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Mudarabah
Definition
Mudaraba in essence is based on the
concurrence of those who have capital with those
who expertise, where the first party provides
capital and the other party provides the expertise
with the purpose of earning Halal profit (lawful)
which will be divided between them in ratios
agreed upon.
This
mode achieves the interest of both parties, the
capital owner and
the Mudarib (agent).
* The capital
owner may not have the time or the
experience to turn
over capital and trade with.
* The agent
(the Mudarib) may not have the adequate
capital
to put to use his experience.
The
following is an illustration of the steps of the
Mudaraba contract.
The
Practical Steps of Mudaraba
1.
Establishing a Mudaraba project:
The Bank: provides the capital as a capital owner.
The Mudarib: provides the effort and expertise for
the investment
of capital in exchange for a share in profit
agreed upon.
2.
The results of Mudaraba:
The two parties calculate the earnings and divide
the profits at
the end of Mudaraba, this can be done periodically
in accordance
with the agreement along with observance to
legal rules.
3.
The participation in capital:
The bank recovers the Mudaraba capital it
contributed before dividing
the profits between the two parties because profit
is protection
of capital. In case of agreement to distribute
profits periodically
before the final settlement it must be on account
until the security
of capital is assured.
The
participation in capital:
*
In case of loss, the capital owner (the bank)
bears the loss.
* In
the event of profits, they are divided between the
parties in
accordance with the agreement between them with
observance to the
principle "profit is protection to
capital".
Evidence
of Legality
1. Others traveling through the land Seeking
of Allah's bounty; Al-Muzzammil
20
It is no crime in you If ye seek of the bounty of
your Lord.
Al-Baqara 198
2. It was proved in the "Sira" biography
of the Prophet (PBUH), that
before prophethood, he traveled to Syria as a
Mudarib with
the capital of Khadeeja (may Allah be pleased of
her) and the
Messenger of Allah related that after the Message
approving it.
3.
The companions (may Allah be pleased with them)
transacted in
Mudaraba and none of them was reported to have
adverse opinion. There is also a consensus among
the Ummah
for generations on the permissibility of Mudaraba.
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