Al Mudharabah(Profit Sharing Partnership)

Members :Nor Siti Atikah bt Abdul RazakNor Rukhila bt RosliNurul Ashikin bt Mohammad SohaimiSiti Nabilah bt HashimUmmu Shahirah bt Mohd Azhar

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.

• 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.

Characteristic of Mudharabah

Legal EvidenceAl Quran :

i. “… and others who travel in the land seeking of the bounty of Allah” ( Al-Quran, Al- Muzammil : 20)

ii. “… but when the prayer is ended, they disperse abroad in the land and seek Allah’s grace “ (Al-Quran, Al-Jumu’ah : 10)

iii. “… there is no blame on you in seeking bounty from your Lord.. “ ( Al-Quran, Al-Baqarah : 198)

• 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.

•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.

Legal EvidenceHadith:

• 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

Pillars of MudharabahPillars of Mudharabah

Conditions of MudharabahConditions of Mudharabah

1.1. Conditions of SighahConditions of Sighah

• It is constitute of offer and acceptance.

• For example, A who has money says to B, “Take this money as mudharabah, and what God gives in profit will be divided between us…” (And he specifies a certain profit sharing ratio).

• Can be done verbally, in writing or through any means of communication that is acceptable by both contracting parties.

2.2. Conditions of Contracting Conditions of Contracting PartiesParties

• Involve

i. capital provider (rabbul mal)

ii. the entrepreneur (mudharib)

• Must be qualified persons under the law to enter the contract of mudharabah.

• Eg: sound mind.

3.3. Conditions related to Subject Conditions related to Subject MatterMatter

a)a) Conditions of WorkConditions of Work

• The work or business venture under Mudharabah must be conducted solely by the entrepreneur (mudharib). It is not legal if the capital provider (rabbul mal) was also required to conduct the daily operation.

• The project must be legal and permissible (halal).

• All the expenses will be taken from the capital provided that is not more than the justified expenses required in the venture.

b)b) Conditions of CapitalConditions 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.

c)c) Conditions of ProfitConditions 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.

Al Mudharabah Al – Mutlaqah

vsAl Mudharabah Al - Muqayyadah

Al Mudharabah Al - Mutlaqah Al Mudharabah Al - Muqayyadah

Al Mudharabah Al-Mutlaqah is

unrestricted Mudharabah which is the

capital provider (rabbul mal)

authorizes the entrepreneur

(mudharib) to act completely at the

latter’s option in all business matter.

Al Mudharabah Al-Muqayyadah is restricted

Mudharabah which is the capital provider

makes certain limitations to the activities to

be conducted by the mudharib with regards

to the capital given.

Rabbul mal only invests money as

capital to the mudharib for the

business, mudharib utilise the capital

without involvement of rabbul mal.

Rabbul mal invests money as capital to the

mudharib for the business and also has

authority to make conditions or restrictions

related to investment and business

operations.

Example :

Kuwait Finance House (KFH)

Mudharabah Current Account-i

Example :

Bank Islam Ziyad NDI-i – the form of Islamic

Negotiable Instrument (INI)

Mudharabahvs

Musharakah

Mudharabah Musharakah

The capital is financed by one party, which is the capital provider or the owner of the business

The capital is financed by all the shareholders according to the proportion agreed upon by all parties

The capital must be in the form of cash money

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

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.

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 solely borne by the capital provider while the entrepreneur will only suffer from a fruitless effort without having to bear all the capital losses

The monetary loss will be jointly borne by all the shareholders according to the ratio and proportion of their respective share in the partnership

Termination of Mudharabah

ISSUES ON MUDHARABAH

Subtitle

RISKINESS

1 Rabbul maal provide capital. 1. mudarib act as entrepreneur.

2. Bear any loss incurred. 2. Bear no loss.

* violation towards small depositors and investors.

Rabbul

maalM

udari

b

STIFF COMPETITION

1 non- interest bearing 1 interest bearing.2.revenue is not guaranteed. 2.revenue is guaranteed.

3.less profit but halal 3.high profit but doubtful.

* Customers prefer conventional due to high returns.

Mudharabah

Conventional

LONGER FINANCING PERIOD

1 long-term financing. 1.short-term financing.

2. late return. 2. quick return.

* Customers prefer Ijarah & murabahah due to quick return.

Mudharabah

Ijarah & Murabahah

NOT TECHNICALLY ACHIEVABLE

1.Rabbul maal provide capital. 1. mudarib act as entrepreneur.

2.Bear any loss incurred. 2. Bear no loss.

* Expertise is required to monitor long-term project so that it runs smoothly.

Rabbul

maalM

udari

b

Expertise

MUDHARABAH INVESTMENT ACCOUNT

SPECIAL INVESTMENT ACCOUNT (SIA)

1. Not open to public

2. PSR commonly negotiated.

3. Occur between bank and government link companies

(GLC).

DIFFERENCES BETWEEN GIA & SIA

GENERAL INVESTMENT ACCOUNT (GIA)

1. Open to public.

2. PSR decided by the bank.

3. Could be between bank and entrepreneur or customer and

provider of capital.

MUDHARABAH SAVINGS ACCOUNT

MUDHARABAH CURRENT ACCOUNT

Conclusioni. There are many products in practice under mudharabah

concept.( project financing, investment account, etc )

ii. To avoid public to make illegal activities for generate more money.

iii. Possible to take care of society and social justice

“He who sleeps on a full stomach whilst his neighbour goes hungry is not one of us” (Saying of Prophet Muhammad PBUH)