1. Mudaraba is an Islamic contract of partnership for profit-sharing between the provider of capital and the manager. The provider of capital is called rabb al-mal and the manager is called mudarib. 2. Under mudaraba, the rabb al-mal provides 100% of the capital while the mudarib provides their labor and management skills. Profits are shared according to a predetermined ratio, usually 50-50, while losses are borne solely by the rabb al-mal. 3. The two main types of mudaraba are restricted (al-muqayyadah) where the rabb al-mal specifies the business or location, and unrestricted (al-mut

1. Abdulahi Abukar “ ABAJEY”

2. Abdulahi Abukar “ ABAJEY”
INTRODUCTION
Islamic Financial System is one of the prime
modes function of Islam, the concept of
Mudaraba has been derived from the
teachings of our Holy prophet Muhammad
In Islamic finance, Mudaraba is a trust
financing contract. Mudaraba may be
conducted between investment account
holders as fund providers and the Islamic
bank as a Mudarib.

3. WHAT IS MUDARABA?
Word of Mudaraba It is of Iraqi origin and found mostly in
Imam Abu Hanifa’s and Imam Ibnu Hambal’s Schools
 “Mudaraba is a kind of partnership , wherein one
party provides finance to other party for the purpose
of carrying on business”
 The Mudaraba contract is a form of partnership
between one who contributes capital (RABB-UL-
MAAL) and the other who contributes efforts in the
form of managerial skills (MUDARIB),
 Mudaraba is a partnership where capital is provided, in
cash or assets (no debt is accepted) by one party - the
fund provider - and labour is provided by the other party
- mudarib. Abdulahi Abukar “ ABAJEY”

4.  It is a partnership contract between two
parties, persons to person, organizations to
person or Organization with organization in
which ONE brings the Capital, the Other
shares his Time Skill, Experience & Goodwill
in the respective business field for a specified
project or transaction.
Abdulahi Abukar “ ABAJEY”

5. 1. The profit will be shared between the two
parties according to the terms of their
agreement.
2. The losses will be borne by the capital provider
alone who is the financier.
3. The entrepreneur only suffers the frustration of
a fruitless effort.
4. RABB-UL-MAL can pay a debt his or her
investment anytime by selling his/her MUDARIBA
Certificate through Stock markets to other
RABB-UL-MAL.
Abdulahi Abukar “ ABAJEY”

6. 1. Mudaraba Al Muqayyadah (restricted):
Mudarabah Al Muqayyadah means a restricted
Mudaraba where the Rabb‐ul‐maal may specify
a particular business or a particular place for
the mudarib, in which case he shall invest the
money in that particular business or place.
2. Mudaraba Al Mutlaqah (Unrestricted):
Mudaraba Al Mutlaqah means unrestricted
Mudaraba where the Rabb-ul-maal gives full
freedom to the mudarib to undertake
whatever business he deems fit.Abdulahi Abukar “ ABAJEY”

7. 1. Ameen: The money and the assets belong to the Rabb-ul-maal
and the Mudarib held them as trustee.
2. Wakeel:a The Mudarib steps in the role of agent while purchasing
goods for trade in the business of Mudaraba.
3. Shareek: in case the Mudaraba earns profit, the Mudarib takes
his share as partner and assume the role of Shareek.
4. Zamin (liable): The Mudarib is also a Zamin to the Mudaraba and
if the Mudaraba business suffers a loss due to negligence of the
Mudarib, he is liable to compensate the loss to the business.
5. Ajeer(employee): Where he acts against the charter of the
Mudaraba business and the Rabb-ul-maal terminates the
Mudaraba, the role of Mudarib changes into employee and till
the date he works for removal of assets of the business he is
allowed to salary for his work as Ajeer.
Abdulahi Abukar “ ABAJEY”

8. Rabb-ul-Mal
He gives only money
He has no management
skills
Rabb-ul-Mal cannot ask to
Mudarib
Where is my money?
Where to invest?
Abdulahi Abukar “ ABAJEY”
Mudarib
Work as manager
He cannot invest in business
He knows about business term
& condition
He works Separately Has
business skills.
Have knowledge about
business management.
All decision are made by him.

