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 ABOUT THE BUSINESS OF MUDARABAH ‘PARTNERSHIP’

 There are two main parties involved in mudarabah  

1.The rabb-ul-mal may specify a particular business for the mudarib, in which case he shall invest the money in that particular business

ond “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 However, some jurists have opined that any natural increase in the capital may
be taken as a profit distributable between the rabbul-mal and mudarib. For
example, if the capital was in the form of sheep, and lambs were born to some of them, these lambs will be taken as profit and will be shared between the parties.
According to the agreed proportions (see al-Nawawi, Rawdat al-Talibin, 5:125).
But this is a minority view.

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.2
In this case both the mudaribs shall run the business as if they were partners inter se.
2. The mudarib or mudaribs, 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
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 Shari‘ah; 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 rabb-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.” 3

Apart from the agreed proportion of the profit, as determined in
the above manner, the mudarib cannot claim any periodical salary
Ibn Qudamah, Al-Mughni, 5:145.

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.5

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
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

Shafi’i and Maliki schools are of the opinion that the mudarabah
cannot be restricted to a particular time.9
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,the parties agree, when entering into the mudarabah, that no party shall

it during a specified period, except in specified
circumstances, it does not seem to violate any principle of Shari‘ah,
particularly in the light of the famous hadith, already quoted, which
says:

المسلمون على شروطهم الا شرطا احل حراما او حرم حلالا
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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