Mudarabah/Qirad/

Muqaradah

Khairuddin Zakaria
khairuddinzakaria@gmail.com

CONCEPT OF MUDARABAH
 The term mudarabah is derived from the al- al-darb
fi al-
al-ard.
ard.
 The meaning of the word in this sense has been
used in the Quran.
Quran. For instance Allah says (al-
(al-
Muzammil:
Muzammil: 20): “….others
“….others traveling through the
land seeking of Allah’
Allah’s bounty.”
bounty.”
 It is clear that the word daraba is used in this
verse to indicate traveling to various parts of the
world, to go from place to place, or to make a
journey for a trading purpose, seeking for Allah’
Allah’s
bounties.
 Mudarabah,
Mudarabah, al- al-qirad,
qirad, al-
al-muqaradah.
muqaradah. Have the
same concept.
 The words qirad and muqaradah are derived from
the word qarada which means to cut off.

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 It is so called because in practice the contract of
mudarabah is formed when the capital provider cuts
off some of his money to be utilised by the mudarib
in certain business activities for the purpose of
generating profits to be distributed between them.
 the two terms (mudarabah
(mudarabah and qirad)
qirad) have been
used to emphasise two different meanings:
 mudarabah emphasises more on the work of the
mudarib the term qirad emphasises the fact that
rab al-
al-mal has given part of his capital and part of
his profit to the mudarib.
mudarib.
 the difference is only recognised in their literal
meaning. As far as the juristic meaning is
concerned, both terms are interchangeable.
 mudarabah is known in the language of the Iraqis
while qirad is known in the language of the people
of Hijaz.
Hijaz.
 The Malikis and the Shafi’
Shafi’is more towards adopting
the word qirad,
qirad, Hanafis and Hanbalis prefer the
word mudarabah.
mudarabah.

Definition
 The Malikis define it as an agency for trading in
delivered cash for a part of profits.
 The Shafi’
Shafi’is define it as an agreement whereby
an owner hands over the capital to a worker who
trades with it and the profit is to be shared
between them.
 the Hanbalis define it as a contract in which a
person gives his capital to another for business in
order to share the profit according to their
stipulation.
 The most comprehensible definition of
mudarabah can be found in the Hanafi School of
Law. They define mudarabah as a partnership for
participation in profit in which capital is provided
from one side, whereas labour or skill (‘ (‘amal)
amal) is
from the other side.

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 Cont.
 the Majallah (Art. 1404) defines it as: “a type of
partnership where one party supplies the capital
and the other the labour.
labour.
 The person who owns the capital is called the
owner of the capital (Rabu
(Rabu Al Mal) and the person
who performs the works is called the workman
(Mudarib).
Mudarib).””
 all these definitions give no emphasis on the
outcome of the venture. However, this has been
given some consideration in Bidayat al- al-Mujtahid.
Mujtahid.
Ibn Rusd defines mudarabah as: “When a party
gives his property to another for the purpose of
trading, and if the venture generates profit, the
mudarib will share his percentage of profit in
accordance with their agreement, one-one-third, or
one-
one-fourth or one-
one-fifth.”
fifth.”

Current definition:
 From among contemporary jurists:
 Ali al-
al-Khafif:
Khafif: defines it as a contract for sharing the
profit of a business in which one party contributes
with capital and other with his labour.
labour.

 Ali Khan Niyazi:

Niyazi: defines mudarabah as a form of
partnership where one of the contracting parties,
called sahib al-
al-mal (the financier) provides a
specified amount of capital and acts like a sleeping
or dormant partner, while the other party called
the mudarib,
mudarib, provides the mudaribship and
management for carrying on any venture, trade,
industry or service with the objective of earning
profit.

