I.

Introduction
Overview
Money is often issued in the study of accounting. Many scandals, and standards of
accounting exist mostly due to the money problem. If there is no good standards,
management can easily manipulate the data of financial statements to reduce price,
increase sales, and attract customers as well as investors. For example, in 2000, Xerox
had committed an accounting scandal by falsifying its financial result.
The existence of a business is always related to that of money, starting from opening a
business until closing the business. People need money as an investment not only to
buy stuff, but also to start employing staff. In daily, money is needed to fund the
activity. In addition, the employers will use money as a compensation for laying off
their employees.
The need of shariah accounting has become unavoidable. There are a lot of idea of
innovation coming out of the mind of young entrepreneurs. Those who are about to
start a business need money. At the same time, they also demand for a loan in which
they do not need to pay for the interest when their business gets loss, like what have
been being applied in conventional banks.
In this paper, Mudharabah, one of the principles of Islamic banking will be discussed
in detail. There are also some information related to conventional bank explained
which will provide broader insight of the difference between conventional and non-
conventional banks.
Definition of bank
Bank is the intermediary which becomes the connection between those who have
money, and those who need money. In general, when people hear the word bank,
they always refer to a place where people save their money in expectation of
obtaining gain from the institution. In addition, it is also a place to lend money with
certain requirements, agreements, and compensation.
Bank nowadays, conventional
The terms Conventional Bank is always referred to banks which implement the
concept of interest. Interest is the amount of money to be paid in a given amount of
period. In this case, even if business is not good due to poor economic condition,
those who are dealing with the interest have to pay as much as the amount stated
continuously until the money is returned to the owner.
When people invest their money (savings) in conventional banks, the money is
considered as debt for the bank. Moreover, because it is considered as debt, the banks
need to pay the interest gradually, usually every month.
The reason for the concept of interest comes from the perception that the value of
money today is greater than that in the future. In this case, there should be something
to compensate this difference. Moreover, the implementation of money is also used to
motivate people to invest.
II. Definition and Nature of Mudarabah
Definition
"Mudarabah" 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 called "rabb-ul-mal" which is can be bank or investor, while the
management and work is an exclusive responsibility of the other, who is called
"mudarib.
Nature of Mudarabah
Mudarabah is a contractual relationship executed between two parties, one
supplying the capital (rabb-ul-mal) and the other supplying the labor and skill as agent
or manager (mudarib), for investing in a pre-determined activity, which grants each
party a share of the earnings as determined at the time of the investment. This practice
existed in the pre-Islamic period and Muslim jurists of all the major legal schools are
agreed on the legitimacy of Mudarabah transactions. Rabb-ul-Maal has authority to
oversee the Mudaribs activities and work with Mudarib if the Mudarib consents.
Mudarabah is categorized into two types:
(a) Unrestricted Mudarabah (Mudarabah Mutlaqah) is a contract in which the caital
supplier permits the labor and skill as agent or manager to manage the mudarabah
capital without any specific restriction. However, he (mudarib) is not authorized to:
o keep another Mudarib or a partner
o mix his own investment in that particular Mudarabah without the consent of
Rabb-ul Maal.
(b) Restricted Mudarabah (Mudarabah Muqayyadah)
(i) A restricted mudarabah is a contract in which the capital provider imposes
specific restriction on the mudarabah terms.
(ii) The capital provider may specify conditions restricting the labor and skill as
agent or manager such as the determination of location, period for investment,
type of project and commingling of funds.
III. The Concept of Mudharabah
Distribution of Profit & Loss in Mudarabah
It is necessary for the validity of Mudarabah that the parties agree, right at the
beginning, on a definite proportion of the actual profit to which each one of them is
entitled. They can share the profit at any ratio they agree upon. However, in case the
parties have entered into Mudarabah without mentioning the exact proportions of the
profit, it will be presumed that they will share the profit in equal ratios. Apart from the
agreed proportion of the profit, the Mudarib cannot claim any periodical salary or a fee
or remuneration for the work done by him for the Mudarabah. The Mudarib & Rabb-ul-
Maal cannot allocate a lump sum amount of profit for any party nor can they determine
the share of any party at a specific rate tied up with the capital.
E.g.
If the capital is Rp 1,000,000, they cannot agree on a condition that Rp 100,000
out of the profit shall be the share of the Mudarib nor can they say that 20% of the
capital shall be given to Rab-ul-Maal. However they can agree that 40% of the actual
profit shall go to the Mudarib and 60% to the Rab-ul-Maal or vice versa.
If the business has incurred loss in some transactions and has gained profit in
some others, the profit shall be used to offset the loss at the first instance, then, the
remainder, if any, shall be distributed between the parties according to the agreed ratio.
Different Capacities of Mudarib
a) Ameen (Trustee): The capital of Mudarabah is an Amanah in the hand of Mudarib
which is given with a trust, therefore if any loss incurs to business without
negligence of Mudarib, Mudarib will not be liable for that loss.
b) Wakeel (Agent): When Mudarib starts the business, he becomes an Agent of Rabb-
ul-Mal. Therefore, all the business activities will be carried out on behalf of the
principal. And if principal (Rabb-ul-Mal) gives any instructions, Mudarib is bound
to comply with these instructions.
c) Shareek (Partner): In case of earning profit profit, Mudarib is a partner of Rabb-ul-
Maal who shares the profit in agreed ratio.
d) Dhamin (Liable): If Mudarib suffers a loss due to negligence or misconduct the
instructions of Rab- ul-Mal, he is liable to compensate the loss.
e) Ajeer (Employee): If Mudarabah becomes void due to any reason, the Mudarib is
entitled to get a normal salary (Ujrat-e-Misl) for his services.
Rules for Termination of Mudarabah Contract
a) Each partner can terminate Mudarabah at any time.
b) If a time period is fixed in Mudarabah, then all partners will be responsible for the
completion of this period.
c) Physical liquidation is not necessary, constructive liquidation can also be
performed.
d) After liquidation all business expenses will be deducted from the capital.
e) Mudarib will bear all those expenses which are normally considered the
responsibility of Mudarib. Although, the expenses which are not considered the
responsibility of Mudarib will be deducted from the entire capital.
f) Capital of investor will be returned to him. Remaining amount will be the profit and
distributed according to agreed ratio.
Necessary Conditions of Mudarabah
a) The Mudarabah capital must be in the form of money
b) The profit-sharing ratio shall be determined at the point of Akad (execution of
contract)
c) The owner of capital contributes capital and the entrepreneur the expertise.
Therefore it is not valid to set as condition that the owner of capital must also do the
work
d) If the Mudarabah venture results in a loss, the owner of capital bears the loss
entirely and the entrepreneur does not get anything out of the venture unless the loss
arises out of anything of the following:
a. Negligence
b. Misappropriate
c. Miuse of fund, in which case the loss is borne by the entrepreneur
e) The Mudarabah project must be HALAL in nature according to Syarak
e.g alcoholic beverage, gambling, non Islamic financing, production or sale of najis,
and production or sale of productions or services which are haram in the first place
IV. Mechanism of Mudarabah
A simple Mudarabah financing structure is presented below:

