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MUDHARABAH
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MUDHARABAH

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  • 1. MAHYUDDIN KHALID  emkay@salam.uitm.edu.my
  • 2. CONTENT  DEFINITION DEFINITION  EVIDENCE EVIDENCES  PILLARS OF MUDHARABAH  CATEGORIES OF MUDHARABAH PILLARS  CONDITION OF MUDHARABAH TYPES  DIFFERENCES BETWEEN MUDHARABAH & MUSHARAKAH OPINION OF SCHOLARSAPPLICATION 2
  • 3. DEFINITION  Literally: DEFINITION  Derived from the phrase “dharaba fi al-ard” which means to make a journey and it is called this because the EVIDENCES agent (entrepreneur) gets profit by virtue of his hard work and efforts in performing long journeys. PILLARS  Technically: TYPES  A contract or a partnership where one provides the capital and the other the entrepreneurship with the OPINION OF profit being shared among them with a predetermined SCHOLARS condition  Partnership in profit whereby one party (rabb al-mal)APPLICATION provides capital and the other party (mudharib) provides labor. 3
  • 4. NATURE OF MUDHARABAH  The term Mudharabah was widely known in the DEFINITION classical literature as Qiradh and muqharadhah. EVIDENCES  Both terms derived from the word qarada which means to cut off (al-qat‟). This is simply because the PILLARS capital provider (rabb al-mal) need to cuts off some of his money to be utilized by the mudharib in TYPES business activities.  Imam Nawawi says: A joint-stock company is OPINION OF SCHOLARS called Qiradh or Mudharabah  It exists between two persons, one of whomAPPLICATION supplies fund to the other to trade with, on condition that the former has a share in the profit. 4
  • 5. CHARACTERISTIC OF MUDHARABAH 1. The profit will be shared between the two parties DEFINITION according to the terms of their agreement EVIDENCES 2. The losses will be borne by the capital provider alone who is the financier. PILLARS 3. The entrepreneur only suffers the frustration of a fruitless effort. TYPES OPINION OF SCHOLARSAPPLICATION 5
  • 6. EVIDENCE  Al-Quran: DEFINITION EVIDENCES PILLARS TYPES OPINION OF SCHOLARSAPPLICATION  Although this verses do not directly address the legality of mudharabah, they have been interpreted to include those who travel for the purpose of trading and seeking permissible income. 6
  • 7. EVIDENCE  Hadith: DEFINITION  Reported By Hakim Bin Hizam that he had stipulated to a man that if he gave him certain asset to be utilized for EVIDENCES Muqaradah (Mudharabah, Qiradh) , he must not use it to purchase livestock, or carries it (travel) through the PILLARS sea, or drop by at the oasis, if the man committed any of the above, he is considered to be the guarantor of my TYPES property OPINION OF SCHOLARSAPPLICATION 7
  • 8. PILLARS OF MUDHARABAH 1. Sahibul Mal DEFINITION  Owner of capital, fund provider 2. Mudharib EVIDENCES  Entrepreneur PILLARS 3. Ra‟sul Mal  Capital TYPES 4. Al-Amal or Mashru‟  Business Venture or projects OPINION OF SCHOLARS 5. Ribh  Predetermined share of profitAPPLICATION 6. Sighah  Ijab (Offer)  Qabul (Acceptance) 8
  • 9. FLOWS OF MUDHARABAH DEFINITION profit profit EVIDENCES Sahibul Mal Mudharib Ijab & (Owner of Capital) Qabul (Entrepreneur) PILLARS TYPES Ribh OPINION OF Ra‟sul-Mal SCHOLARS Mashru‟ (Predetermined (Capital) (Project) profit rate)APPLICATION 9
  • 10. ROLES OF ENTREPRENEUR (MUDHARIB) Ameen • The money given by Rab al-mal (investor) and the DEFINITION assets required therewith are held by him as a trust. (Trustee) EVIDENCES Wakeel • In purchasing goods for trade, he is an agent of Rab al-mal. PILLARS (Agent) Sharik • In case the enterprise earns a profit, he is a partner TYPES of Rab al-mal who shares the profit in agreed ratio. (Partner) OPINION OF SCHOLARS Dhamin • If the enterprise suffers a loss due to his negligence or misconduct, he is liable to compensate the loss.APPLICATION (Liable) Ajeer • If the Mudarabah becomes Void due to any reason, the Mudarib is entitled to get a fee for his (Employee) services. 10
  • 11. CATEGORIES OF MUDHARABAH DEFINITION Mudharabah EVIDENCES Mudharabah Mudharabah PILLARS Mutlaqah Muqayyadah TYPES OPINION OF Unlimited Limited SCHOLARS Mudharabah MudharabahAPPLICATION Profit sharing Profit sharing contract unrestricted contract restricted by a stipulation by stipulation 11
  • 12. MUDHARABAH MUTLAQAH  The entrepreneur (mudharib) may buy and/or sell all DEFINITION types of merchandise as he sees fit, hire helpers as needed, rent equipment and travel with the equipment EVIDENCES etc.  The business is run according to entrepreneur PILLARS (mudharib) expertise and experience based on his discretion TYPES  The capital provider (rabb al-mal) authorizes the entrepreneur (mudharib) to act completely at the latter‟s OPINION OF discretion in all business matter. SCHOLARS  Mudharib‟s liberty to transact the capital:  All matters which are commonly practiced in business - theAPPLICATION authorization to transact with the capital is unlimited  All matters which are not commonly practiced in business - free to transact with the capital provided with permission from rabb al-mal. Eg: giving the capital as donations or loans 12