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 Mudarabah
 Mudarabah is simply:
 the act of one party giving away his property as
capital to a person for him to work with that capital.
 If the venture makes a profit, it will be shared
between them according to a certain ratio that they
have agreed upfront.
 In case of losses, it will be entirely borne by the rab
al-
al-mal and the worker receives nothing for his efforts.
 The only differences is:
 While some have just emphasised the act of
contributing capital and labour from the parties,
 some go beyond that by explaining the end result of
the venture in, earning profits or making losses.
 Some even go further by stating the form of capital in
which the rab al-
al-mal can contribute and so on.

LEGITIMACY OF MUDARABAH
 there is no explicit injunction from the text of
the Quran in permitting mudarabah,
mudarabah, some
verses from the Quran have been recognised
by jurists to indicate the legality of
mudarabah.
mudarabah.
 For instance, Allah says: “Others are
travelling through the land seeking Allah’
Allah’s
bounty.”
bounty.”
 Although this verse does not directly address
the legality of mudarabah,
mudarabah, they are
interpreted to mean those who travel for the
purpose of trading and seeking permissible
income, including those who work with
another’
another’s capital in exchange for part of the
profits.

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 Cont.
 Proof from Sunnah
 The act of the Prophet (pbuh
(pbuh),), before or after his prophetship.
prophetship.
It has been reported that the Prophet (pbuh(pbuh)) himself worked
as a mudarib.
mudarib.
 There is a saying from the Prophet (pbuh(pbuh)) relating to this. It
was reported that the Prophet (pbuh(pbuh)) said: “There is blessing
in three transactions: credit sales, muqaradah and mixing
wheat and barley for home consumption, not for trading”trading”.
 Another Hadith on this matter is a tacit approval (taqrir
(taqrir)) from
the Prophet (pbuh
(pbuh).). It is reported on the authority of Ibn
‘Abbas,
Abbas, that his father, al-
al-‘Abbas used to stipulate a condition
whenever he gave his money in a mudarabah that the mudarib
will not take his money across the sea, into any valley, or buy
any animal with a soft belly, and if the mudarib were to do any
of those actions, then he must guarantee the capital. The
Prophet (pbuh
(pbuh)) heard of this practice and permitted it.
 the practices of the Companion on mudarabah wee also cited in
supporting mudarabah.
mudarabah.
 Ibn al-
al-Munzir in his book on ijma,
ijma, there is generally consensus
among the jurists with respect to the validity of mudarabah.
mudarabah.

Mudarabah and Hire

 In a contract of hire, a party is obliged to perform
work for another and a given sum is to be paid to
him.
 Mudarabah is a partnership in the sense that one
provides capital whereas the other provides work
and as such they are partners.
 in a contract of hire, the other is just a worker to
the capital owner.
 in a contract of hire, the worker will get a lump
sum payment, if he did his job according to their
agreement.
 In mudarabah,
mudarabah, his share of profit depends on the
success of the business.
 If it generates profit, then he will share the profit in
accordance with the agreement.

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 Mudarabah and Loan
 mudarabah and loan (qard
(qard)) share the same
features in terms of capital contribution.
 In mudarabah,
mudarabah, the capital provider gives his
capital as a partner, thus entitling him to a
share of the profit.
 If the venture incurs losses, he will have to
risk his capital.
 in a loan contract, since the capital owner
gives his capital to the borrower as a
courtesy from him, he is not entitled to
claim any profit, if there is any, it falls into
riba.
riba.

ELEMENTS OF MUDARABAH
 The Hanafi’
Hanafi’s record only forms offer and
acceptance as the element of mudarabah.
mudarabah.
In this sense, the Majallah stipulates (art.
1405): “The basis of a mudarabah is offer
and acceptance”
acceptance”.
 The majority of jurists list three elements
for the contract of mudarabah:
mudarabah: parties to
the contract (rab
(rab al-
al-mal and mudarib),
mudarib),
subject matter (capital, work and profit)
and statement (offer and acceptance).

