what is Mudarabah Contract (or Mudaraba)?

A Mudarabah contract (or Mudaraba) is a type of partnership agreement commonly used in Islamic banking, where one party provides the capital, while the other party offers expertise and management skills to carry out a business venture.

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The Mudarabah meaning refers to a profit-sharing arrangement where profits are distributed according to a pre-agreed ratio, while any financial losses are borne solely by the provider of the capital, unless caused by negligence or misconduct. The Mudarabah definition highlights that this contract is a key element in Islamic banking, promoting ethical business practices in line with Sharia law.

Under a Mudarabah contract, the investor (known as the "Rab al-Mal") and the entrepreneur (the "Mudarib") share the profits, fostering a collaborative and risk-sharing approach to business.

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