Justification for

Mudarabah Contracts

Quranic Arguments
The following verse of the Quran implies the general permissibility
of commercial ventures including mudarabah:
(a)
Translation: While others travel in the land in search of Allahs
bounty (Chapter 73, Verse 20).
managing wealth to seek the bounty of Allah SWT which may
take the form of mudarabah.
Since in the case of Mudarabah, partners do the struggle for the
bounty of Allah, hence these words justified the act of Mudarabah
(Taseen, 2002).

Sunnah
Suhayb (may Allah be pleased with him) reported that the Prophet
Muhammad (peace be upon him) said: Three matters that have the
blessing (of Allah): A deferred sale, muqaradah (mudarabah),
mixing wheat with barley for domestic use and not for sale.
Ibnu Abbas (may Allah be pleased with him) reported that: When
Abbas Ibn Abd al-Muttalib gave his property to someone for
mudarabah, he stipulated conditions for his partner not to bring the
capital onto the sea; and not to bring with him the capital crossing
a valley; and not to buy livestock with the capital; and if his partner
violates the conditions, he should guarantee the loss occurred.
These conditions have been brought to the attention of Prophet
Muhammad (peace be upon him) and he approved them.

Elements in a Mudarabah
Contract
1) Parties
2) Sahibul Mal - Owner of capital, fund provider
3) Mudharib Entrepreneur
4) Rasul Mal - Capital
5) Al- Amal Projects or Ventures
6) Sighah - An agreement between both parties (offer and
acceptance)
7) Ribh - A profit sharing ratio

Conditions of Mudarabah Contract

Conditions of Work/ Subject Matter
Contracts under Mudharabah must be conducted solely by the
entrepreneur (mudharib). The capital provider (rabbulmal) is not
allowed to conduct the daily operation. The project must also be legal
and permissible (halal) and all the expenses will be taken from the
capital provided.
Conditions of Capital
Capital should be in the form of money and not commodities. This is
because, commodities often fluctuate in price and contains the
element of uncertainty. In addition, the capital must be clearly
specified, determined and known at the time of the contract .Must be
available cash-present during the conclusion of contract. Must be
delivered to the possession of the mudharib entirely.

 Conditions of Profit
The distribution of profit must be determined
proportionally between the capital provider
and the entrepreneur. The pre-determined
profit must be in ratio form or percentage and
not in fixed amount. Allowed to be different
ratios at different situations.