The Nature of Mudharabah

• Mudharabah is derived from the word daraba which means travelling

for trade.
• A type of contract where one of the parties provides capital and other
services to conduct a particular business wherein both parties would
share the profit.
• This term is derived from the expression of making or performing a
journey (ad-darbh fil ardh).Why so?
This is because the entrepreneur gets profit by virtue of his hard work
and efforts in performing long journeys.
Continued….
• The term Mudharabah was widely known in the classic literature as
Qiradh and muqharadhah. These both terms derived from the word
qarada which means to cut off (al-qat’) need to cuts off some of his
mooney to be utilized by the mudharib in business activities.
• Imam Nawawi once said A joint-stock company is called Qiradh or
Mudharabah . It exists between two persons, one of whom supplies
fund to the other to trade with , on condition that the former has a
share in the profit.
Evidence on the permissibility of
mudharabah
• From the al-Quran
i. “…….and others who travel in the land seeking of the bounty of
Allah” (Al-Quran, Al-Muzammil :20)
ii. “…….but when the prayer is ended, they disperse abroad in the
land and seek Allah’s grace “ (Al-Quran, Al-Jumu’ah :10)
iii. “…there is no blame on you in seeking bounty from your Lord..”
(Al-Quran, Al-Baqarah :198 )
Continued…. (hadith)
• Hakim bin Hizam that he had stipulated to a man that if he gave him
certain asset to be utilized for Muqaradah (mudharabah/qiradh) , he
must not use it to purchase livestock, or carries it (travel ) through the
sea, or carries it (travel) through the sea, or drop by at the oasis, if the
man commited any of the above, he is considered to be the guarantor
(liable) of my property.