ISLAMIC BUSINESS TRANSACTION

Y
CHAPTER FIFTEEN

MUDHARABAH

MAHYUDDIN KHALID Y emkay@salam.uitm.edu.my

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Y DEFINITION
DEFINITION Y EVIDENCE
Y PILLARS OF MUDHARABAH
EVIDENCE Y CATEGORIES OF MUDHARABAH
Y CONDITION OF MUDHARABAH
CATEGORIES Y DIFFERENCES BETWEEN MUDHARABAH & MUSHARAKAH

CONDITIONS

COMPARISON

î
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Y Literally:
DEFINITION
Increase or profit
EVIDENCE Y Technically:
Mudharabah is a contract or a partnership where
CATEGORIES one provides the capital and the other the
entrepreneurship with the profit being shared
CONDITIONS among them with a predetermined condition

COMPARISON

0

 
à 
Y The term mudharabah is derived from the expression making or
DEFINITION performing a journey (Ad-dharb fil ardh) and it is called this
because the agent (entrepreneur) gets profit by virtue of his hard
EVIDENCE work and efforts in performing long journeys.
Y The term Mudharabah was widely known in the classical
literature as Qiradh.
CATEGORIES
Y Imam Nawawi says: A joint-stock company is called Qiradh or
Mudharabah
CONDITIONS
Y It exists between two persons, one of whom supplies fund to the
other to trade with, on condition that the former has a share in
COMPARISON the profit.

Ñ
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à 
1. The profit will be shared between the two parties according to
DEFINITION the terms of their agreement
î. The losses will be borne by the capital provider alone who is the
EVIDENCE financier.
0. The entrepreneur only suffers the frustration of a fruitless effort.
CATEGORIES

CONDITIONS

COMPARISON

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Y Al-Quran:
DEFINITION

EVIDENCE

CATEGORIES

CONDITIONS

COMPARISON

These general verses indicate the legality of working and

venturing on property using Mudharabah.

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]
Y 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
EVIDENCE Muqaradah (Mudharabah, Qiradh) , he must not use it to
purchase livestock, or carries it (travel) through the sea, or
drop by at the oasis, if the man committed any of the above,
CATEGORIES
he is considered to be the guarantor of my property

CONDITIONS

COMPARISON

r
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à 
1. Sahibul Mal
DEFINITION Owner of capital, fund provider
î. Mudharib
EVIDENCE Entrepreneur
0. Ra·sul Mal
CATEGORIES Capital
Ñ. Al-Amal or Mashru·
CONDITIONS
Business Venture or projects
5. Ribh
COMPARISON
Predetermined share of profit
-. Sighah
Ijab (Offer)
Qabul (Acceptance)

 
   
à 

DEFINITION profit

profit
EVIDENCE
Sahibul Mal Mudharib
Ijab &
(Owner of
Capital)
Qabul (Entrepreneur)
CATEGORIES

CONDITIONS

Ribh
COMPARISON Ra·sul-Mal
Mashru· (Predetermined
(Capital)
(Project) profit rate)

9
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à 

DEFINITION 1. Mudharabah Unlimited Mudharabah

Mutlaqah
The capital provider authorizes the entrepreneur to act
EVIDENCE completely at the latter·s discretion in all business matter

The entrepreneur may buy and/or sell all types of

CATEGORIES merchandise as he sees fit, hire helpers as needed, rent
equipment and travel with the equipment etc.

CONDITIONS î. Mudharabah Limited Mudharabah

Muqayyadah The capital provider makes certain limitations to the
COMPARISON activities to be
conducted by the mudharib with regards to the capital
given
The limit may be in the form of territorial limits, or time
limitation
Also limitation in terms of kind of goods or person with
whom trade may be
conducted
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à

à 
Y ]

 

DEFINITION 1. The work or business venture under Mudharabah must be

conducted solely by the entrepreneur (mudharib). It is not
EVIDENCE legal if the capital provider (rabbulmal) was also required to
conduct the daily operation.
CATEGORIES î. The project must be legal and permissible(halal)
0. All the expenses will be taken from the capital provided that
is not more than the justified expenses required in the
CONDITIONS
venture

COMPARISON

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à

à 
Y ]

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DEFINITION 1. Must be in the form of money and not commodities since
commodities fluctuate in price and cause uncertainty and
EVIDENCE ignorance
î. The capital must be clearly specified, determined and known
CATEGORIES at the time of the contract

CONDITIONS

COMPARISON

1î
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à

à 
Y ]

 
DEFINITION 1. The distribution of profit must be determined proportionally
between the capital provider and the entrepreneur
EVIDENCE î. The pre-determined profit must be in ratio form or
percentage and not in fixed amount
CATEGORIES

CONDITIONS

COMPARISON

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à  
à
 
?

DEFINITION The capital is financed by one party,
which is the capital provider or the
owner of the business
EVIDENCE
The capital must be in the form of cash
CATEGORIES money
CONDITIONS
The entrepreneur will be the only one
COMPARISON that will conduct the actual business.
The capital provider is not allowed to
jointly work with the entrepreneur.
The monetary loss will be solely borne
by the capital provider while the
entrepreneur will only suffer from a
fruitless effort without having to bear
all the capital losses
1Ñ
? 
The capital is financed by all the
shareholders according to the
proportion agreed upon by all parties
Any type of property that could
normally be assessed and have certain
commercial value could be considered
as an acceptable source of capital.
Example; intellectual capital
All the shareholders have the right to
work and contribute their skills,
knowledge, experienc e and expertise
in the company
The monetary loss will be jointly borne
by all the shareholders according to the
ratio and proportion of their respective
share in the partnership
 
à  ] ë

DEFINITION

EVIDENCE

CATEGORIES

CONDITIONS Y
COMPARISON

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