1) Mudarabah is a partnership agreement where one party provides capital while the other provides labor and management skills, with profits shared between the parties according to a predetermined ratio. 2) In mudarabah, the capital provider is called rabb-ul-maal and the manager is called the mudarib. The mudarib manages the business while the rabb-ul-maal does not interfere. 3) Mudarabah can be used by Islamic banks for investment purposes and financing projects, businesses, and private equity through profit-sharing with entrepreneurs. Deposits from customers to banks are treated as rabb-ul-maal funds to be invested by the bank as mudarib.

1. APPLICATION OF FUNDS
AL-MUDARABAH
PRESENTED BY
RUSHEILA BINTI RUSLAN
FARHANAH BINTI OSMAN
SHAHITA BAHNU BT AMEER MYDIN
ASMA SALSABILA

2. DEFINITION
 “Mudarabah” is a kind of partnership in profit whereby one party
provides capital and other party provides skill and labor.
.
 The investor (fund provider/supplier) is called “Rabb-ul-Maal while the
person who utilizes this fund (the fund manager) is called “Mudarib”;
 Mudarib is exclusively responsible for management of the business.
 Rabbul Maal (fund supplier) does not have any right to interfere in
business affairs.

3. PERMISSIBILITY OF MUDARABAH
“Others travelling through the land, seeking of
Allah’s bouny.”(surah al-muzzammil verse 20)
“Ibn Abbas used to pay money for mudarabah and
to stipulated to the mudarib that he should not
travel by sea,pass by valleys or trade in livestock,
and that the mudarib would be liable for any
lossesif he did so. These conditions were bought
before the Prophet (SAW) and he approved
them.” Reported by al-Baihaqi no. 6/111.

4. Scope of Mudarabah for Banking System:
− Mudaraba as a mode of finance used by Islamic Banks
for the following purpose:
− Relationship with depositors;
► The depositors provide moneys to bank as Rabb-ul-Mal
to be invested by bank as Mudarib on the basis of profit
and loss sharing on pre agreed specific ratio;
− Islamic bank can also use this mode through providing
capital in a business and sharing in the profit with pre-
agreed ratio;
► Large Enterprise financing;
► Project Finance;
► Business ventures;
► Private equity;

5. Depositors and Islamic bank relationship:
−Mudaraba is used by Islamic Banks for taking deposit
from depositors;
−The depositors provide moneys to bank as Rabb-ul-
Mal to be invested by bank as Mudarib on the basis
of profit and loss sharing on pre agreed specific ratio;
ISLAMIC BANKDEPOSITORS
DEPOSITS
PROFIT
MUDARABAH PROFIT & LOSS
SHARING

6. Mudharabah ( modus operandi )
 Mudharabah refers to a contract
made by two (2) parties to finance
a business venture.
 The parties are a Rabb al mal
(investor) who solely provide the
capital and a Mudharib
(entrepreneur) who solely manages
the project. If the profit will be
distributed based on a pre-agreed
ratio.
 In the event of a business loss, the
loss shall be borne solely by the
provider of the capital. However, if
the losses are caused by the
Mudharib’s negligence or
misconduct, the Mudharib shall be
liable to bear all the losses.
Rabb al mal
(capital
provider)
Mudharib
(entrepreneur)
Mudharabah
Venture
capital Management
skills
Profit to be shared
while losses are
solely borne by the
Rabb al mal
A Generic Mudharabah Transaction
is illustrated below :

7. • Condition of work
1. The work or business venture under mudharabah must
be conducted solely by the entrepreneur . It is not legal
if the capital provider was also required to conduct the
daily operation.
2. The project must be legal and permissble(halal)
3. All the expenses will be taken from the capital provided
that is not more than the justified expenses required in
the venture.
NECESSARY(HUKUM) CONDITION OF MUDHARABAH

8. • Condition of capital
1. Must be in the form of money and not commodities since
commodities fluctuate in the price and cause uncertainly and
ignorance
2. The capital must be clearly specified, detemined and known at the
time of the contract
3. Must be delivered to the possesion of the mudharib entirely.
• Condition of profit
1. The distribution of profit must be determined proportionally
between the capital provider and the entrepreneur
2. The pre-determined profit must be in ratio form or percentage and
not in fixed amount
3. Allowed to be difference ratios at difference situations

9. • Condition of al-mudharabah
1. The capital to start the business venture must be in the
form of cash money that has been agreed upon in the
contract.
2. The capital must be given to the entrepreneur after the two
agreed to the contract, and it need to be specified,
determined and be made known to the two parties
involves, capital provider and the entrepreneur.
3. Rate of profit needs to be pre-determined in ratio form
based on the contract and need to be agreed upon by both
the parties involve.
4. The entrepreneur is allowed to take certain portion of the
capital for the business operation, but it needs to be clearly
specified and justified.

10. TYPE OF MUDARABAH
Restricted Mudarabah (Mudarabah Muqayyadah):
►It is a kind of Mudarabah in which the capital
provider restricts the Mudarib to perform
business with certain restrictions. These
restrictions may be for place (geographical
restriction), particular type of investment (sector
wise restriction) or any other restriction provided
these restrictions do not unduly constrain the
Mudarib from business operations.
−Unrestricted Mudarabah (Mudarabah Mutlaqah):
►It is a kind of Mudarabah in which the capital
provider (Rabbul Maal) does not put any
restriction the Mudarib.

11. TERMINATION OF MUDARABAH
1)The contract of Mudaraba can be terminated at
any time by either of the two parties after giving a
notice to the other party.
2)If all assets are in form of cash and some profit
has been earned on the principle amount, it shall
be distributed between the parties according to
the agreed ratio.
3)If the assets of the Mudaraba are in other form
the Mudarib shall be given an opportunity
liquidate them and the actual profit may be
determined.

12. MUDARABAH vs MUSHARAKAH
MUDARABAH ;
• Contracting Parties
- Give the right to the contracting
parties to share the profit.
• Capital
- This partnership must be in
absolute currency and should
be in ready cash.
• Profit
- Will be shared between the
Rabbul Maal and the Mudarib.
MUSHARAKAH ;
• Contracting Parties
- Involved in a partnership
arrangement contribute funds
and have the right to exercise
executive power in that
project.
• Capital
- Based only on money and must
be in monetary form.
• Profit
- Participate in actual work and
get profit according their work.

13. Continue………….
• Work / Labour
- The Rabbul Maal has no right to
participate in the
management.
• Offer and Accptance
- Has two pillars of offer and
acceptance Mudarabah is
conclude when the parties use
words clearly indicate the
contract.
• Work / Labour
- As a general work, the work is to
be done jointly by the parties.
• Risk
- Entails lower risk, since it
involves risk sharing through
partnership.