  • 13. MUDHARABAH MUQAYYADAH  The capital provider (rabb al-mal) makes certain DEFINITION limitations to the activities to be conducted by the entrepreneur (mudharib) with regards to the EVIDENCES capital given PILLARS  The business is subject to capital provider‟s (rabb al- mal) instruction in term of type, location, time etc. TYPES  Mudharib‟s liberty to transact the capital:  The mudarib is subjected to certain limitations in the OPINION OF SCHOLARS form of territorial limits, or time limitation and limitation in terms of kind of goods or person withAPPLICATION whom trade may be conducted 13
  • 14. CONDITION OF MUDHARABAH  Conditions of Work/ Subject Matter DEFINITION 1. The work or business venture under Mudharabah must be conducted solely by the entrepreneur (mudharib). It EVIDENCES is not legal if the capital provider (rabbulmal) was also required to conduct the daily operation. PILLARS 2. The project must be legal and permissible(halal) 3. All the expenses will be taken from the capital TYPES provided that is not more than the justified expenses OPINION OF required in the venture SCHOLARSAPPLICATION 14
  • 15. CONDITION OF MUDHARABAH  Conditions of Capital DEFINITION 1. Must be in the form of money and not commodities since commodities fluctuate in price and cause EVIDENCES uncertainty and ignorance 2. The capital must be clearly specified, determined and PILLARS known at the time of the contract 3. Must be available cash-present during the conclusion TYPES of contract OPINION OF 4. Must be delivered to the possession of the mudharib SCHOLARS entirelyAPPLICATION 15
  • 16. CONDITION OF MUDHARABAH  Conditions Of Profit DEFINITION 1. The distribution of profit must be determined proportionally between the capital provider and the EVIDENCES entrepreneur 2. The pre-determined profit must be in ratio form or PILLARS percentage and not in fixed amount 3. Allowed to be different ratios at different situations TYPES OPINION OF SCHOLARSAPPLICATION 16
  • 17. ISSUES IN PROFIT  There cannot be a distribution of profits until the losses DEFINITION have been written off and the equity of rab al-mal has been fully restored EVIDENCES  Any distribution of profits before the conclusion of the contract will be considered as an advance  All losses incurred in the ordinary course of business PILLARS must be charged against profits before they can be charged against the equity of rab al-mal TYPES  If it has been agreed that the entire profit will be taken by the rab al-mal – the mudarib will be entitled to the OPINION OF customary remuneration („ujr al-mithly) SCHOLARS  If it has been agreed that the entire profit will be taken by the mudarib – the rab al-mal is a creditor andAPPLICATION mudarib is a debtor  The mudarib cannot claim any periodical salary /fee or remuneration for the work done by him for the mudharabah 17
  • 18. TERMINATION OF MUDHARABAH CONTRACT  Unilateral termination DEFINITION  On the date of maturity if the two parties had earlier EVIDENCES agreed to set the time limit  When the fund of mudharabah has been exhausted PILLARS or have suffered losses  The death of the mudharib or liquidation of TYPES institution that acts as mudharib OPINION OF  Insanity of any parties to the mudharabah contract SCHOLARSAPPLICATION 18
  • 19. DIFFERENCE BETWEEN MUDHARABAH AND MUSHARAKAH MUDHARABAH MUSHARAKAH DEFINITION The capital is financed by one party, The capital is financed by all the which is the capital provider or the shareholders according to the EVIDENCES owner of the business proportion agreed upon by all parties The capital must be in the form of cash Any type of property that could PILLARS money normally be assessed and have certain commercial value could be considered as an acceptable source of capital. TYPES Example; intellectual capital The entrepreneur will be the only one All the shareholders have the right to OPINION OF that will conduct the actual business. work and contribute their skills, SCHOLARS The capital provider is not allowed to knowledge, experience e and expertise jointly work with the entrepreneur. in the companyAPPLICATION The monetary loss will be solely borne The monetary loss will be jointly borne by the capital provider while the by all the shareholders according to the entrepreneur will only suffer from a ratio and proportion of their respective fruitless effort without having to bear share in the partnership all the capital losses 19
  • 20. MODERN APPLICATION  Project financing DEFINITION  Import/export financing EVIDENCES  Working capital financing  Saving/Current/Investment account PILLARS  Interbank lending/borrowing TYPES  Sukuk OPINION OF SCHOLARSAPPLICATION 20
  • 21. END OF CHAPTER DEFINITION EVIDENCES PILLARS TYPES  OPINION OF SCHOLARSAPPLICATION 21