Mudarabah pairs a capital provider (rabb-ul-mal) with an entrepreneur or manager (mudarib). They agree how to share profits. If the venture loses money without negligence, the capital provider bears the capital loss and the manager loses unpaid effort.
Key takeaways
- Profit ratios are negotiated up front; losses of capital are not shared the same way as profits.
- Banks use mudarabah-like structures on both the deposit side and the financing side in some models.
- Clear mandates on what the manager may invest in reduce disputes later.
- Misconduct or breach can shift loss responsibility onto the manager.