Lecture # 10

Mudarabah
 Outlines
• Concept of Mudarabah
• Parties in Mudarabah
• Mudarabah Capital
• Types of Mudarabah
• Basic rules for management of Mudarabah
• Capacities of Mudarib
• Termination of Mudarabah
• Profit and lose rules in Mudarabah
• Mudarabah in Islamic Banks
• Application of Mudarabah
• Comparison of Mudarabah and Musharakah
 Concept of Mudarabah?

“ Mudarabah is a kind of partnership where one partner

gives money to another for investing in a commercial
enterprise”.

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 Parties in Mudarabah

• Rabul Maal (Investor)

• Mudarib ( Manager)

Important point:
Rabul Maal should hand over the management of the
investment to Mudarib leaving all decision making him
without interference in the management.

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 Mudarabah Capital

May be in
1. Cash
2. Kind (must be properly valued so that the
valuation is known in clear terms to the Rabul
Mall and Mudarib)

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 Types of Mudarabah

1. Restricted Mudarabah ( ‫) مضـاربـہ مقیدہ‬

2. Unrestricted Mudarabah (‫ مضـاربـہ غیر مقیدہ‬/ ‫)مطلقہ‬

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 Basic Rules for Management of
Mudarabah

1. Rabbul Maal has authority to:

• Oversee the Mudarib’s activities
• Work with if he consents

2. Mudarib does not have the authority without the

consent of Rabbul Maal to:
• Keep another Mudarib or a partner
• Mix his own investment

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Different Capacities of Mudarib

1. Ameen (Trustee)
2. Wakeel (Agent)
3. Shareek (Partner)
4. Zamin (Liable)
5. Ajeer ( Employee)

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 Termination of Mudarabah

Can be terminated:
• After the expire of specific period or
• Either of the two parties gives notice and terminate
the Mudarabah at the end of notice period.
After Termination:
• If all assets are in cash form and earned some profit.
profits will be distributed according to agreed ratio.
• If all assets are not in cash form they will be sold and
liquidated so that the actual profit may be
determined.

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 Termination of Mudarabah
• All payables and receivables of Mudarabah will be
paid/recovered on termination
• The principal amount invested by Rabbul Maal will be
given first, the remaining balance will be called profit
which will be distributed on agreed ratio, however if no
balance is left, Mudarib will not get anything.

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 Rules for Profit and loss in Mudarabah
Capital
1. Ratio of profit should be determined in the beginning
2. Ratio can not be fixed in term of lump sum nor specific
ratio of capital.
3. Different profit ratios can be decided in different
situations.
4. Neither Mudarib not Rabbul Maal can take any fixed
amount from the venture .
5. The Mudarabah becomes void (Fasid) if the profit is
fixed in any way in this case the entire amount (profit +
Capital) will be of the Rabbul Maal and the Mudarib
would be just an employee earning Ujrat-e-Misl(Market
based remuneration)
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 Mudarabah in Islamic Banks

A.Deposits side:
How does the Bank work as a Mudarib?

B. Investments side:
The Bank as Rabbul Maal

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 Application of Mudarabah

Liability side Financing:

1.Saving/Investment accounts
2.Inter-bank lending/borrowing
3.T-Bills and Federal Investment Bonds/Sukok

Assets side Financing:

4.Short/Medium/Long-term Financing
5.Project Financing
6.Small & medium enterprises setup financing
7.Large enterprise financing
8.Import Financing

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 Comparison of Musharakah and
Mudarahah

Musharkah Mudarabah
1 All partners invest Only Rabb-ul-Maal invest
2 All partners may participate in Rabb-ul-Maal has no right to
management participate management
3 All partners share the loss Only Rabb-ul-Mall suffers loss

4 The liability of the partners is The liability of Rabb-ul-Maal is

normally unlimited limited to his investment

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Any Question
?
?

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