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Fabricare receipt 01 08 2024

Mudaraba





So far we know Islamic banking purely deals with welfare. This Pure Islamic mode of finance completely depends on the honesty and skill of the person who wants to business by dealing with others money. Here the provider of the fund in “Shahib al mal” or “Rab-ul- mal” and the person who wants utilize the funds for business purposes is called “Mudarib”.

The main notion is to do welfare of those needy persons who have no fund of their own but have skill and experience to manage a business. It is has no time limit. There is a contract between Shahib al mal and mudarib which concludes the necessary conditions of the operation of the business. Shakib al mal will bear the loss if it is incurred without any intentional negligence of the mudarib. If profit is earned than it will be distributed as per contract. So, it can be called a profit sharing but loss bearing mode of finance. The proportion of profit is dependent on various conditions. Such as the distance of the place where the business will be occurred. The goods which will be death with, the risk involved is the business. The effort which will be exerted by the Mudarib. The reason, the geo-political condition, the volatility of the market, the availability of the raw materials, the existing rules of the society is of also a great concern. But the first and for most condition is the faith of the Shakib al mal on the Mudarib and at the same time the honesty and integrity of the Mudarib. The best example of this financing mode from the history is our holy prophet (SAW) and Ummul Muminin Khadizatul Kubra (RAW). The .....this great ....with utmost honesty and sincerety. They made a historic bandage in their social, financial and family life this their great .........

There are so many talks on Mudaraba is vouge. But nothing to be worried to execute Mudaraba. It executed it can be the best mode of Islamic mode of finance. The essence of “Islamic banking does not lie in extending fund for a certain period and earn some profit. Its .........lies within the style of executing it as per shariah requirements which emerged from Islamic economy roof of which is Islamic scriptures. The main motto of Islamic economy is to accelerate and speed up the flow of funds and to make the economy more vibrant than any other economy. But its success lies in the hidden characteristic which people beer in their hearts.

Actually, Mudaraba does not need so many scientific models, formulas, analysis, theory and corollary. It only requires a solid and valid contract between two parties who are involved in this transactions and operations. Generally a tested person can be selected as Mudarib and person with proper sense, realization and rationality should be involved with the business.

Definition of Mudaraba:  

As per Blom Development Bank, Mudaraba is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is deal rab-ul-mal, while the management and work is an exclusive responsibility of the other, who is called mudarib.

It may be add here that mudaraba is a trust financing contract.

Features of Mudarabah:
  i.            Mudaraba is partnership where capital is provides in cash or assets (no debt is accepted) by one party the fund provider and labour is provided by the other party mudarib.
ii.            Both parties can appoint agent on their behalf.
iii.            Both parties can appoint agent on their behalf. A mudaraba contract could be terminated, unilaterally except when a term has been agreed by both parties, in which case the mudaraba could only be prematurely terminated by mutual agreement. In addition, if the mudarib has already started the business in the mudaraba contract. It becomes binding until actual or contractive liquidation is a trust based contracts,
iv.            Mudaraba: The mudarib is not liable for losses except in case of branch of the requirements of trust or misconduct. Guarantees against negligible or misconduct could be taken loan the mudarib as long as they are not excessively used by the capital provider.
v.            The contract should specify whether the mudaraba instrument unrestricted or restricted (to specific location or type of investment as agreed between parties). It should also indicate the distributes ratio of profit between both parties (which can not be a lump-sun or a percentage of capital). The distribution could be revised at future dates by agreement of both parties.

Types of Mudaraba:
The rab-ul-mal may specify a particular business for the mudarib in which case he shall invest the money in that particular business only. This is called mudaraba al muqayyadah (restricted mudaraba). But if he has left it open for the mudarib to undertake whatever business he wishes, the mudarib shall be authorised to invest the money in any business he deems fit. This type of mudaraba is called al-mudaaba al-mutlaq (unrestricted mudaraba).

