what is risk sharing ? theory of profit in islam?


Perspective on Islamic Finance: What is Risk Sharing? by Prof Abbas Mirakhor



Theory of Profit in Islam 

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Termination of Mudarabah and Musharakah

TERMINATION OF MUDARABAH AND MUSHARAKAH TERMINATION OF MUDARABAH 1)Mudarabah is terminated when it is cancelled or when a mudarib is prevented from using the fund or when he is dismissed. In this case, the mudarib is entitle to his claim in the profit. If capital is in the form of goods cancellation of mudharabah, prevention of mudarib, or his dismissal can only take place after the good are sold. The action of the mudarib who is unaware of the cancellation, prevention, or dismissal is binding on the sahih al-mal. 2)When mudharabah which is for the fixed period of time expires. 3)If either party loses its legal capacity. 4)If one of the conditions in restricted Mudharabah is violated. 5)If Mudarib fails in his duties due to his negligence or deliberate loss. 6)If the capital is destroyed in the hands of mudharib. 7)If either parties dies and if the investor dies the mudarib has no right to continue mudharabah.Any further use of the capital depends on the permission of ...
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Distribution of the Profit in Mudarabah and Musharakah

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    Distribution of the Profit in Mudarabah It is necessary for the validity of Mudharabah that the parties agree, right at the beginning, on a definite proportion of the actual profit to which each of them is entitled. No particular proportion has been prescribed by the Shari’ah; rather, it has been left to their mutual consent. They can share profit in equal proportions for the rabb-ul-mal and the mudarib. However, they cannot allocate lump sum amount of profit for any party, nor can they determine the share of any party at a specific rate tied up with the capital. For example, if the capital is RM10000, they cannot agree on a condition that RM10000 out of the profit shall be the share of the mudarib, nor can they say that 20% of the capital shall be given to rabb-ul-mal. However, thet can agree that 40% of the actual profit shall go to the mudarib and 60%to the rabb-ul-mal or vice versa.   It is also allowed that different proportions are agreed in different ...
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Mudarabah in profit loss sharing

MUDARABAH  Literally, the word mudarabah comes from the phase al-fi'l-ard which means to make a journey from verse " Others travelling through the land seeking fo Allah 's bounty ". It derives from the root word  'daraba'  which mean sharing. Technically, mudaraba is a partnership for participation in profit in which capital is provided from one party whereas labour or skill is from another party. i) Imam Hanafi They describe it as a partnership for participation in profit in which capital is provided from one side whilst labour or skill is from the other side. ii) Imam Maliki According to Malikis, mudarabah is where a capital provider surrenders a specific and identified amount of money to a person (mudarib) who will manage a project and the former will enjoy a proportionate profit gained from the business. iii) Imam Shafi'is It is agreement whereby the capital provider will assign the capital to the worker who trades with it and t...
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