Rulings on Partnership of Mudharabah

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The word mudharabah is derived from “dharba on earth,” which means to travel for trade or business. Allah says, “Others (making dharb on earth) traveling through the land, seeking of Allah’s bounty.” [74:20]

This means they go from one place to another to search for or seek Allah’s sustenance in trade or business. Mudharabah within Islamic law indicates the payment of a specific amount of money to a person who uses it for business and makes a profit from it. This form of a contract is permissible according to ijmaa’ (consensus). It was present at the time of the Prophet, sallallaahu alayhi wasallam, and the Prophet approved of it. It was also narrated that it was approved by Umar ibnul Khattab, Uthman ibn Affan, Ali ibni Abi Talib, Abdullah ibn Masoud and others. It is not known whether any of the sahabah had differing Opinions.

Wisdom approves the permissibility of mudharabah in wealth, because people are in need of it and money doesn’t grow except through circulation and trade. Ibnul Qayyim said, “The mudharib is a trustee, an employee, a deputy and a partner. He is a trustee when he takes the money; a deputy when he uses it, an employee in the work that he executes, and a partner in the profit. For Mudharabah to be (Islamically) valid, the share of the worker should be named.”

In his book, the Ijmaa’ or the Consensus, ibnul Mundhir said, “The people of knowledge (scholars) have unanimously agreed that the worker has the right to name the ratio of profit to the owner of the capital. He can request one third or half of the profit or whatever they both agree on. The share should be a percentage of the profit. The mudharabah will not be valid if the profit is not specified in a ratio such as giving the entire profit, specific amounts of money or all unknown portion.”

The share for the worker from the profit is typically determined by both the owner of the capital and the worker at the beginning of the mudharabah. If the owner of the capital says “use the money in trade and divide the profit between us,” then each one will take half of the profit since the division is between the two and no ratio was specified. If the owner of the capital says to the worker “use the money in trade and give me three quarters of the profit” or “you take three quarters of the profit,” then the mudharabah is valid. The ratio is stated and each one’s share is known before hand.

The share of the worker can be high or low based on the type of work and its level of ease or difficulty or the requirement of skill or lack thereof. However, the owner of the capital deserves his share because it is his money.

If the mudharahah is nullified (when it looses any of its conditions), then the profit is for the owner of the capital because it is an increase in his money. The worker gets paid for the work he did since he only deserves his share by the condition of mudharabah. And the condition here is nullified because the mudharabah is nullified.

Mudharabah can be limited to a specific time. The owner of the capital can state for example, “I will establish a contract of mudharabah with you, in this amount for one year.” Mudharabah is also valid if it is attached with a condition. This is similar to the owner of the capital stating, “when the date such-and-such arrives, then use this Money in Mudharabah.” Or he might state, “When you collect my monies from so-and-so, take it into your possession for mudharabah.” This is valid because mudharabah gives control over the funds, so it can be attached to a future condition.

It is not permissible for a worker to get involved in mudharabah with another person if there may be any harm caused to the first person, except with the permission of said person. This may occur, for example when the monies of the other person are extensive and will require the time of the worker who is not able to employ the monies. Or the monies of the first person are extensive such that it requires too much time from the worker. Then if the worker takes money as mudharabah from others, it would distract him from the first venture and would therefore cause harm to the first person. With the permission of the first person, the worker may take mudharabah from others.

The worker should not undertake any other work or mudharabah if it is going to harm the current one. If a worker would take mudharabah from another person without the permission of the first person and causes harm to this person’s interest, then the share of profit from the second person should be paid and the share of the worker from the second mudharabah should be added to the profit from the first mudharabah and then divided between the two based on the ratio agreed upon.

The worker should not use the money of Mudharabah for traveling or other expenses, unless he specified that to the owner of the capital and the latter agreed to it. The worker works in the mudharabah to get a part of the profit only. So, he is not supposed to get anything extra unless it is made clear at the start of the mudharabah or the nature of the business that they do requires it.

The profit of the Mudharabah is not to be divided between the two before the end of the contract unless they both have agreed to that. This is because there may be a loss in the trade. Any business is liable to losses. If the profit is divided before the end of the contract and loss occurs later, there will be no funds to cover this loss. So the worker is not entitled to any of the profit until the completion of the contract.

The worker is a trustee in this contract, so he should fear Allah, subhanahu wa ta’ala, in what he is entrusted. His claim of destruction or loss should be accepted. He should be believed in what he states about things purchased whether they are for his own use or for the mudharabah.

Al-Jumuah vol.10 issue10