Islamic Banking - Islamic Financial Transaction Terminology - Mudarabah

Mudarabah

"Mudarabah" is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The capital investment comes from the first partner, who is called the "rabb-ul-mal", while the management and work is the exclusive responsibility of the other party, who is called the "mudarib".

The Mudarabah (Profit Sharing) is a contract, with one party providing 100 percent of the capital and the other party providing its specialist knowledge to invest the capital and manage the investment project. Profits generated are shared between the parties according to a pre-agreed ratio. If loss happened, the first partner "rabb-ul-mal" will lose his capital, and the other party "mudarib" will lose the time an effort he invested in running the business.

Read more about this topic:  Islamic Banking, Islamic Financial Transaction Terminology

Other articles related to "mudarabah":

Riba - Relevance To Modern Times - Financial Intermediation
... Writers like Siddiqi suggest a two-tier mudarabah model as the basis of a riba-free banking system ... This involves the bank acting as the capital partner in a back-to-back mudarabah contract with the depositor on one side and the entrepreneur on the ... Additionally, Khattab has criticised the whole two-tier mudarabah system as having no basis in Islamic law, as there are no instances where the mudharib ...
Good Loan - Islamic Financial Transaction Terminology - Mudarabah
... "Mudarabah" is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise ... The Mudarabah (Profit Sharing) is a contract, with one party providing 100 percent of the capital and the other party providing its specialist knowledge to invest the capital and ...