Profit-Sharing in Mudarabah: How It Works

Mudarabah is a unique Islamic financing structure based on profit-sharing between capital providers and entrepreneurs. This partnership model offers an alternative to interest-based lending.

What is Mudarabah?

Mudarabah is a partnership where:

Types of Mudarabah

1. Restricted Mudarabah (Muqayyadah)

2. Unrestricted Mudarabah (Mutlaqah)

Profit Distribution

Typical Profit-Sharing Ratios:

Factors Affecting Ratios:

Loss Distribution

**Key Principle**: Financial losses are borne entirely by the capital provider, while the manager loses their time and effort.

**Exceptions**: Manager may bear losses if due to:

Example Mudarabah Structure

Investment Details:

Scenario 1 - Profit:

Scenario 2 - Loss:

Benefits of Mudarabah

For Investors:

For Managers:

Risks and Considerations

For Investors:

For Managers:

Modern Applications

Mudarabah is used in:

Legal Framework

Successful Mudarabah requires:

Mudarabah represents a fair and ethical approach to investment partnerships, aligning the interests of capital providers and managers while adhering to Islamic principles.