1. Bank and Client discuss business plan; Bank provides funds to client towards capital
investment;
2. Client sets up the business and manages its operations;
3. Business generates positive or negative profits;
4. Profits if positive are shared between Client and Bank as per a pre-agreed ratio;
5. Profits if negative are absorbed by Bank; effectively bringing down the value of the
asset created with its investments
Profit is shared between both the parties according to a pre-determined profit
sharing ratio. The profit sharing ratio has to be mutually consented upon and
explicitly stated at the time of contracting and has to be a proportion of the profits.
And the payment of profit to the financier cannot be in the form of a fixed amount or
any percentage of the capital employed. Furthermore, the earned profits cannot be
distributed until all the expenses have been paid, in accordance with custom and the
original agreement.
The mudarib undertakes the business and shares in the profit. He is considered
as a trustee with respect to the capital invested, his actions must, therefore, be
conforming to the overall purpose of the contract and within the recognized
commercial practice. The rabbulmaal can also contribute his labor subject to the
permission of the mudarib. In addition, the mudarib does not share in any financial
losses which are borne solely by the rabbulmaal. The mudaribs losses are deemed to
be the opportunity cost of the workforce which has failed to generate sufficient
revenues for a business the profits of which are shared by both in accordance with
agreed terms.
The Mudarabah contract can be terminated by either of the two parties at any
time as long as a notice, per the contract terms, is given to the other party. A
maximum term of the Mudarabah contract can be set automatically where after the
contract is terminated. Furthermore, for the purpose of periodic profit distribution in a
running business before the termination of business, the business has to be liquidated
constructively by way of valuation of the assets by the mutual agreement of the
partners. A final settlement is only possible at the time of the termination of the
business.
V. Mudarabah Practices in Indonesia Banks
a. Syariah Bukopin Bank
Syariah Bukopin Bank provide Mudarabah Deposit and Mudarabah service, as
follows:
1. Mudarabah Deposit
Deposit type in rupiah currency which is the withdrawal can only be processed
in a particular time according to the agreement between bank and the client.
This deposit service uses Mudarabah Mutlaqah principle
One of benefits for using Mudarabah Deposit is that it can be used as a
guarantee of finance. In Mudarabah Deposit, there is a tax occurred for every
profit shared by 20%.
2. Mudarabah Service
This is a form of cooperation between bank and its clients in which every
amount of money for the capital comes from the bank itself.
The benefits of Mudarabah Service:
- The amount of profit sharing is based on the business
- The amount of money borrowed can be paid based on the cashflow of the
business.

