What Is A Mudaraba Agreement

A – It is not legitimate for the working partner in mudarabah to sell his own assets in exchange for Mudarabah`s money (which he manages), whether these assets are taken out of the wealth of the company (the operation financed by the mudarabah) or that they are actually considered part of it. Similarly, it is illegal for the partner to buy mudarabah products for himself. However, in both cases, the sale is legal when the financial partner grants special permission. According to Mufti Taqi Usmani, a mudarabah agreement is different from Musharakah in several respects: a variant of the two-tiered mudarabah that caused a complaint is a variant that replaces the sharing of profits and losses between the depositor and the bank with a profit share – losses are the whole problem of depositors. Instead of the bank and its depositors such as the owners of the capital (rabb al-times) and the contractor mudarib, the bank and the contractor are now mudarib, and if there are losses after overhead coverage and operating costs, they are passed on to depositors. One critic (Ibrahim Warde) called this « Islamic moral hazard, » where banks are able to « privatize profits and socialize losses. » [18] [19] Another critic (M.A. Khan) questioned the underlying justification of the mudarabah on the Mudarib. Instead of being unfair to the entrepreneur and borrower, the fixed-rate credit, Khan asks Khan if it is not unfair to rabb al-mal (the financial services provider) to « return on investment only when the results of the investment are profitable » because by providing funds, they have helped to make the investment possible, while the actions of the entrepreneur/borrower – their inspiration, competence, assiduity, truth-telling, etc. – have much more power over the profitability of the investment. [20] The term refers to a form of business contract in which one party brings capital and the other brings personal effort. The proportional share of profits is determined by mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing for his work.

The financier is known as « rabal-maal » and the entrepreneur as « mudarib. » As a financing technique adopted by Islamic banks, it is a contract in which all capital is provided by the Islamic bank, while the activity is managed by the other party. Profits are divided into predetermined conditions and the loss, if any, is borne by the Islamic bank, except in cases of negligence or infringement on the part of the « Mudarib ». The bank passes this loss on to depositors. A – Mudarabah contracts can be transferred in light of the legal principle that the agent`s partner may be engaged in mudarabah transactions under the following conditions: mudaraba (mudaraba al muqayyadah): the investor indicates a specific transaction or project in which the investment funds are to be used; The work partner should not use the funds for other operations or projects.

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