FIQH MUAMALAT 
📖 Chapter ▼
Chapter 5: Concept Of Contract Chapter 6: Sale-Based Transactions 1 Chapter 7: Sale-based Transactions 2 Chapter 8: Mudarabah Chapter 9: Musharakah Chapter 10a: Ijarah Chapter 10b: Rhan Contract Chapter 11a: Kafalah Chapter 11b: Wakalah Chapter 12: Bay al-Dayn Chapter 13a: Wadi'ah Contract Chapter 13b: Contract of Sarf
Table of Contents ▼

    Definition and Terminology


    1. The Core Concept

    What is it? Mudarabah is a partnership focused on sharing profit.

    How does it work? It combines two things:
    • Capital: Provided by one side (the investor).
    • Labor/Skill ('Amal): Provided by the other side (the entrepreneur/manager).

    Goal: Both parties share the profit generated from the business.

    2. The "Name Game": Mudarabah vs. Qirad
    Different Islamic schools of law use different names for this contract, depending on their region and linguistic roots.

    A. The Term "Mudarabah"
    • Who uses it? The Hanafis and Hanbalis.
    • Origin: It was the language of Iraq.
    • Root Word: Derived from Al-Darb fi al-Ard (الضرب في الأرض), which means "traveling through the land".
    • Reason: In ancient times, business often required traveling to trade.

    B. The Term "Qirad" (or Muqaradah)
    • Who uses it? The Malikis and Shafi’is.
    • Origin: It was the language of Hijaz.
    • Root Word: Derived from Al-Qard (القرض), which means "to cut off" (القطع).
    • Reason: The owner "cuts off" a portion of his money to give to the manager, and in return, "cuts off" a share of the profit for him.

    Legal Authority (Dalil)



    1. The Quran (Allah’s Word)
    • The Verse: Allah mentions people who travel "through the land seeking Allah’s bounty"
    • Meaning: This refers to trading and doing business. Since Mudarabah involves traveling and trading for profit, this verse supports it.

    2. The Sunnah (The Prophet’s Sayings)
    • The Hadith: The Prophet explicitly said there is blessing in three things
    • The List:
      • Credit sales.
      • Muqaradah (which is another name for Mudarabah).
      • Mixing wheat and barley for home use (not for trade).

    3. Ijma’ (Consensus of Scholars)
    • The Agreement: There is a general consensus among Muslim jurists that Mudarabah is valid.
    • The Source: This consensus is recorded by scholars like Ibn al-Munzir in his book on Ijma’.

    Distinctions from Other Contracts



    1. Mudarabah vs. Musharakah (The "Partnership" Battle)
    Scholars disagree on whether they are the same type of contract:


    Team "Same Category": Hanafis say Musharakah and Mudarabah are basically the same thing.


    Team "Different Categories": Malikis and Hanbalis say they are completely different.

    The 3 Key Differences:
    Feature Musharakah Mudarabah
    Capital Provided by both parties. Provided by one party only.
    Management Both parties run the business together. The Capital Provider is not allowed to interfere in management.
    Loss Shared by everyone (based on capital). Financial loss is borne only by the Capital Provider. The Mudarib loses their time/effort.

    2. Mudarabah vs. Hire (The "Job" Comparison)
    Think of this as the difference between an employee and a partner.
    • Contract of Hire:
      • The worker performs a job for another person
      • The payment is a fixed lump sum (salary/wage).
    • Mudarabah:
      • One provides capital, the other provides skills.
      • The worker (Mudarib) gets a share in the profit, not a fixed salary.

    3. Mudarabah vs. Loan (The "Money" Comparison)

    Loan Contract:
    • Money is given as a courtesy to help the borrower.
    • The lender is not entitled to claim any profit (that would be Riba).

    Mudarabah:
    • Money is given as an investment.
    • The Capital Provider is a partner and is entitled to a share in the profit.
     

    Essential Conditions (Arkan)



    1. Conditions of the Capital (Ras al-Mal)
    The money or asset being invested must follow these rules:
    • Form: The capital must be cash or kind (goods/assets) .
    • Availability: It must be present at the time of the contract (not a debt or future asset) .
    • Known Value: The amount must be clearly determined and known in terms of its value .
    • Handover: The capital must be physically or constructively delivered to the Mudarib so they can manage it .

    2. Conditions of the Profit (Ribh)
    The rules for how the money made is shared:
    • Percentage Only: The profit share must be a ratio or percentage (e.g., 50:50, 60:40) .
    • No Fixed Amount: You cannot set a fixed lump sum (e.g., "$1000 profit") because the business might not make that much.
    • Pre-Agreed: The ratio must be decided in advance before the contract starts .
    • Flexible: The partners can agree to change the ratio later or structure it in different tiers (e.g., "If profit is above $10k, the ratio changes to...").

