THE CONCEPT OF MUDARABAH

Learning Objectives
The Students will be made familiar with:

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
Mudarabah

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
 Musharakah

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
Types of Mudarabah

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
 Distribution of Profit
❖No particular proportion has been prescribed by the shariah, rather it has
been left to their mutual consent.
❖Allocation of a lump sum amount of profit for any party or fixing one party’s
share any rate tied up with the capital is not permissible

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
Distribution of Profit

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
The Nature of Mudarabah
Capital

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
Termination of Mudarabah

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
 Time Limit for Mudarabah

❖ Maximum Period:
⦿ Difference of opinion is there among Muslim jurists
about the question whether the contract of
Mudarabah can be affected for a specified period
after which it terminates automatically.
⦿ Hanafi & Hunbali Schools: Allowed
⦿ Shafi’i & Maliki Schools: Not Allowed

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
 Time Limit for
Mudarabah
❖Minimum Period:
Can a minimum time limit be fixed by
the parties before which Mudarabah
cannot be terminated? This question is
not expressly answered in the books of
Fiqh.

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
 :Business in today’s World

⦿ Projects take time to mature. They also need

constant and complex efforts. Termination in the
stage of infancy is disastrous for Mudarib who
will earn nothing despite all his efforts.
Therefore, if the parties agree, when entering
into Mudarabah, that no party shall terminate it
during a specific period, except in specific
circumstances, it does not seem to violate any
principle of Shariah.

ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
Combination of Musharakah & Mudarabah

Sometimes Mudarib also wants to invest

some of his money into the business of
mudarabah, in such cases Musharakah &
mudarabah are combined together.
Example:
A gave to B, Rs 100,000 in a contract of
mudarabah. B added Rs. 50,000 from his own
pocket with the permission of A.
ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC
ESSENTIALS OF ISLAMIC FINANCE - CHAPTER 3 (C) DR. SHAKEEL IQBAL AWAN IUIC