Islamic Banking

Chapter No#3
Modes of Islamic Banking
Mudarabah
Types of Mudarabah
Investment in Mudarabah
Distribution of Profit and Loss
Roles of the Mudarib
Mudarabah
Mudarabah is a Form of Business or Partnership where One Party
Provides Money and the Other Provides Skills or Expertise. Here
the Party who Provide Capital or Money is called “Rab-ul-Maal”
.”and the Party who Provide Skills or Expertise is Called “Mudarib
It is important to mention that here the Profit will be •
Distributed Between (Mudarib) and (Rab-ul-Maal) but the Loss
be will Transferred only to (Rab-ul-Maal). In the Mudarabah
Mode of Banking or Financing Islamic Banks become
(Mudarib) and the Depositors or Money Providers become
.(Rab-ul-Maal)
Types of Mudarabah
Mudarabah-al- Muqayyadah
Mudarabah-al-Mutlaqah
Mudarabah-al- Muqayyadah :1
Mudarabah-al-Muqayyadah is also Called Restricted Mudarabah which •
mean that here in this Type of Mudarabah (Rab-ul-Maal) will specify a
Particular Business or Place for the Investment and (Mudarib) will be
.obliged or restricted to invest in that Particular Business or Place
Mudarabah-al-Mutlaqah :2
Mudarabah-al-Mutlaqah is also Called Unrestricted Mudarabah the
Mudarabah in which there is No Restriction and (Mudarib) can invest the
Capital in any Business or Place.We can say that here (Rab-ul-Maal) gives
Full Freedom to (Mudarib) in order to Undertake any Business he/she
Deems Fit. In Islamic Banking Unrestricted Mudarabah is Applicable or
Mudarabah-al-Mutlaqah
• It is important to mention that here (Mudarib) is Authorized to
do anything which is Normally done in the Course of Business
but in the Case of Extraordinary Work which is Beyond the
Normal Routine of Business without Consent of (Rab-ul-Maal)
such as Lending Money to People, keeping Another Partner
(Mudarib).
Investment in Mudarabah
In Mudarabah Mode of Financing the Capital is Provided by (Rab-
ul-Maal) and the (Mudarib) is Responsible for the Management of
the Capital and Rab-ul-Maal or Capital Provider doesn’t take Part
in Business Activities with Consent of Mudarib but here Capital
.Provider can Oversee or Observe the Activities of the Business
Here in the Investment of Mudarabah Usually a Question or
Problem Raises that In What Form Should the Capital Be? Should it
be in Liquid Form such as Cash or in Non Liquid Form such as
.Machinery, Land, Equipments and etc
.
Investment in Mudarabah
According to (Imam Abu Hanifa) the Capital Provider Provides Capital Only
and Only in the Form of Cash not in other Forms but the Other Imams Say that
Capital Provider can Provide Capital in Both Liquid Form and Non Liquid
Form (Cash, Land, Machinery) but when the Contribution is in the Form of
Non Liquid Assets so there should be Proper Evaluation of Value of those Non
Liquid Assets (Machine, Land, etc) if their Value is not Evaluated Properly then
Such Mudarabah is not Valid
Mudarabah Expenses
In Mudarabah Mode of Financing there are Some Expenses which are of Two
…Following Types
Personal Expenses :1
Business Expenses :2
1: Personal Expenses
Personal Expenses of Mudarib such as Clothing, Medication,
Transportation Expenses won’t be borne by Mudarabah or in
short we can say that Mudarib can’t use the Capital of his/her
Personal Use. Here if the Mudarib is Traveling away or goes on
Journey which Constitute (Safar-e-Sharai) that is more than (48)
Miles for Business Purposes and stay or Spend the Night away
then the Expenses will be Borne by Mudarabah but if doesn’t
Overstay the Night then his/her Expenses won’t be Borne by
Mudarabah.
