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Shariaa' Financing

Moudaraba

Moudaraba in essence is based on the concurrence of those who have capital with those with expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal profit (lawful) which will be divided between them in ratios agreed upon. This mode achieves the interest of parties, the capital owner and the Moudarib (agent). * The capital owner may not have the time or the experience to turn over capital and trade with. * The agent (the Moudarib) may not have the adequate capital to put to use his experience. The following is an illustration of the steps of the Moudaraba contract. The Practical Steps of Moudaraba 1. Establishing a Moudaraba project: The Bank: provides the capital as a capital owner. The Moudarib: provides the effort and expertise for the investment of capital in exchange for a share in profit agreed upon. 2. The results of Moudaraba: The two parties calculate the earnings and divide the profits at the end of Moudaraba, this can be done periodically in accordance with the agreement along with observance to legal rules. 3. The participation in capital: The bank recovers the Moudaraba capital it contributed before dividing the profits between the two parties because profit is protection of capital. In case of agreement to distribute profits periodically before the final settlement it must be on account until the security of capital is assured. The participation in capital: * In case of loss, the capital owner (the bank) bears the loss. * In the event of profits, they are divided between the parties in accordance with the agreement between them with observance to the principle "profit is protection to capital". Evidence of Legality 1. Others traveling through the land Seeking of Allah’s bounty; Al-Muzzammil 20 It is no crime in you If ye seek of the bounty of your Lord. Al-Baqara 198 2. It was proved in the "Sira" biography of the Prophet (PBUH), that before prophethood, he traveled to Syria as a Moudarib with the capital of Khadeeja (may Allah be pleased of her) and the Messenger of Allah related that after the Message approving it. 3. The companions (may Allah be pleased with them) transacted in Moudaraba and none of them was reported to have adverse opinion. There is also a consensus among the Ummah for generations on the permissibility of Moudaraba.

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