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Chapter 11 Modaraba Notes

Modaraba is an Islamic partnership where one party provides capital and the other manages the business, with profits shared and losses borne by the capital provider. It operates under Shariah principles, has various types, and requires registration and compliance with specific regulations. The roles and responsibilities of both parties, Rab-ul-Maal and Mudarib, are clearly defined, emphasizing transparency and adherence to Islamic law.

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4 views3 pages

Chapter 11 Modaraba Notes

Modaraba is an Islamic partnership where one party provides capital and the other manages the business, with profits shared and losses borne by the capital provider. It operates under Shariah principles, has various types, and requires registration and compliance with specific regulations. The roles and responsibilities of both parties, Rab-ul-Maal and Mudarib, are clearly defined, emphasizing transparency and adherence to Islamic law.

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syedaridajamil
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 11: Modaraba - Corporate Law

Definition of Modaraba

A Modaraba is a form of Islamic partnership where one party provides capital (Rab-ul-Maal) and the other

(Mudarib) manages the business. Profit is shared as per agreed ratio; loss is borne only by the capital

provider unless caused by negligence.

Concept of Modaraba

Based on Shariah principles.

Encourages risk-sharing and entrepreneurship.

Commonly used in Islamic finance for investment and trade.

Parties Involved

1. Rab-ul-Maal - Capital provider.

2. Mudarib - Manager/entrepreneur.

No fixed return to Rab-ul-Maal.

Mudarib earns share from profit, not as salary.

Types of Modaraba

1. Single Modaraba - Specific project-based.

2. Multiple Modaraba - More than one project managed under one Modaraba.

3. Restricted Modaraba - Mudarib limited to specific activities.

4. Unrestricted Modaraba - Mudarib has full freedom within Islamic principles.

Rules of Modaraba

Profit-sharing ratio must be predetermined.


Chapter 11: Modaraba - Corporate Law

Loss to be borne by Rab-ul-Maal.

Mudarib not liable for loss unless negligence proven.

Business must comply with Shariah.

No guarantee of capital or profit.

Constitution of Modaraba

Modaraba must be registered under Modaraba Companies and Modaraba (Floatation and Control)

Ordinance, 1980.

Promoters must submit detailed business plan.

Approval required from Registrar/SECP.

Shariah board must be established.

Structure of Modaraba

Modaraba Company - Manages and floats the Modaraba.

Modaraba Fund - Pool of investor capital.

Shariah Board - Ensures compliance.

Registrar of Modaraba - Regulatory authority.

Roles of Mudarib

Business management and operational decision-making.

Maintain proper records and transparency.

Ensure compliance with Shariah.

Report performance to Rab-ul-Maal.

Avoid mixing personal and business funds.


Chapter 11: Modaraba - Corporate Law

Rules & Regulations for Rab-ul-Maal and Mudarib

For Rab-ul-Maal:

- Cannot interfere in daily management.

- Must bear financial loss (except in case of fraud).

For Mudarib:

- Must act with honesty and care.

- No fixed profit-only share from agreed ratio.

- Liable for mismanagement or breach of trust.

General Rules & Regulations

All contracts must be written and signed.

Profit distribution must follow agreed terms.

Loss cannot be shifted onto Mudarib.

Modaraba must be independently audited.

Regular reporting to investors and SECP.

Regulatory Framework

Governed under Modaraba Companies and Modaraba Rules, 1981.

Oversight by Securities and Exchange Commission of Pakistan (SECP).

Subject to:

- Regular inspections.

- Auditing requirements.

- Shariah compliance audits.

- Annual renewal of registration.

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