b. BRI Syariah Bank
BRI Syariah Bank more likely to implements the concept of Mudharabah
Muthlaqah. The reason is because the banks concerns is not on time, place, and the
field of business; but on the need of capital to create business and investment.
In providing financial aid for business, the banks program or Pembiayaan
Keuangan divided into 3 types, as follows:
1. Mikro 25iB
The lenders get the investment of 5 until 25 million rupiahs with 6 until 36
months of payment.
2. Mikro 75iB
The lenders get the investment of 5 until 75 million rupiahs with 6 until 60
months of payment.
3. Mikro 500iB
The lenders get the investment of 75 until 500 million rupiahs with 6 until 60
months of payment.
Incollecting fund, the bank introduces a program named Tabungan
BRISyariah iB. It is a saving account which uses the principle of surrogate. The
bank offers many features for its clients, such as:
1. free monthly administration of savings
2. free monthly fee ATM card
3. free cash withdrawal at ATM BRI, Bersama, and Prima
4. free cost balance check
5. free charge transfer at ATM BRI, Bersama, and Prima
6. free PRIMA debit fee









VI. Mudarabah Simple Accounting

Source:
http://s3.amazonaws.com/academia.edu.documents/30361698/Notes_for_IBF_8310_%28Reporting_of_Islamic_Financial_Transactions%2
9.doc?AWSAccessKeyId=AKIAJ56TQJRTWSMTNPEA&Expires=1407998853&Signature=RAnD8c192luq9LeNxQtZSz%2FzMok%3D

References
Financial Islam - Islamic Finance, (2014). Mudarabah. Retrieved from
http://www.financialislam.com/mudarabah.html [Accessed 14 Aug. 2014].
Business Banking, (2011). Pembiayaan Mikro. Retrieved from
http://www.brisyariah.co.id/?q=pembiayaan-mikro [Accessed 15 Aug. 2014].
Consumer Banking, (2011). Tabungan BRISyariah iB, Retrieved from
http://www.brisyariah.co.id/?q=tabungan-brisyariah [Accessed 15 Aug. 2014].
Reporting of Islamic Financial Transaction, (2012). International Institute for Islamic Banking &
Finance, Retrieved from
http://s3.amazonaws.com/academia.edu.documents/30361698/Notes_for_IBF_8310_%
28Reporting_of_Islamic_Financial_Transactions%29.doc?AWSAccessKeyId=AKIAJ5
6TQJRTWSMTNPEA&Expires=1407998853&Signature=RAnD8c192luq9LeNxQtZS
z%2FzMok%3D [Accessed 15 Aug. 2014].