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 CONDITIONS OF MUDARABAH
 1. legal capacity of the parties: the rab al- al-mal
must be competent to appoint an agent and the
mudarib is competent to accept agency.
 2. The capital must cash: which can serve as the
capital of mudarabah.
mudarabah. Therefore certain properties
are not suitable to function as capital, such: a
merchandise.
 merchandise and immovable property cannot serve
as the capital of mudarabah.
mudarabah.
 They argued that capital in the form of commodity
might lead to uncertainty (gharar
(gharar). ).
 Ibn Abi Layla and al--Awza’
al Awza ’ i allowed the use of non-
non-
monetary properties as capital. To value these
properties, the prevailing market price will be used
as the mechanism of valuation.

Cont.
 according to this opinion, the property itself will be used as thethe
capital for the venture.
 An example applicable to modern practices is when a person
has 15 cars and he wants to sell these cars. He concludes a
contract of mudarabah with person B and says to him: “If you
sell these cars, you will take 50 per cent of the profit”
profit”. In this
case, the capital of the venture is the cars which are not in
monetary form. In this situation, the cars will be valued and
the value is considered the capital contribution to the venture.
 This situation is different from the situation in which a person
says to someone: “Take these cars and sell them. Whatever
price that you get from the proceeds of the sale becomes my
contribution to the mudarabah contract.”
contract.” In this case, the
capital is not the cars, but the cash from the proceeds.
 Abu Hanifah,
Hanifah, Malik and Ahmad Ibn Hanbal allowed the latter
practice but not the former one.
 Al-
Al-Shafi’
Shafi’i, declines to accept both types of capital contribution,
arguing that the capital is thus specified as the property’
property’s
price, which is unknown during the conclusion of the contract,
and a mudarabah contract cannot be established with an
unknown capital.

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 Cont.
 the Accounting and Auditing Organization for
Islamic Financial Institution (AAOIFI)
standard on this matter follows the opinion
of Ibn Abi Layla and al-
al-‘Awza’
Awza’i.
 AAOIFI standard, seems to adopt the
opinion of the two jurists who allow the
asset itself to be used as capital of the
venture, in which the valuation of the expert
or the agreement of the parties will
determine the amount of money contributed
in the venture.

Cont.
 3. The capital must also be present during
the conclusion of the contract.
 Therefore, it is not permitted to use debt
owed by the mudarib or another party to
the rab al-
al-mal as capital in mudarabah,
mudarabah,
because it is not considered as an existing
asset at the conclusion of the contract.
 However, if the rab al-
al-mal instructs the
mudarib to collect his debts from a third
party and use them as capital in their
mudarabah,
mudarabah, the contract is valid, provided
the debt is due (dayn
(dayn hal)
hal) and in fact ready
for collection.

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 Cont.
 4. The existing capital must be delivered to the mudarib who
will supply the labour.
labour.
 5. The rab al-
al- mal should not have any control over the capital
but may have supervision over the management of the venture.
 5. This capital must be known and certain. Therefore, it must
be definite in terms of its quality and quantity, in a manner that
that
eliminates any possibility of uncertainty or ambiguity.
 6. The mechanism for distribution of the profit must be made
clear and known to both parties in a manner that eliminates
uncertainty and any possibility of dispute.
 7. The shares of the profit for each party must be determined
as a percentage and not as a specific or fixed figure. it must be be
one half or one-
one-third, but not a fixed amount such as RM2,
000.00.
 if the mudarib has worked (Base on fixed figure) and generated
profit from that venture, the contract will be treated as a
regular hire (ijara
(ijara).
). Hence, the mudarib is considered as a hired
person to do the work of the venture and he will be entitled for
an equitable remuneration (ajr(ajr mithl)
mithl) for his work but not a
share of the profit.

