- Fund Provider and entrepreneur join hands to form Mudaraba.
- Fund provider is called Rabb Al Mal and entrepreneur is termed as Mudarib.
- Rabb Al Mal provides funds and mudarib invests them by using his skills and expertise to earn profit for Mudaraba.
- Mudaraba contract is for an agreed period of time. Though it can be extended with mutual consent if circumstances so require.
- As per sharia, Mudaraba is an independent juristic personality and is separate from Rabb Al Mal and Mudarib. This proves that the concept of entity was first given to the word by Islam .
- On one hand, DIB is Mudarib to depositors and on the other; it is Rabb Al Mal with its clients needing finance on Mudaraba basis.
- Distribution of profit is at pre-agreed ratio between the parties .
- Mudarib can also earn incentive, over and above its profit sharing ratio, at the sole discretion of Rabb Al Mal.
- Original capital and Rabb Al Mal’s profit share is returned upon completion of Mudaraba period or upon end of Mudaraba transaction.
- Mudarib carries out management of Mudaraba at full discretion without interference from Rabb Al Mal, but within Mudaraba terms .
- Rabb Al Mal does not interfere in the Mudaraba affairs, unless there is genuine reason for it to do so such as insanity or death of the Mudarib.
- All direct expenses for running Mudaraba affairs are borne by the Mudaraba accounts .
- Since Mudaraba does not own the Mudaraba capital, it is not liable to share the Mudaraba losses if not caused due to its negligence.
- However, Mudarib is responsible to return full capital to Rabb Al Mal plus the anticipated profit as per business plan if the loss is caused due to Mudarib’s misconduct.
- An Islamic bank accepts deposits as Mudarib but may invest with entrepreneurs in Murabaha,musharaka,ljara,or in any other from such as sukuk or fund.