MAHYUDDIN KHALID

[email protected]

CONTENT
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

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

DEFINITION
DEFINITION

Literally:
Derived from the phrase dharaba fi al-ard which means to make a journey and it is called this because the agent (entrepreneur) gets profit by virtue of his hard work and efforts in performing long journeys.

EVIDENCES

PILLARS

Technically:
A contract or a partnership where one provides the capital and the other the entrepreneurship with the profit being shared among them with a predetermined condition Partnership in profit whereby one party (rabb al-mal) provides capital and the other party (mudharib) provides labor.

TYPES OPINION OF SCHOLARS APPLICATION

NATURE OF MUDHARABAH
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

The term Mudharabah was widely known in the classical literature as Qiradh and muqharadhah. Both terms derived from the word qarada which means to cut off (al-qat). This is simply because the capital provider (rabb al-mal) need to cuts off some of his money to be utilized by the mudharib in business activities. Imam Nawawi says: A joint-stock company is called Qiradh or Mudharabah 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 the profit.

CHARACTERISTIC OF MUDHARABAH
DEFINITION

EVIDENCES

PILLARS

1. The profit will be shared between the two parties according to the terms of their agreement 2. The losses will be borne by the capital provider alone who is the financier. 3. The entrepreneur only suffers the frustration of a fruitless effort.

TYPES OPINION OF SCHOLARS APPLICATION

EVIDENCE
Al-Quran:
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

Although this verses do not directly address the legality of mudharabah, they have been interpreted to include those who travel for the purpose of trading and seeking permissible income.

EVIDENCE
DEFINITION

Hadith:
Reported By Hakim Bin Hizam that he had stipulated to a man that if he gave him certain asset to be utilized for 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, he is considered to be the guarantor of my property

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

PILLARS OF MUDHARABAH
1. Sahibul Mal
DEFINITION

Owner of capital, fund provider

EVIDENCES

2. Mudharib
Entrepreneur

PILLARS

3. Rasul Mal
Capital

TYPES OPINION OF SCHOLARS APPLICATION

4. Al-Amal or Mashru
Business Venture or projects

5. Ribh
Predetermined share of profit

6. Sighah
Ijab (Offer) Qabul (Acceptance)

FLOWS OF MUDHARABAH
DEFINITION

profit profit Sahibul Mal

EVIDENCES

PILLARS

Mudharib (Entrepreneur)

TYPES OPINION OF SCHOLARS APPLICATION Rasul-Mal Ribh Mashru

(Capital)

(Project)

(Predetermined profit rate)

ROLES OF ENTREPRENEUR (MUDHARIB)

Ameen

(Trustee)
Wakeel (Agent) Sharik (Partner) Dhamin (Liable) Ajeer (Employee)

The money given by Rab al-mal (investor) and the assets required therewith are held by him as a trust.

EVIDENCES

In purchasing goods for trade, he is an agent of Rab al-mal.

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

In case the enterprise earns a profit, he is a partner of Rab al-mal who shares the profit in agreed ratio.

If the enterprise suffers a loss due to his negligence or misconduct, he is liable to compensate the loss.

If the Mudarabah becomes Void due to any reason, the Mudarib is entitled to get a fee for his services.

10

CATEGORIES OF MUDHARABAH
DEFINITION

Mudharabah

EVIDENCES

PILLARS

Mudharabah Mutlaqah

Mudharabah Muqayyadah

TYPES OPINION OF SCHOLARS APPLICATION

Unlimited Mudharabah

Limited Mudharabah

Profit sharing contract unrestricted by a stipulation

Profit sharing contract restricted by stipulation

MUDHARABAH MUTLAQAH
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

The entrepreneur (mudharib) may buy and/or sell all types of merchandise as he sees fit, hire helpers as needed, rent equipment and travel with the equipment etc. The business is run according to entrepreneur (mudharib) expertise and experience based on his discretion The capital provider (rabb al-mal) authorizes the entrepreneur (mudharib) to act completely at the latters discretion in all business matter. Mudharibs liberty to transact the capital:
All matters which are commonly practiced in business - the authorization to transact with the capital is unlimited All matters which are not commonly practiced in business free to transact with the capital provided with permission from rabb al-mal. Eg: giving the capital as donations or loans

12

MUDHARABAH MUQAYYADAH
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

The capital provider (rabb al-mal) makes certain limitations to the activities to be conducted by the entrepreneur (mudharib) with regards to the capital given The business is subject to capital providers (rabb almal) instruction in term of type, location, time etc. Mudharibs liberty to transact the capital:
The mudarib is subjected to certain limitations in the form of territorial limits, or time limitation and limitation in terms of kind of goods or person with whom trade may be conducted

13

CONDITION OF MUDHARABAH
DEFINITION

Conditions of Work/ Subject Matter

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

14

CONDITION OF MUDHARABAH
DEFINITION

Conditions of Capital
1. Must be in the form of money and not commodities since commodities fluctuate in price and cause uncertainty and ignorance 2. The capital must be clearly specified, determined and known at the time of the contract 3. Must be available cash-present during the conclusion of contract 4. Must be delivered to the possession of the mudharib entirely

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

15

CONDITION OF MUDHARABAH
DEFINITION

Conditions Of Profit
1. The distribution of profit must be determined proportionally between the capital provider and the entrepreneur 2. The pre-determined profit must be in ratio form or percentage and not in fixed amount 3. Allowed to be different ratios at different situations

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

16

ISSUES IN PROFIT
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

There cannot be a distribution of profits until the losses have been written off and the equity of rab al-mal has been fully restored Any distribution of profits before the conclusion of the contract will be considered as an advance All losses incurred in the ordinary course of business must be charged against profits before they can be charged against the equity of rab al-mal If it has been agreed that the entire profit will be taken by the rab al-mal the mudarib will be entitled to the customary remuneration (ujr al-mithly) If it has been agreed that the entire profit will be taken by the mudarib the rab al-mal is a creditor and mudarib is a debtor The mudarib cannot claim any periodical salary /fee or remuneration for the work done by him for the mudharabah

17

TERMINATION OF MUDHARABAH CONTRACT

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

Unilateral termination On the date of maturity if the two parties had earlier agreed to set the time limit When the fund of mudharabah has been exhausted or have suffered losses The death of the mudharib or liquidation of institution that acts as mudharib Insanity of any parties to the mudharabah contract

18

DIFFERENCE BETWEEN MUDHARABAH AND MUSHARAKAH

MUSHARAKAH

EVIDENCES

The capital is financed by one party, which is the capital provider or the owner of the business
The capital must be in the form of cash money

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

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

The entrepreneur will be the only one 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

All the shareholders have the right to work and contribute their skills, knowledge, experience 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

19

MODERN APPLICATION
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

Project financing Import/export financing Working capital financing Saving/Current/Investment account Interbank lending/borrowing Sukuk

20

END OF CHAPTER
DEFINITION

EVIDENCES

PILLARS

TYPES OPINION OF SCHOLARS APPLICATION

21