Cont.
 8. The determination of the profit ratio must be made in
advance or at the time of the contract.
 Issues & Cases
 if it appears that the contracting parties have not fixed any
ratio of profit at the time of the contract, the profit will be
shared between them equally.
 the parties may change the ratio at any time with mutual
agreement.
 if all the profit is stipulated for the mudarib only, then
according to Hanafi and Hanbali jurists, the contract is no
longer considered mudarabah.
mudarabah. it becomes a contract of loan. In
this case the mudarib would be required to bear all losses and
be responsible to return the entire principal.
 The Shafi’
Shafi’is disagrees and upholds that in that situation, the
contract of mudarabah becomes invalid because mudarabah
requires proportional division of profit, which is lacking in this
this
case. It cannot be transformed to a loan contract automatically
because the contract was not concluded as such.
 If all the profit is stipulated for the investor, then the contract
contract
is no longer a contract of mudarabah.
mudarabah. Rather it will become a
contract of hire, and as such the mudarib will be entitled for a
remuneration (ajr(ajr mithl)
mithl) for his work.

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 Cont.
 9. The profit to be divided between the parties is the net profit
profit
after all expenses and losses have been written off and the
capital has been fully restored.
 Issues & Cases
 Any distribution of profits before the termination of the
mudarabah agreement will be considered as an advance and as
such is not allowed.
 in the case of continuing mudarabah,
mudarabah, it may be permissible to
specify a mutually agreed accounting period for the distribution
of profits, treating each period independently.
 it is suggested that for continuing mudarabah,
mudarabah, it may be
advisable to build reserves from profits to offset the possible
upcoming losses.
 In Malaysian practice, this reserve is known as Profit
Equalisation Reserve (PER).
 Profit Equalisation Reserve (PER) refers to the amount
appropriated out of the total gross income to maintain an
acceptable level of return for the depositors (investment
account holders). It is a provision shared by both parties the
depositors and the bank, and hence, is deducted from the total
gross income.

Cont.
 10. the labour of the contract must be provided by
the mudarib.
mudarib. Therefore, any condition that restricts
him from doing his normal work is not allowed.
 This is applicable in mudarabah mutlaqah
(unrestricted mudarabah).
mudarabah).
If the mudarabah is restricted mudarabah,
mudarabah, then
the mudarib is bound to follow the restrictions
imposed upon him.
 the rab al-
al-mal cannot make a condition that
stipulates his involvement in the mudarabah
contract.
 If the contract contains a condition that the rab al-
al-
mal is to take part in the management, the contract
will be invalid.
 the Hanbali School, allows him to take part in the
management of the partnership.

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 TYPES OF MUDARABAH
 1. Unrestricted mudarabah (mudarabah mutlaqah):
mutlaqah):
is a type of mudarabah in which the capital is handed
over to the mudarib without determination of the type of
work that is to be done, the location, the time, method of
payment from the client (cash or credit), the quality of
work and the person with whom the may or have to
trade, etc.
 it is up to the discretion of the mudarib to run the
business according to his expertise and experience.
 His authority is absolute and he can use the capital in the
manner he deems fit.
 he is permitted to undertake all transactions, which are
normally allowed in commercial usage.
 The mudarib cannot commit the rab al- al-mal beyond the
capital provided in the venture.
 he is not permitted to borrow money on behalf of the
mudarabah venture unless he is specifically permitted to
do so.

2. mudarabah restricted (mudarabah muqayyadah):

muqayyadah):

 The AAIOFI standard defines restricted mudarabah as:

“a contract in which the capital provider restricts the
actions of the mudarib to a particular location or to a
particular type of investment as the capital provider
considers appropriate, but not in a manner that would
unduly constrain the mudarib in his operations.”
operations.”
 the restrictions imposed by the capital provider upon the
mudarib are not a matter of agreement among the
jurists.
 The restriction to purchase goods from a particular place
only is valid according to the Hanafis and Hanbalis but
invalid according to the Malikis and Shafi’
Shafi’is.
is.
 The Hanafis argue that this restriction might be valid
economically as some goods might be more expensive,
generally, in one place compared to the other.
 The Malikis and Shafi’
Shafi’is,
is, argue that this kind of
restriction may cause difficulties to the mudarib as he
may only find the thing which is necessary to the
business only in the place in which he is prohibited from
dealing with.

