Mudarabah
A partnership where one party provides capital and the other provides expertise.
Overview
In a Mudarabah contract, the capital provider (Rab al-Mal) entrusts money to an entrepreneur (Mudarib) who provides expertise and management. Profits are shared according to a pre-agreed ratio, while financial losses are borne by the capital provider alone.
Common Applications
- Venture capital investments
- Islamic investment funds
- Project financing
Key Features
- Capital provider has limited liability
- Entrepreneur contributes expertise and management
- Profit sharing based on pre-agreed ratio
- Financial losses borne by capital provider