MUDARABAH
Key points
01 Introduction
02 Types of Mudaraba
03 Basic rules
04 Application in Islamic banks
MUDARABAH?
“Mudarabah is a kind of partnership where one
partner gives money to another for investing in
a commercial enterprise”.
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Parties in MUDARABAH
• Rabul Maal (Investor)
• Mudarib (Manager)
Important point:
Rabul Maal should hand over the management of the
investment to Mudarib leaving all decision making
with him without interference in the management.
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Types of MUDARABAH
1.Restricted Mudarabah ( ) مضـاربـہ مقیدہ
2.Unrestricted Mudarabah ( مضـاربـہ غیر مقیدہ/ )مطلقہ
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Basic Rules for Management of Mudarabah
1. Rabbul Maal has authority to:
• Oversee the Mudarib’s activities
• Work with if he consents
2. Mudarib does not have the authority without the
consent of Rabbul Maal to:
• Keep another Mudarib or a partner
• Mix his own investment
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MUDARABAH Capital
May be in
1.Cash
2.Kind (must be properly valued so that the
valuation is known in clear terms to the Rabul
Mall and Mudarib)
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Termination of Mudarabah
Can be terminated:
• After the expire of specific period or
• Either of the two parties gives notice and terminate the Mudarabah
at the end of notice period.
After Termination:
• If all assets are in cash form and earned some profit. profits will be
distributed according to agreed ratio.
• If all assets are not in cash form they will be sold and liquidated so
that the actual profit may be determined.
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Termination of Mudarabah
• All payables and receivables of Mudarabah will be paid/
recovered on termination
• The principal amount invested by Rabbul Maal will be
given first, the remaining balance will be called profit
which will be distributed on agreed ratio, however if no
balance is left, Mudarib will not get anything.
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Rules for Profit and Loss in Mudarabah Capital
1. Ratio of profit should be determined in the beginning
2. Ratio can not be fixed in term of lump sum nor specific ratio of capital.
3. Different profit ratios can be decided in different situations.
4. Neither Mudarib not Rabbul Maal can take any fixed amount from the
venture .
5. The Mudarabah becomes void (Fasid) if the profit is fixed in any way in
this case the entire amount (profit + Capital) will be of the Rabbul Maal
and the Mudarib would be just an employee earning Ujrat-e-
Misl(Market based remuneration)
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Practical Aspect of Mudarabah in Islamic Banks
A.Deposits side:
How does the Bank work as a Mudarib?
B.Investments side:
The Bank as Rabbul Maal
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Practical Aspect of Mudarabah in Islamic Banks
Mudarabah Example (Single depositor)
• Depositor placed Rs. 100,000/- at Islamic Bank in Mudarbah account for one year
• Bank acts as Mudarib while depositor acts as Rabul Maal
• Assumed profit sharing ratio (PSR) is 50:50 between Bank and depositor
• Assumed Bank earned profit of Rs. 10,000/-
• Profit will be distributed as follow:
Bank (10,000*50%) Rs. 5000/-
Depositor Rs. 5000/-
l Mudarabah contract completes at this stage
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Practical Aspect of Mudarabah in Islamic Banks
•
Mudarabah Example (Multiple Depositors)
•
Relationship between Bank and depositors will remain as Mudarib and Rabul
Maal respectively.
•
However, relationship among depositors (Rabul Maal) will be based on
“Musharakah i.e Shirkat ul Amwal”
•
Profit distributes as per agreed PSR between Bank and Rabul Maal
(Depositors) while Profit among Rabul Maal (Depositors) will be distributed as
per assigned weightages
•
Weightages are assigned mainly on the basis of amount, tenure, market practice
and management discretion
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Application in Mudarabah
Liability side Financing:
1. Saving/Investment accounts
2. Inter-bank lending/borrowing
3. T-Bills and Federal Investment Bonds/Sukok
Assets side Financing:
4. Short/Medium/Long-term Financing
5. Project Financing
6. Small & medium enterprises setup financing
7. Large enterprise financing
8. Import Financing
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Any Questions??