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 Cont.
 The Hanafis and Hanbalis allow the rab al- al-mal to stipulate that the
mudarib has to deal with specific individuals only.
 They justify this through the possibility of reducing business risks
risks by
restricting the set of individuals with whom the mudarib deals.
 The Malikis and Shafi’
Shafi’is refuse to recognise this restriction as they
view this as unnecessary.
 The Hanafis and Hanbalis permit the rab al- al-mal to specify a period
after which the contract becomes void.
 The Malikis and Shafi’
Shafi’is,
is, on the other hand, consider this kind of
restriction to invalidate the contract of mudarabah.
mudarabah.
 The parties have all the right to withdraw from the contract at all
times.
 It only means that after the elapse of the time, the mudarib is not
entitled to continue performing the act of mudarib to the venture
anymore.
 This rule has been modified in modern times. Most contemporary
jurists allow fixation of time in which early withdrawal is not allowed
at all.
 The AAOIFI standard also accepts this practice.
 Restrictions that the mudarabah venture will deal in certain types of
merchandise or in certain investments only is acceptable by
contemporary jurists.

RIGHTS AND RESPONSIBILITIES OF THE

MUDARIB

 the mudarib is responsible to employ

his best efforts to accomplish the
objectives of the contract.
 He is responsible for assuring the

capital provider that his money will be

used in the finest manner to achieve
the goals of the venture.

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 Cont.
 1.To buy and sell all types of merchandise:
 In buying, the jurists agree that he can buy
whatever merchandise provided that the price that
he paid for it is less or equal to the market value of
the merchandise.
 In selling, Abu Hanifah opines that the mudarib may
sell on cash or credit even with prices that are
excessively lower that the market value.
 However, Abu Yusuf, Muhammad al- al-Shaybani,
Shaybani, the
Shafi’
Shafi’is and the Malikis view that he is not allowed
to sell at credit or to sell it excessively lower than
the normal price.
 He can only sell it at a reasonable price accepted by
the practice of the merchants.
 The Hanbalis allow the mudarib to trade cash or
credit, but within reasonable market prices.

Cont.
 2. To keep the property as deposit or
pledge:
 The Hanafis permit the mudarib to make
deposits to any person, arguing that in
certain circumstances, it is necessary for
trade to do so.
 The Malikis,
Malikis, on the other hands, disagree to
this. They argue that this may jeopardise the
contract. Therefore, if he makes such a
deposit, he would have to guarantee the
capital.
 However, jurists have permitted the act of
pledging part of the capital for the business
that the mudarib has engaged in or to take
pledge in lieu of debts owed to the venture.

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 Cont.
 3. To rent or buy animals, vehicle,
equipments: as a means of
transportation for him or the commodities.
 5. To travel with the capital.

The Malikis,
Malikis, most of the Hanafis and some of
the Hanbalis allow the mudarib to travel
with the capital to seek profit.
 the Shafi’
Shafi’is and most of the Hanbalis rule
that specific permission is needed before
the mudarib can travel with the capital.

ISSUES IN IMPLEMENTATION
 1. the contract of mudarabah will take effect
immediately after the contract has been
concluded.
 According to the Shafi’
Shafi’is and Malikis,
Malikis, the
effect of mudarabah cannot be suspended or
delayed because the nature of the contract
itself requires that the contract must take
effect immediately.
 However, the Hanafis and Hanbalis are of the
opinion that the mudarabah can be
suspended so long as it is agreeable to the
parties.

