Mudaarabah Agreement
Question
Two people want to start a partnership. One will provide the capital whilst the other one will manage the business. The agreement between them is as follows:
Profits shall be shared between them equally.
Answer
The agreement discussed under point one whereby one partners provides the capital whilst the other partner carries out the work is referred to as a Mudharaba agreement.
The profits being shared between both partners on a 50/50 basis is correct. However, if the partnership suffers a loss, then the partners (of the Mudharaba agreement) will be required to make up for the loss from their personal profits, and if the loss extends beyond the total profits accrued by both partners, then it will be covered from the capital provided by the Rabb-ul Maal (investor.) The Mudaarib (trader) will not be held responsible for any loss that extends beyond the profits.
- Approved by
- Mufti Muhammed Saeed Motara Saheb D.B.
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