UNDERSTANDING MUDARABAH

ISLAMIC FINANCE PRINCIPLES

OUTLINE

A Mudarabah agreement is a contractual relationship that exists between two parties: one being the ‘Rabb-ul-Maal’ (owner of the wealth) and the other being the ‘Mudarib’ (the agent). So you as Investor are the Rabb-ul-Maal and we are the Mudarib.

The term Mudarabah refers to a business contract whereby the Rabb-ul-Maal introduces the Capital and the Mudarib brings the expertise, efforts and time. We run an unrestricted Mudarabah contract meaning that you as Investor allow us to run the Fund without any restrictions.

PROFIT SHARE

The share in profit has to be predetermined and agreed on signing of the contract. The Shariah has no prescribed proportion and is agreed to by mutual consent.

We run a 70:30 Profit Sharing Ratio.

EVENT OF LOSS

There is no financial loss sharing in a Mudarabah contract. Effectively, in case of loss, you as Rabb-ul-Maal will suffer a loss financially, and we as Mudarib will lose any reward for our efforts and time spent as we will receive no financial compensation.

FURTHER INFORMATION

As a matter of principle, you as the owner of the capital have no right to interfere in the management of the Fund as this is our sole responsibility. Other terms and responsibilities that can be used for us as Fund Managers are:

  • AMEEN (trustee) – to look after your investment responsibility in all parties best interest
  • WAKEEL (agent) – to use your funds invested for the purpose of the investment
  • SHAREEK (partner) – sharing in profits