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 Cont.
 2. mudarabah contract is a non-non-binding contract (’ (’aqd ghayr
lazim).
lazim).
 As such, it may be terminated by any of the parties.
 Abu Hanifah,
Hanifah, al-
al-Shafi’
Shafi’i and Ahmad ibn Hanbal rule that this
non-
non-binding situation continues even after the commencement
of the contract.
 The Hanafis rule further that the allowance to dissolve the
mudarabah contract is only applicable if the capital is in
monetary form.
 This restriction is opposed by the Shafi’
Shafi’is and the Hanbalis.
Hanbalis.
 According to the stronger opinion of the Shafi’
Shafi’is and Hanbalis,
Hanbalis,
the dissolution of contract is also allowed, even if the capital is
in non-
non-monetary form, provided that the two parties agree to
sell it or divide it among themselves.
 They also rule that if the mudarib requests selling the capital,
the rab al-
al-mal is forced to sell so that the mudarib may collect
his rightful share of profits.
 Imam Malik ruled that once the work begins, the contract
becomes binding on both parties.
 Imam Malik argues that dissolving the contract in this situation
may harm the other party and may lead to losses.

Cont.
 The AAOIFI standard on this matter follows the opinion of the
Malikis.
Malikis.
 It maintains that one of the situations in which the contract
becomes binding upon parties in mudarabah is:
“When the mudarib has already commenced the business, in
which case the mudarabah contract becomes binding up to the
date of actual or constructive liquidation”
liquidation”.
 3. The jurists also differ in their opinion in fixing certain
duration to the mudarabah contract.
 While Malik and Shafi’
Shafi’i disallow any fixation of duration in
mudarabah contracts, this practice is allowed according to Abu
Hanifah and Ahmad.
 the AAOIFI standard also allows the fixation of the period for
the mudarabah.
mudarabah.
 The basis for allowing a time limit for the operation of a
mudarabah contract is that the mudarabah contract is, in
essence, an agency contract, which is subject to a designated
duration.
 The Academy Fiqh of Jeddah in one of its resolutions also
supports this opinion.

15
 Cont.
 4. The majority of jurists hold that the mudarib is
not entitled to mix the capital of the mudarabah
with another capital, except when authorisation of
the rab al-
al-mal has been obtained.
 The Hanafis allow the mudarib to mix the capital
with another’
another’s, even without prior permission from
the capital provider if it is the custom of the market.
 The Malikis,
Malikis, even allow such mixing, and regulate
that in certain circumstances the mixing is either
compulsory (wajib
(wajib)) or recommendable (nadb
(nadb).
).
 Contrary to all these, the Shafi’
Shafi’is,
is, with the exception
of al-
al-Mawardi,
Mawardi, disallow the mixing of capital even
with the permission of the rab al- al-mal.
mal.
 The practice of modern Islamic banks is to allow the
mixing of funds. To avail themselves of this
privilege, prior permission from the depositors in
investment accounts is obtained.

Cont.
 5. the jurists have agreed that the mudarib is a
trustee in respect of the capital that comes to his
hand.
 Therefore, he cannot bear any losses unless upon
fault or negligence.
 Likewise, he will be responsible to bear the losses if
he works contrary to the terms and conditions of the
mudarabah.
mudarabah.
 the Malikis and Shafi’
Shafi’is and an opinion from Ahmad,
the mudarib is not responsible to guarantee the
losses as regard the capital and any condition to do
so will invalidate the contract.
 The Hanafis and the Hanbalis are of the opinion that
the contract is valid, but the condition is deemed to
be void.
 it is permissible for a third party, other than the
mudarib,
mudarib, to undertake voluntarily that he will
compensate the mudarabah losses, provided that
this guarantee is not linked in any manner to the
mudarabah contract.

16
 Cont.
 6. al mudarib yudarib
 almost every jurist from all schools of law disallows the
mudarib to invest in another mudarabah and become the
rab al-
al-mal to that second mudarabah without prior
approval from the first rab al-
al-mal.
mal.
 If the rab al-
al-mal allows him to enter into the second
mudarabah using the capital, the jurists agree that the
second mudarabah is valid.
 The Hanafis opine that if the mudarib enters into a
contract of mudarabah with another partner using the
mudarabah capital with the permission from the rab al- al-
mal of the first tier mudarabah,
mudarabah, the contract is valid and
he is considered the mudarib to the first tier mudarabah
and rab al-
al-mal to the second tier mudarabah.
mudarabah.
 This opinion is considered the most suitable one in
modern commercial activities.
 Modern jurists advocate the opinion of the Hanafis on this
matter.