Use of Mudaraba:
Mudaraba is widely used for equity financing in the form of start up capital, venture capital or a mixture of both.

Condition of validity:
It is necessary for the validity of mudaraba that the parties agree, right at the beginning, on a definite proportion of the actual profit to which each of them is entitled. the losses however are entirely assumed by Rabb ul mal and the mudarib looses his time and effort only.

Contradictions:

According to Faleel Jamal deen form Islamic Finance for Dummies, all mudaraba contracts are limited by a specific time period; they don’t untime indefinitely.

First ties and two tier mudaraba:
The mudaraba contract is applied when someone deposits money in an Islamic bank
with the expectative of getting a return,. In most causes, the contract applied is a first tier (or sample) mudaraba contract, meaning that only the customer and the bank are involved. (The bank serves as fund manager for whatever money is deposited).

However, another type of contact exits: a two-tier (or termediary) mudaraba contract. In this cause, the bank acts as an intermediary between the depositor and the bank’s clients to whom it provides money. Islamic scholars promote using this kind or mudaraba model is two scenarios:
The bank on its own does not have the capacity to serve as the investor (the rab al mal). This scenario may mean that the bank does not have enough liquidity to enter a mudaraba contact with an entrepreneur of fund manager. The bank lacks the expertise to serve as the land manager (mudarib) for an investment.

Notes
 
The financier can also be called the investor or silent partner. The person who manages the fund can also be called the fund manager or working partner.

*    Mudaraba contract have three basic factors Capital, labor and entrepreneurship.
*    The bank invests the depositors money according to sheria guidelines.
*    When a mudaraba contract is used us a source of bank funds (when the customer deposits money in the bhank), the unrestricted mudaraba is most often used.
*    When the contract supports a banks equity financial product (when the bank supplied funds to a working partner), the restricted mudaraba is most often in play.
*    The Mudarib (manager or working partner) also receives a fixed free for managing the project, in addition to a share of any profits.
*    It the economic venture results in a loss, that loss is absorbad salary by the investor as the capital provider unless the mudarib (fund manager) has acted negligently or has engaged in misconduct.
*    In a two tier mudaraba contract, two contracts must be executed.
*    The two-tier method of mudaraba is less frequently applied than the first tier method. That’s because barks usually have the liquidity and/or expertise o enter is to a first tier contract and because the two-tier method is not quite as profitable for the bank as the first tier method.

Examples of different methods of Mudaraba: 

One between the depositor as investor (rab al mal) and the bank as a fund manager (mudarib): The depositor signs a contract with the bank for a two-year sharia Capliant project. The investor and the bank agree to share the profit is a 60:40 ratio (60 percent of profit goes to the investor and 40 percent to the bank). The investment made by the depositor for this specific project is $1 million.

One between the Islamic bank serving is the capacity of investor (rab al mal) and the project client as the working (mudarib): This contract initiates that the two parties will share the profit on a basics of 70:30 ratio (with the Islamic ......getting 70 percent and the client getting 30 percent) Assume that the client is not making any capital contribution but is insted investing time, effort, and expertise in the project.

The project earns $1.5 mollion by the final contact date. The fund manager an entrepreneur gets 30 present of the profit is $1,50,000 based on the second contract. The bank recovers the capital $1 million plus a $ 3,50,000 profit.

The $ 1 million principal is returned to the initial investor, along with 60 percent of the banks profit from the second contract. ($3,50,000´60 percent equals $2,10,000). The bank holds on to the receiving 40 percent of $ 3,50,000 on $ 1,40,000. So, the bank earns $ 1,40,000 for serving as intermediary between the depositor and the entrepreneur.

Profit & loss 
 
Investments by fund management entrepreneurs working partners (mudarib)
 
Profit & loss 
 
-Capital
 
Islamic bank
(mudarib)
rab al mal
 
-Capital
 
Deposit from investments/ Silent partners

(rab al mal)
 
      

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