The document defines and discusses the concept of Mudharabah, which is a contract of partnership where one party provides capital and the other provides labor and management. It provides key details on the definition, pillars, categories, conditions and evidence for Mudharabah based on classical Islamic literature. The summary highlights that Mudharabah is a profit-sharing partnership where profits are shared according to a predetermined rate but losses are borne solely by the capital provider.

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
SCHOLARS
APPLICATION
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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.
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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 whom
APPLICATION
supplies fund to the other to trade with, on
condition that the former has a share in the profit.
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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
SCHOLARS
APPLICATION
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6. EVIDENCE
 Al-Quran:
DEFINITION
EVIDENCES
PILLARS
TYPES
OPINION OF
SCHOLARS
APPLICATION
 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.
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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
SCHOLARS
APPLICATION
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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 profit
APPLICATION 6. Sighah
 Ijab (Offer)
 Qabul (Acceptance)
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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
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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.
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11. CATEGORIES OF MUDHARABAH
DEFINITION Mudharabah
EVIDENCES
Mudharabah Mudharabah
PILLARS
Mutlaqah Muqayyadah
TYPES
OPINION OF Unlimited Limited
SCHOLARS Mudharabah Mudharabah
APPLICATION
Profit sharing Profit sharing
contract unrestricted contract restricted
by a stipulation by stipulation
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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 - the
APPLICATION
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
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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 with
APPLICATION whom trade may be conducted
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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
SCHOLARS
APPLICATION
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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 entirely
APPLICATION
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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
SCHOLARS
APPLICATION
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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 and
APPLICATION mudarib is a debtor
 The mudarib cannot claim any periodical salary /fee or
remuneration for the work done by him for the
mudharabah
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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
SCHOLARS
APPLICATION
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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 company
APPLICATION
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
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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
SCHOLARS
APPLICATION
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21. END OF CHAPTER
DEFINITION
EVIDENCES
PILLARS
TYPES 
OPINION OF
SCHOLARS
APPLICATION
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