APPLICATION OF MUDARABAH
 1. Simple Partnership.
Partnership. A party provides capital
to a mudarib to work with the capital and they
participate in profits. Any losses will be borne by
the capital provider and the mudarib loses his
times and effort.
 2. General Investment Account (GIA) and
Specific Investment Account (SIA).
 GIA is of an absolute mudarabah and the ratio of
profit sharing is more or less uniform/standard
and advertised as a ready package between the
bank and the customer.
 in SIA, the mudarabah arrangement is of a
restricted mudarabah.
mudarabah. The ratio of profit sharing
can be negotiated between the client and the
bank, and normally a relatively big amount of
investment is needed in this type of investment.

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 Cont.
 3. Project financing. Islamic bank provides financing to the
projects and the mudarib acts as the manager of the project.
 The bank does not interfere in the day-
day-to-
to-day functioning of
the project. The profit is to be shared between the parties
according to an agreed ratio determined.
 4. Letter of Credit based on mudarabah.
mudarabah. The most well-well-
known structures used in the issuance of LC are based on
musharah,
musharah, murabahah or wakalah.
wakalah.
 LC can be issued using the mudarabah contract.
 the client informs the bank of his Letter of Credit requirements
and negotiates terms and conditions of the mudarabah
financing for this LC.
 The client then places a deposit with the bank under the
wadiah principles and the full amount of the cost of the goods
to be purchased/ imported as per mudarabah agreement.
 The client will appoint the bank as the mudarib.
mudarib.
 The bank, acting as the mudarib,
mudarib , establishes the Letter of
Credit and pays the proceeds to the negotiating bank utilising
the client’
client’s deposit.
 After disposing the goods, the bank will share with the client
the profit from the venture according to the terms and
agreement of the venture.

Cont.
 5. Relationship between takaful operator and
takaful participants. Modern takaful contracts can also
be devised using the mudarabah model.
 In Malaysia, Takaful Malaysia and Takaful Nasional use
this model for their operation.
 In brief, the contract of takaful will start with the
participation made by the takaful subscribers to certain
takaful products.
 The pool of funds from the participants’
participants’ contribution will
be credited into two separate accounts, participants’
participants’
accounts (PA) and participants ‘special accounts’
accounts’ (PSA).
 The former account will be managed based on the
contract of the mudarabah.
mudarabah.
 Based on this principle, the participants as rab al-al-mal
(capital providers) appoint the takaful operator as
mudarib to work with the money in investments which
are Shariah compliant.
 participants will share with the operator the profit of the
business.

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 Cont.
 Due to the fact that the participants have not been involved in
managing the fund (accepting the contribution and channelling
financial aid to the members), they appoint the takaful
operator (based on contract of wakalah)
wakalah) to become their
agency in managing the fund.
 For the agency work that the takaful operator has performed,
he is entitled to take a kind of fee (ujr
(ujr).
). This means that the
takaful operator is entitled to two mechanisms of payment.
 One by means of sharing profit (or loss) by virtue of the
contract of the mudarabah.
mudarabah.
 the other is in the form of fees for the management of funds
that he made.
 the takaful operator has the right to waive his entitlement for
the fees of the agency contract, and this is what has actually
been done in practice. However, some takaful institutions do
employ the concept of wakalah in their relationship with the
participants such as Takaful Ta’
Ta’awuni which operates in Saudi
Arabia
 6. Unit trust. The investors provide the capital and the unit
trusts company provides management and any profits and
losses are to be shared together, according to the agreed profit
sharing ratio.

Thank you
Wasalam

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