What is Mudaraba Contract?
Mudaraba is an Islamic finance partnership where one party provides capital (rab al-mal) and the other provides labor and expertise (mudarib). Profits are shared by a pre-agreed ratio; losses are borne by the capital provider unless caused by the mudarib’s negligence.
How It Works
- Capital provider funds the venture.
- Mudarib manages operations and decision-making.
- Profits are split by agreed ratio; capital provider absorbs losses absent misconduct.
Saudi Context
Saudi banks use Mudaraba for unrestricted investment accounts and asset-management structures. SAMA and Shariah committees oversee its use to ensure compliance.
Example
A Saudi investor funds SAR 1 million in a Mudaraba venture with a fund manager who returns 30% of profits, taking 70% to compensate the capital provider.