Business Expenses
Business Expenses such as Wages, Salaries, and Commissions which are related to
Business will be accepted by Mudarabah. In short all those Expenses which are related
.to Business will be accepted by Mudarabah or From Capital
It is important to mention that if the Mudarib Manages the Mudarabah with in the City
so here in this Case Mudarib will not be allowed any Expenses with his Profit and
Share and if He Keeps any Employee so the Employee will not be allowed any Expense
but only Salary. If the Mudarabah Agreement Becomes Fasid due to any Reason so
here in this Case the Status of Mudarib will be Just like an Employee which means that
When He is Traveling in the City so He will not be Titled to any Expense such as Meal,
Transportation, Medication, Clothing and He will not be Sharing any Profit and Only
.he will Get Ordinary Salary or (Ujrat-e-Misl)
According to (Imam Ahmad) Mudarib can withdraw his Daily Expenses of Food from
Mudarabah but According to (Imam Abu Hanifa) Mudarib is allowed in such case
.when he is on a Business Trip Outside his Town
Distribution of Profit and Loss
In Mudarabah Contract it is Important for both Parties that the
Rate of Profit Distribution should be Fixed such as (50:50),
(10:90), (40:60) and Etc. and here the Rate or Ratio Depends on
the Nature of Contract and Capital is not Important and here if
the Rate or Ratio of Profit in no Fixed at the Beginning of
Contract so then the Profit will be Distributed (50:50) or We can
.say that Profit will be Distributed (50-50)
During Profit Distribution Two things should be Considered
…which are as Follow
Lump Sum Amount of Profit
It means that here Mudarib and Rab-ul-Maal can’t Allocate a Lump Sum Amount of Profit for any
.Party
Percentage of Capital
It means that here Mudarib and Rab-ul-Maal are not Allowed to Determine the Share of any Party
at a Specific Rate tied up with the Capital. Suppose “A” Provides Capital of 100000 and “B”
Provides his Skills, now they cannot agree on the Condition that “A” will be Given a Fix amount
of 5000 Per Month as Profit Nor they cannot Determine that “A” will be given the Amount which
.will be Equal to (25%) of his Capital per Month as Profit
If the Agree that “A” will get (60%) of Profit and “B” will get (40%) then it is allowed because here
.the Rate Profit or Share is tied up with Profit not Capital
It is important to mention that in the Mudarabah Agreement if in Some Transactions Loss Occurs
and in Some Transactions they Gain Profit so the Initially the Profit will be used to Offset the Loss
.and then the Remaining Amount will be Distributed on the Bases of Predetermined Ratio
Note: In Mudarabah all the Loss will be allowed by Rab-ul-Maal
Roles of the Mudarib
Roles of Mudarib means that what are the Roles which are
…played by Mudarib which are as Follow
Trustee (Ameen) :1
Agent (Wakeel) :2
Partner (Shareek) :3
Zamin (Liable) :4
Employee (Ajeer) :5
Trustee (Ameen)
The First Role of a Mudarib is the Role of Being Trustee which
means that Mudarib must look after the Investment Properly and
.Faithfully but Expect of Natural Disasters
Agent (Wakeel)
The Second Role of Mudarib is the Role of Being Agent which
means that Mudarib must Purchase from Funds Provided by
Rab-ul-Maal because Mudarib is selected as Agent or
.Representative of Rab-ul-Maal
Roles of the Mudarib
Partner (Shareek)
The Third Role of Mudarib is the Role of being Partner which
means that Mudarib is the Business Partner of Rab-ul-Maal and
.have Share in Profit
Zamin (Liable)
The Fourth Role of Mudarib is the Role of Being Liable which
means that Mudarib is the one who Guarantee or take
.Responsibility beyond Rab-ul-Maal
Roles of the Mudarib
Employee (Ajeer)
The Fifth Role of Mudarib is the Role of Being Employee. When
the Mudarabah gets Fasid due to any Reason so here the
.Mudarib is entitled only to Salary
Termination of Mudarabah
Termination of Mudarabah has Two Methods which are as
…Follow
Time Expiry :1
Mutual Consent :2
Termination of Mudarabah
Time Expiry :1
Time Expiry means that when the Time of Mudarabah is expired
so Mudarabah Agreement will come to end because when
Mudarabah is started for a Specific Time Period so after that time
or after achievement of Objectives the Mudarabah will
.Automatically Terminated
Mutual Consent :2
Mutual Consent means that Mudarabah can also be terminated
by the Mutual Consent of Partners or by Giving a Notice by any
of the Partners
Termination of Mudarabah
It is important to mention that if all the Assets of Mudarabah are
in Cash Form at the Time of Termination and Profit is also gained
so here it will be distributed on the Bases of Predetermined Ratio
.but after Giving the Principal Amount of Rab-ul-Maal
If the Assets of Mudarabah is not in Liquid Form so first of all the
Assets will be sold and liquidated in order to Determine Actual
Profit and then Profit will be Distributed on the Bases of
Predetermined Ratio but after Giving of the Principal Amount to
.Rab-ul-Maal
Termination of Mudarabah
In short we can say that During Termination of Mudarabah first
of all the Principal Amount of Rab-ul-Maal will be Given and the
Remaining Balance which is Known as Profit will be Distributed
on the Bases of Predetermined Ratio and if there is No Balance
.Left so then Mudarib will not get any Profit
During Termination of Mudarabah if the Principal Amount is not
Fully Recovered then the Profit which is shared between
Mudarib and Rab-ul-Maal will be withdrawn in order to pay the
.Principal Amount to Rab-ul-Maal