9.  Only money in shape of Dirham, Shilling, Dinars,
Rupees, Dollars or any other currency is used as
a medium of exchange in the Mudaraba mode.
 Commodity in exchange of another commodity
(i.e. barter trade) is not permissible. On the
other hand, Mudaraba contract cannot be
established with just anybody.
 Experience, knowledge and skill of related
business processes are an essential condition of
the contract
Abdulahi Abukar “ ABAJEY”

10. Mudaraba on the basis of fixed return or wages Is
not allowed. Reason is the unknown salary for
an unknown activity.
 Rab-al-Maal (the financier) does not have to
take an active part in the daily operations as in
the case of employment
 In case of loss in the Mudaraba the Mudarib is
not entitled of an fee, commission or profit
and lose his efforts, time and reputation does
not result in the transaction.
Abdulahi Abukar “ ABAJEY”

11.  Rab-al-maal has the right to investigate
the cause of loss.
 In any negligence, cheating or a
purposeful mistake by the Mudarib,
financier can claim the Principle Financing.
There is no harm in investigating the cause
of loss in Mudaraba. Mudarib is bound to
provide the justification to the satisfaction
of Rab-al-Maal on loss
Abdulahi Abukar “ ABAJEY”

12.  Mudarabah can be terminated any time by
giving notice.
 If Mudarabah was for a particular term, it
will terminate at the end of the term.
 Termination of Mudarabah means that the
mudarib cannot purchase new goods for the
Mudarabah. However, he may sell the existing
goods that were purchased before
termination.
Abdulahi Abukar “ ABAJEY”

13.  If all assets of the Mudaraba 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.
 If the assets of Mudaraba are not in cash
form, they will be sold and liquidated so
that the actual profit may be determined.
Abdulahi Abukar “ ABAJEY”

14. 1. Halal Business Mudaraba is the business model in
the financial sector which is based on true Islamic
practices as usually scrutinized(examine) and
accepted by the members of the Religious Board
appointed by the Government. It provides
profitable investment opportunities to the
stakeholders who are looking for Halal profits on
their investments according to Islamic Shariah.
Abdulahi Abukar “ ABAJEY”

15. 2. Diversified Business The diversity of the
Mudaraba concept provides a unique universe
of business opportunities to the sector,
including financing, trading, manufacturing,
equipment-rental, participation in property
development, project management, portfolio
management, imports and exports and
distribution business. Such a diverse image of
activities is not available to any other entity
in the Islamic financial regime.
Abdulahi Abukar “ ABAJEY”

16. 3. Tax Benefit The income earned by the
Mudaraba, other than the trading
Mudaraba, is fully exempted from income
tax provided they distribute 90% of their
profits amongst the certificate holders.
For trading Mudaraba, the maximum tax rate is
25 percent.
Abdulahi Abukar “ ABAJEY”

17. 4. Maximum Distribution of Profits As an investor of a Mudaraba
one may expect getting maximum dividends as 90% of the
income/profits of the Mudaraba are distributed to the
certificate holders in order to avail the benefit of tax
exception.
5. Funding and Financial Facilities under Shariah Compliant
modes are provided by Mudaraba, on the outline similar to
Islamic banks to the clients.
Abdulahi Abukar “ ABAJEY”

18. 1. Lets go through an example of how an unrestricted
Mudaraba investment account (MIA) works in
principle.
There are deposits from investors Rabb-ul-maal totaling
$300K
Assume the 10% of the amount goes to restricted accounts,
while the remaining goes to the unrestricted account ,
the investor and the bank has been agreed as 60:40 .
The investment account holders and bank are now in the
First Mudaraba and the Profit they make is 90%, so
how will be the sharing ratio will.
Abdulahi Abukar “ ABAJEY”

19. 2) Rashiid and Manaal from an in partnership
Mudaraba with capital of $100K
respectively.
The profit earned for the first year was
$50K
a) How much profit to partners if the profit
sharing ratio agreed was 1/3 to Rashiid and
2/3 to Maanaal.
b) There is a Profit $35K in the 2nd year, they
agreed ratio was 3:4 how is the profit
distributed among the partners?
c) Calculate the rest of the amount the 2nd
year. Abdulahi Abukar “ ABAJEY”

20. 1. What is Mudaraba
2. What are the characteristic of
Mudaraba?
3. What is types of Mudaraba
4. There are roles of Mudaraba what are
they ?
5. There are two parties involve Mudaraba
how these parties involve in Mudaraba
Abdulahi Abukar “ ABAJEY”

21. Abdulahi Abukar “ ABAJEY”