Combination Musharakah and Mudharabah

Posted on 16th September 2012 by Camille Paldi,

West Hampstead, London, UK

Excerpt from Introduction to Islamic Finance

By Mufti Taqi Usmani

A contract of mudarabah normally presumes that the mudarib has not invested anything to the mudarabah.  He is responsible for the management only, while all the investment comes from rabb-ul-mal.  But there may be situations where mudarib also wants to invest some of his money into the business of mudarabah.  In such cases, musharakah and mudarabah are combined together.  For example, A gave to B Rs. 100,000/- in a contract of mudarabah.  B added Rs. 50,000/- from his own pocket with the permission of A.  This type of partnership will be treated as a combination of musharakah and mudarabah.  Here the mudarib may allocate for himself a certain percentage of profit on account of his investment as a sharik and at the same time he may allocate another percentage for his management and work as a mudarib.  The normal basis for allocation of the profit in the above example would be that B shall secure one- third of the actual profit on account of his investment and the remaining two- thirds of the profit shall be distributed between them equally.  However, the parties may agree on any other proportion.  The only condition is that the sleeping partner should not get more percentage than the proportion of his investment.

Therefore, in the aforesaid example, A cannot allocate for himself more than two- thirds of the total profit because he has not invested more than two- thirds of the total capital.  Short of that, they can agree on any proportion.  If they have agreed on that the total profit will be distributed equally, it means that one- third of the profit shall go to B as an investor, while one fourth of the remaining two- thirds will go to him as a mudarib.  The rest will be given to A as ‘rabb-ul-mal.’

Posted on 16th September 2012 by Camille Paldi

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