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MUDARABAH CONTRACT

Mudarabah refers to a partnership arrangement wherein one partner provides the funds whereas the other offers his skills for managing the business. The former is referred to as ‘rabb ul maal’ whereas the latter is known as ‘mudarib’. The profit generated from the business is shared by the partners as per the agreed ratios whereas any loss is completely borne by the rabb ul maal provided that there is no negligence, wilful misconduct or dishonesty on part of the mudarib.

MUDARABAH CONTRACT DETAILS

If you are a start-up and have a feasible shariah-compliant business proposition but do not have the requisite funding, Trafin will arrange the funds for you in the capacity of rabb ul maal and will therefore be eligible for its share of the profit generated by the business.

MUDARABAH PROCESS

01

REQUESTING CAPITAL

The Customer will approach the bank and request for capital

02

MUTUAL CONTRACT

Both parties will enter the contract with their agreed capital ratio.
03

AGREED SHARES

The share of the bank is divided into the unit.
04

GUARANTOR

The third-party can provide a guarantee to the Musharaka venture. In Musharaka,  A partner cannot guarantee the capital of another partner, except where one partner provides a personal guarantee to cover the cases of misconduct, negligence, and breach of contract.
05

PROFIT DISTRIBUTION

The ratio of profit should be fixed at the time of parties entering into a contract. The profit has to be a ratio and cannot be a lump sum or percentage of the capital

HOW MUDARABAH CONTRACT CAN HELP YOU

KEY BENEFITS OF A MUDARABAH CONTRACT

PROFIT AND LOSS

The profit will be shared among the partners at a specified ratio. In case of loss, it will be shared as per capital proportion.

LONG TERM CONTRACT

Usually, it’s a long term partnership for moveable, fixed assets and public projects.

SHARED MANAGEMENT

All the partners are permitted to participate in the management of the business.

Expert Advice

The above information provides beneficial knowledge about contracts in Islamic finance. The content is provided for information purposes only. For more details, please reach out to one of our Expert Today.

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