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Mudarabah
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Contents
Introduction – Mudarabah;
− Profit / Loss Distribution;
− Kinds of Mudarabah
Termination of Mudarabah
Mudarabah Vs Musharakah
Scope of Mudarabah for Banking System
Risks
Practical examples
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Mudarabah - Introduction
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Mudarabah - Introduction
Mudarabah Capital:
− In principle, the capital of Mudaraba should be provided in the form
of cash.
− However, it may be presented in the form of kind i.e. tangible assets
which will be valued as per mutual consent;
− The value (in cash) of the assets will be the Mudaraba capital;
− The Capital of Mudaraba should be clearly known to the contracting
parties and defined in terms of quality and quantity in a clear
manner;
− Debt (receivable) can not be the capital of Mudarabah.
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Mudarabah - Introduction
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Mudarabah - Introduction
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Mudarabah - Types
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Mudarabah - Rules
Supply of funds:
− The basic feature of Mudaraba is that the the capital is provided by
Rabbul Maal and the Mudarib is responsible for the management
only;
− However, it is allowed for Mudarib to add capital into the business
of Mudaraba if agreed with Mudarabi;
− In such cases Musharaka and Mudaraba are combined.
− For example, “Zuhaib” gave to “Rahman Hayder” Rs.100,000/- for
Mudaraba. R. Hayder added Rs. 50,000/- from his own with the
consent of Zuhaib;
− This type of partnership will be treated as a combination of
Musharaka and Mudaraba;
− Here the Mudarib may allocate for himself a certain percentage of
profit on account of his investment as Sharik, and at the same time
he may allocate another percentage for his management and work as
a Mudarib.
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Mudarabah - Rules
Termination of Mudarabah:
− The contract of Mudaraba can be terminated at any time by either
of the two parties after giving a notice to the other party.
− If all assets are in form of cash and some profit has been earned on
the principle amount, it shall be distributed between the parties
according to the agreed ratio.
− If the assets of the Mudaraba are in other form the Mudarib shall be
given an opportunity liquidate them and the actual profit may be
determined.
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Mudarabah Vs Musharakah
Mudarabah: Musharakah:
− The contribution comes − The contribution comes
from Rabbul Maal (the from all partners in form of
investor). cash, commodities, services
− The Rabbul Maal (investor) or liability in the case of
is not permitted to manage reputation partnership.
the business. − The work, as a general rule,
− The Mudarib will only is to be done jointly by the
manage the business. parties.
− The Mudarib can also invest − A partner or some partners
in the capital of Mudarabah. may be sleeping.
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Mudarabah - Application
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Mudarabah - Application
DEPOSITS
PROFIT
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Mudarabah – Application (Deposit [Liability] management)
POOL MANAGEMENT
Pools according to (1) size of deposit, (2) Tenure
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Time (tenure)
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Issues in Mudarabah
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Musharakah
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Contents
Introduction;
Types of Musharakah;
Basic Rules in Musharakah;
Termination of Musharakah;
Security / Collateral in Musharakah;
Musharakah Management and Liability;
Profit / Loss Distribution ;
Application of Musharakah As a Mode;
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Introduction
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Types of Shirkah
SHIRKAH (Partnership)
Shirkat-ul-Milk (Joint ownership)
Optional Forced
Shirkat-ul-A'qd (Business partnership)
Amwaal (partnership with capital) A'amal (partnership in work) Wujooh (reputational partnership)
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Basics of Musharakah
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Basics of Musharakah
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Basics of Musharakah
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Basics of Musharakah
Management of Partnership:
− In principle each partner has right of Musharakah management;
− The partners may appoint a managing partner by mutual consent;
− Some of the partners may decide not to work for the Musharakah
and work as sleeping partner;
− It is not allowed to specify a fixed remuneration to a partner
Musharaka who manages funds or provides some form of other
services, such as accounting;
− However, it is permissible to give him a greater share of profit than
he would receive solely on the basis of his share in the partnership
capital;
− According to a view it is also permissible to appoint his as an
employee and giving him remuneration for his services;
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Basics of Musharakah
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Basics of Musharakah
Sharing of Loss:
− As a matter of principle the loss has to be shared according to the
ratio of capital contribution;
− No partner can make his share or portion of share guarabteed from
loss;
− Any such agreement will make the Musharakah void and null
Guarantee of principle:
− Guarantee from one partner to other partner’s profit or capital or
part of capital is not allowed;
− Security can be asked for misconduct or negligence;
− A third party may provide a guarantee to make up losses of one or
all partners;
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Basics of Musharakah
Termination of Musharakah:
− Every partner has a right to terminate the Musharaka at any time
after giving notice to the partner and the Musharaka will come to an
end.
− In this case, if all the assets of the Musharaka are in cash form then
they will be distributed pro rata between the partners.
− In case they are mixed assets the partners may agree either on:
► The liquidation of the assets (market price), or
► On their distribution among the partners as they are; or
► Purchasing from one partner share of other at any agreed price between them.
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Application of Musharakah
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QUESTIONS
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