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 the profit is to be shared by both parties.

iv)Imam Hanbali
It is a contract in which a person gives his capital to another person for business in order to share profit based on stipulation.

Contemporary perspectives
It is labelled as a joint-venture profit sharing contract whereby one party is the provider of capital while the other is the entrepreneur . In other words, it is a kind of an arrangement or agreement between a capital provider and an entrepreneur, where the entrepreneur can mobilise funds for its business activity. Any profit made will be shared between the two according to an agreed ratio while losses are borne solely by the capital provider.

Profit and losses
It is unanimous among all school of laws that both contracting parties must have the knowledge as to the proportion of profit percentage to be shared by the parties or otherwise the contract will be invalid.
As such, the profit will be shared between the rabb al-mal and the mudarib according to a pre-determined  profit sharing ratio. The profit sharing ratio need to be determined explicitly by the parties at the outset of the contract and it shall not be determined on a lump sum basis or a percentage of the capital.
Nevertheless, they mutually reserve the right to change the ratio of distribution of profit at any time and to define the duration for which the agreement to be valid.

Loss in this contract is wholly associated with the capital. Hence, in case of losses incurred, the capital provider will be responsible and bear the losses, except for the losses due to misconduct, negligence and violation og condition by the entrepreneur.

i)Imam Maliki and Shafie
The contract will be rendered void had the mudarib be held liable to the losses incurred.

Imam Hanafi and Hambali
The contract only become void to the extent the mudarib be held liable bearing the loss while the rest of the contract remained intact.

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