    3. Conditions of Labor (The Work)
    This condition defines the Types of Mudarabah based on how much freedom the manager has:
    • Unrestricted (Mudarabah Mutlaqah): The capital is given to the Mudarib without specifying the type of work . The manager has full freedom.
    • Restricted (Mudarabah Muqayyadah): The Capital Provider restricts the Mudarib to a specific investment or sector .

    Types of Mudarabah



    1. Unrestricted Mudarabah (Mudarabah Mutlaqah)
    • Definition: The Capital Provider hands over the capital to the Mudarib without specifying exactly what work must be done.
    • Freedom: The Mudarib has the freedom to choose the business or trade they think is best. The type of work is not determined.
    • Real-world Example: General Investment Accounts (GIA) in Islamic banks are based on this type.

    2. Restricted Mudarabah (Mudarabah Muqayyadah)
    • Definition: The Capital Provider sets specific rules or limits on the investment.
    • Restriction: The Mudarib is restricted to a particular investment or sector chosen by the provider.
    • Real-world Example: Specific Investment Accounts (SIA), where the client chooses where their money goes.

    Responsibilities of the Mudarib


    1. Core Duty (The Mindset)
    • Best Efforts: The Mudarib is responsible for using their best efforts to achieve the goals of the contract.
    • Finest Manner: They must ensure the capital is used in the best possible way.
    • Trustee Role: The Mudarib acts as a trustee for the capital in their hands.

    2. What They CAN Do (Authority)
    The Mudarib has the authority to:
    • Trade: Buy and sell all types of merchandise.
    • Manage Assets: Rent or buy vehicles and equipment needed for the business.
    • Travel: Travel with the capital if necessary.
    • Safeguard: Keep the property as a deposit or pledge.

    3. What They CANNOT Do (Restrictions)
    • No Mixing Capital: The Mudarib cannot mix Mudarabah capital with other capital unless they get authorization from the Rab al-Mal.
    • Al Mudarib Yudarib: This is a specific legal rule.
      • The Mudarib is generally disallowed from taking the investment money and investing it into another Mudarabah contract (where they would act as the investor to a third party).
      • This is only allowed if they get prior approval from the first Rab al-Mal.

    Legal Status & Implementation Issue


    1. Binding vs. Non-Binding (The "Can I Quit?" Rule)

    General Rule: The Mudarabah contract is generally considered non-binding (’aqd ghayr lazim). This means either party can technically cancel it.

    Maliki Exception: They argue that once the work actually starts, the contract becomes binding.

    Suspension:
    • Hanafis: The contract can be suspended if both parties agree.
    • Shafi’is & Malikis: It generally cannot be suspended or delayed.

    2. Fixing a Duration (The "Time Limit" Rule)
    Can you set a specific deadline for the partnership?
    • Yes: Abu Hanifa and Ahmed (Hanbali school) allow fixing a duration. AAOIFI standards also support this view.
    • No: Malikis and Shafi’is disallow fixing a duration.

    3. Start Time & Capital Mixing

    Start: The contract takes effect immediately after it is concluded.

    Mixing Money: The Mudarib is not entitled to mix the Mudarabah capital with other money.
    • Exception: They can only do this if they get authorization from the Rab al-Mal.

    4. "Al Mudarib Yudarib" (Re-Investing)
    • Scenario: Can the manager take the invested money and invest it into another Mudarabah (becoming the investor for someone else)?
    • Rule: Almost every jurist disallows this.
    • Exception: It is only allowed if they get prior approval from the first Rab al-Mal.

    5. Guarantee & Liability

    Role: The Mudarib is a trustee of the capital.

    Liability:
    • Shafi’is: Disallow guarantees.
    • Malikis: Allow liability only in cases of misconduct or negligence.

    Modern Applications



    1. Investment Accounts (The Most Common Use)
    Islamic banks use Mudarabah to manage customer deposits.

    General Investment Account (GIA)
    • Type: Based on Unrestricted Mudarabah (Mudarabah Mutlaqah).
    • How it works: The bank pools money from many investors and invests it wherever they see fit.
    • Profit: The profit-sharing ratio is usually uniform/standard and advertised as a ready-made package.

    Specific Investment Account (SIA)
    • Type: Based on Restricted Mudarabah (Mudarabah Muqayyadah).
    • How it works: The client specifies where their money goes. This usually requires a big amount of investment.
    • Profit: The profit-sharing ratio is negotiable between the client and the bank.

    2. Project Financing
    • Role: The Islamic bank provides the financing (capital), and the entrepreneur acts as the Mudarib (manager).
    • Management: The bank does not interfere in the day-to-day running of the project.
    • Profit: Shared according to an agreed ratio.

    3. Letter of Credit (LC)
    • Concept: While LCs are often based on Musharakah, Murabahah, or Wakalah, they can also be issued using a Mudarabah contract.

    4. Unit Trust
    Structure:
    • Investors: Provide the capital.
    • Unit Trust Company: Provides the management.
    Outcome: 
    • Any profits generated are shared between them based on the agreed profit-sharing ratio.