Distribution of the Profit in Mudarabah and Musharakah


  •    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 situations. For example, the rabb-ul-mal  can say to mudarib, “if you trade in wheat, you will get 50% of the profit and if you trade flour, you will have 33% of the pofit” similarly, he can say “if you do the business in your town, you will be entitld to 30% of the profit, and if you do it in another town, your share will be 50% of the profit”
  
  Apart from the agreed proportion of the profit, as determined in the above manner, the mudarib cannot claim any periodically salary or fee or remuneration for the work done by him for the mudarabah.

   All the schools of Islamic fiqh are unanimous on this point. However, Imam Ahmad has allowed for the mudarib to draw his daily expenses of food only from the mudharabah account. The Hanafi jurist, restrict the right of the mudarib only to a situation when he is on business trip outside his own city. In this case, he can claim his personal expenses, accommodation, food and more but he is not entitled to get anything to get anything as daily allowances when he is in his own city.

  
   If the business has incurred loss in some transactions and has gained profit in some others, the profit shall be used to offset the loss at the first instance, then the remainder, if any, shall be distributed between the parties according to the agreed ratio.


  • Distribution of the Profit in  Musharakah

In Musharakah, The proportion of profit to be distributed between the partners must be agreed upon at the time of the Musharakah contract. If there is no such proportion has been determined, the contract is not valid in Shariah. The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners, or any rate of profit tied up with his investment.


   For example, if Ahmad and Amir enter into partnership and it is agreed between them that Ahmad shall be given RM 5000 per month as his share in the profit, and the rest profit will go to the Amir, the partnership is invalid. Similarly, if it is agreed between them that Ahmad will get 20% of his investment, the contract is not valid. Hence, the correct basis for distribution would be an agreed percentage of the actual profit accrued to the business. 

Reference: An Introduction to Islamic Finance by Mufti Muhammad Taqi Usmani
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