The two parties
A Mudarabah has two roles. The rabb-ul-mal is the capital provider — the investor who supplies the funds (the ra's al-mal). The mudarib is the manager — the operator who contributes effort, expertise, and day-to-day management.
The investor does not run the venture, and the manager does not (in the classic structure) put in capital. Each contributes what they have: money on one side, work on the other.
How profit is shared
Before the venture begins, the parties agree a profit-sharing ratio — for example, investor 60% / manager 40%. That ratio applies to whatever profit the venture actually realizes.
The ratio attaches to realized profit, not to the capital. You cannot quote it as a percentage yield on the capital, because a guaranteed return on money is interest (riba). If the venture earns nothing, there is nothing to share.
How loss is borne
If the venture loses money in the ordinary course, the financial loss falls on the rabb-ul-mal — up to the amount of capital committed. The manager's loss is their unpaid effort.
There is one important exception: if the loss results from the manager's misconduct, negligence, or breach of the agreed terms, the manager becomes liable. The manager holds the capital in trust, not as a borrower.
Why it isn't a loan
The structural test for a Mudarabah is risk-sharing. The investor's capital is genuinely at risk, the return depends on real performance, and nothing is guaranteed. That is precisely what distinguishes it from an interest-bearing loan.
Keeping that firewall intact — profit by ratio, capital at risk, no guaranteed return, no yield-on-capital language — is what keeps the arrangement Shariah-compliant.