"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".
The difference between musharakah and mudarabah can be summarized
in the following points
(1) The investment in musharakah comes from all the partners, while
in mudarabah, investment is the sole responsibility of rabb-ul-mal.
(2) In musharakah, all the partners can participate in the management
of the business and can work for it, while in mudarabah, the rabb-ul-mal
has no right to participate in the management which is carried out by
the mudarib only.
(3) In musharakah all the partners share the loss to the extent
of the ratio of their investment while in mudarabah the loss, if any,
is suffered by the rabb-ul-mal only, because the mudarib does not invest
anything. His loss is restricted to the fact that his labor has gone
in vain and his work has not brought any fruit to him. However, this
principle is subject to a condition that the mudarib has worked with
due diligence which is normally required for the business of that type.
If he has worked with negligence or has committed dishonesty, he shall
be liable for the loss caused by his negligence or misconduct.
(4) The liability of the partners in musharakah is normally unlimited.
Therefore, if the liabilities of the business exceed its assets and
the business goes in liquidation, all the exceeding liabilities shall
be borne pro rata by all the partners. However, if all the partners
have agreed that no partner shall incur any debt during the course of
business, then the exceeding liabilities shall be borne by that partner
alone who has incurred a debt on the business in violation of the aforesaid
condition. Contrary to this is the case of mudarabah. Here the liability
of rabb-ul-mal is limited to his investment, unless he has permitted
the mudarib to incur debts on his behalf.
(5) In musharakah, as soon as the partners mix up their capital
in a joint pool, all the assets of the musharakah become jointly owned
by all of them according to the proportion of their respective investment.
Therefore, each one of them can benefit from the appreciation in the
value of the assets, even if profit has not accrued through sales.
The case of mudarabah is different. Here all the goods purchased by
the mudarib are solely owned by the rabb-ul-mal, and the mudarib can
earn his share in the profit only in case he sells the goods profitably.
Therefore, he is not entitled to claim his share in the assets themselves,
even if their value has increased.
Business of the Mudarabah
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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 mudâribs shall
run the business as if they were partners inter se.
The mudarib or mudâribs, as the case may be, are authorized to
do anything which is normally done in the 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
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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 one of them is entitled. No particular proportion has
been prescribed by the Shariah; 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 rabbul-mal can say to 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 by him for the mudarabah.
All the schools of 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
when 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
( Top )
The contract of 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 the assets of the mudarabah are in cash form at the time
of termination, and some profit has been earned on the principal 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 and 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 the 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, Shafii 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 which mudarabah cannot be terminated? No express answer to this
question is found in the books of 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 the 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 Shariah, 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.
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