MUDHARABAH

 
“Mudarabah” is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called “rabb-ul-mal”, while the management and work is an exclusive responsibility of the other, who is called “mudarib”.

Business of Mudarabah:
The rabb-ul-mal may specify a particular business for the mudarib, in which case he shall invest the money in that particular business only. This is called al-mudarabah al-muqayyadah (restricted mudarabah). But if he has left it open for the mudarib to undertake whatever business he wishes, the mudarib shall be authorized to invest the money in any business he deems fit. This type of mudarabah is called ‘al-mudarabah al-mutlaqah’ (unrestricted mudarabah) A rabbul-mal can contract mudarabah with more than one person through a single transaction. It means that he can offer his money to A and B both, so that each one of them can act for him as mudarib and the capital of the mudarabah shall be utilized by both of them jointly, and the share of the mudarib shall be
distributed between them according to the agreed proportion . In this case both the mudaribs shall run the business as if they were partners inter se. The mudarib or mudaribs, as the case may be, are authorized to do anything which is normally done in a course of business. However, if they want to do an extraordinary work, which is beyond the normal routine of the traders, they cannot do so without express permission from the rabb-ul-mal.

Distribution of the Profit:
It is necessary for the validity of mudarabah that the parties agree, right at the beginning, on a definite proportion of the actual profit to which each of them is entitled. No particular proportion has been prescribed by the Shar’iah ; rather, it has been left to their mutual consent. They can share the profit in equal proportions, and they can also allocate different proportions for the rubb-ul-mal and the mudarib. However, they 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. For example, if the capital is Rs.100000/- they cannot agree on
a condition that Rs.10000/- out of the profit shall be the share of the mudarib, nor can they say that 20% of the capital shall be given to rabb-ul-mal. However, they can agree on that 40% of the actual profit shall go to the mudarib and 60% to the rabb-ul-mal or vice versa.
It is also allowed that different proportions are agreed in different situations . For example the rubb-ul-mal may say to the mudarib, “If you trade in wheat, you will get 50% of the profit and if you trade in flour, you will have 33% of the profit”.Similarly, he can say “If you do the business in your town, you will be entitled to 30% of the profit, and if you do it in another town, your share will be 50% of the profit.”

Apart from the agreed proportion of the profit, as determined in the above manner, the mudarib cannot claim any periodical salary or a fee or remuneration for the work done for him by the mudarabah. All the schools of the Islamic Fiqh are unanimous on this point. However, Imam Ahmad has allowed for the mudarib to draw his daily expenses of food only from the mudarabah account.

The Hanafi jurists restrict this right of the mudarib only to a situation where he is
on a business trip outside his own city. In this case he can claim his personal expenses, accommodation, food etc., but he is not entitled to get anything as daily allowances when he is in his own city.

If the business has incurred loss in some transactions and has gained profit in some others, the profit shall be used to offset the loss at the first instance, then the remainder, if any, shall be distributed between the parties according to the agreed ratio.

Termination of Mudarabah:
The contract of the mudarabah can be terminated at any time by either of the two parties. The only condition is to give a notice to the other party. If all assets of the mudarabah are in cash form at the time of termination, and some profit has been earned on the principle amount ,it shall be distributed between the parties according to the agreed ratio. However, if the assets of the mudarabah are not in the cash form, the mudarib shall be given an opportunity to sell or liquidate them, so that the actual profit may be determined.

There is a difference of opinion among the Muslim jurists about the question whether the contract of mudarabah can be effected for a specified period after which it terminates automatically. The Hanafi and Hanbali schools are of view that the mudarabah can be restricted to a particular term, like one year, six months , etc, after which it will come to an end without a notice. On the contrary, Shafi’i and Maliki schools are of the opinion that the mudarabah cannot be restricted to a particular time. However, this difference of opinion relates only to the maximum time limit of the mudarabah. Can a minimum time limit also be fixed by the parties before whichmudarabah cannot be terminated? No express answer to this question is found in the books of the Islamic Fiqh, but it appears from the general principles enumerated therein that no such limit can be fixed, and each party is at liberty to
terminate the contract whenever he wishes.

This unlimited power of the parties to terminate the mudarabah at their pleasure may create some difficulties in the context of the present circumstances, because most of the commercial enterprises today need time to bring fruits. They also demand constant and complex efforts. Therefore, it may be disastrous to the project , if the rabb-ul-mal terminates the mudarabah right in the beginning of the enterprise. Specially, it may bring a severe set back to a mudarib who will earn nothing despite all his efforts. Therefore, if the parties agree, when entering into the mudarabah, that no party shall terminate it during a specified period, except in specified circumstances it does not seem to violate any principle of Shar’iah, particularly in the light of the famous hadith, already quoted which says: “All the conditions agreed upon by the Muslims are upheld, except a condition which allows what is prohibited or prohibits what is lawful.”

Combination of Musharakah and Mudarabah:
A contract of mudarabah normally presumes that the mudarib has not invested anything to the mudarabah. He is responsible for the management only, while all the investment comes from rabb-ul-mal. But there may be situations where the mudarib also wants to invest some of his money into the business of mudarabah.

In such cases musharakah and mudarabah are combined together. For example, A gave to B Rs.100000/- in a contract of mudarabah. B added Rs.50000/- from his own pocket with the permission of A. This type of partnership will be treated as a combination of musharakah and mudarabah. Here the mudarib may allocate for himself a certain percentage of profit on account of his investment as a sharik, and at the same time he may allocate another percentage for his management and work as a mudarib. The normal basis for allocation of the profit in the above example would be that B shall secure one third of the actual profit on account of his investment, and the remaining two thirds of the profit shall be distributed between them equally. However, the parties may agree on any other
proportion. The only condition is that the sleeping partner should not get more percentage than the proportion of the investment.
 

 
 

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