Mudarabah & Islamic finance, defined.

Profit-sharing partnership

A profit-sharing contract between a capital provider and a manager, where profit is shared by a pre-agreed ratio and loss is borne by the capital.

Capital provider

The capital provider in a Mudarabah, who contributes the funds and bears financial loss up to the capital committed.

Managing partner

The manager in a Mudarabah, who contributes effort and management and shares in profit but not financial loss (absent misconduct).

Joint partnership

A joint-venture partnership where all partners contribute capital and share profit and loss in proportion to their stake.

Interest / usury

A prohibited increase — most commonly interest — where a guaranteed return is charged on money lent, regardless of outcome.

Excessive uncertainty

Excessive uncertainty or ambiguity in a contract's essential terms, which Shariah requires to be avoided.

PSR

The pre-agreed split of realized profit between the parties — e.g. 60/40 — applied to profit, never to capital.

Investment capital

The capital contributed by the investor in a Mudarabah — the principal that is put at risk in the venture.

Income purification

Disposing of any incidental non-compliant income to charity, so the investor takes no benefit from it.

Accounting and Auditing Organization for Islamic Financial Institutions

The global standard-setter for Islamic finance; its Shari'ah Standards are internationally recognized benchmarks.

Regulation D, Rule 506(c)

A US exemption that lets issuers raise capital from verified accredited investors, including with general solicitation.

An investor who meets SEC income, net-worth, or professional criteria to participate in certain private offerings.

An arrangement where the platform never holds participant funds — money settles directly between the parties.