Advantages And Disadvantages Of Mudarabah

Mudarabah

Definition

Mudarabah is a kind of partnership where one partner provides the capital (rabb-ul-maal) to the other (mudarib) for investment in a commercial enterprise. Mudarib is people that expert with entrepreneurial skills, manages the project appropriately and provide the worker.

Profits arising from the project are distributed according to a predetermined ratio. Any losses incurred by the accrued capital. Capital providers do not have control over the management of the project.

Type of Mudarabah

1. Al-Mudarabah Al- Muqayyadah - The rabb-ul-maal may specify a business in which to invest, meanwhile for mudarib the business is limited as pointed out by rabb-ul-maal

2. Al-Mudarabah Al- Mutalaqah - If rabb-ul-maal has not specified

Mudarabat/مضاربۃ is proved only on the authority of َ اجماع/`Ijma ِۡ and none of the leading Muslim jurists have opposed to it. Some times in a dealing of Mudarabat/مضاربۃ there is some such maslihat which is essential for the general public therefore in such circumstance the contract of Mudarabah falls under a common basic need.

The Differences Mudarabah and Musharakah

According to Mufti Taqi Usmani, a mudarabah arrangement differs from the musharakah in five major ways:

Mudarabah Musharakah

The investment from all partners The investment us the sole responsibility of rabb-ul-maal

Rabb-ul-maal has no right to participate in the management which is carried out by the mudarib only All the partners can participate in the management of the business and can work for it

Loss is suffered by the rabb-ul-mal only, because the mudarib does not invest anything All the partners share the loss to the extent of the ratio of their investment the liability of rabb-ul-maal is limited to his investment, unless he has permitted the mudarib to incur debts on his behalf The liability of the partners in musharakah is normally

In musharakah, as soon as the partners mix up their capital in a joint pool, all the assets of the musharakah become jointly owned by all of them according to the proportion of their respective investment

Distribution of Profit

The distribution of profit must be determined by the both parties. Furthermore, the amount of profit must be free from the amount of capital. It is based on actual profit by the commercial enterprise. That is, the profit assigned to a party cannot be a percentage of capital amount contributed as that would be considered a fixed returns, or interest. The amount of profit that gives to the both parties cannot be a lump sum. This is because, the profit is also considered as constitute interest.

Therefore, the amount of profit distribution that is permissible is based on the actual profit earned by the enterprise.

The Shari 'ah does not restrict or specify proportions to be distributed between the parties, leaving it to the best judgement of the two independent