for trade, he is an agent of Rabb-ul-maal.
Shareek (Partner): In case the enterprise earns a profit, he is a partner of Rabb-ul-maal who shares the profit in agreed ratio.
Capital of Mudarabah
The capital in Mudarabah may be either cash or in kind. If the capital is in kind, its valuation is necessary, without which Mudarabah becomes void.
Distribution of Profit & Loss
Distribution of Profit & Loss
Apart from the agreed proportion of the profit, the Mudarib cannot claim any periodical salary or a fee or remuneration for the work done by him for the Mudarabah.
The Mudarib & Rabb-ul-Maal 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.
Termination of Mudarabah
Mudarabah can be terminated any time by either of the two parties by giving notice.
If Mudarabah was for a particular term, it will terminate at the end of the term.
Termination of Mudarabah means that the Mudarib cannot purchase new goods for the Mudarabah. However, he may sell the existing 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 liquidated so that the actual profit may be determined.
Collective Mudarabah
“Collective Mudarabah” means a joint Pool created by many investors and handled over to a single Mudarib who is normally a juristic person.
Collective Mudarabah creates two different relationships:
Relationship between investors inter se, which is Shirkah or Partnership.
Relationship of all the investors with mudarib, which is mudarabah
When Mudarib is a Juristic Person
Who is the Mudarib?
Shareholders?
Management or Directors?
Juristic Person
Expenses of Mudarabah
Direct expenses are borne by the Mudarabah pool.
Indirect expenses are borne by the mudarib.
Running Mudarabah
Investors come in and go out at different dates
Profits are calculated on daily product basis.
Redemption before maturity
If the assets of mudarabah are in illiquid form, an investor may redeem his share by selling it to the pool..
If the assets are in liquid form, a provisional amount may be given to him subject to final settlement
by: lecturer of FEUI
If you find something wrong, unclear or the interesting one, please comment
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