Glossary
Mudarabah
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.
A Mudarabah is a contract between a capital provider (rabb-ul-mal) and a manager (mudarib). The investor contributes capital; the manager contributes effort and management.
Profit is shared according to a pre-agreed ratio — never a fixed amount and never a percentage of the capital. Financial losses are borne by the capital provider up to the capital committed, except where the loss is caused by the manager's misconduct, negligence, or breach of agreed terms.
Because the return depends on realized profit and the capital is genuinely at risk, a Mudarabah is a risk-sharing arrangement rather than a loan — which is what keeps it distinct from an interest-bearing (riba) instrument.
Related terms
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