Ruling of Mudarabah

In Mudarabah contract under Islamic Finance, one party provides investment he is called the Investor (rab-ul-maal) while the other gives technical & management expertise he is called the manager or entrepreneur (Muzarib). Profit if any, is divided between both the parties on prefixed basis while loss, if any, is only borne by the investor. Is it not exploitation of the investor and does Islam allow this?

The ruling of mudarabah is that one person invests and the second one does labour & management and the profits are distributed as per the agreed upon terms. In case of loss, it is solely borne by the investors  since the Muzarib is contracted to do the labour and use his skills as the contribution of capital and his reputation and time is also at stake hence the Muzarib will not bear any tangible or monetary losses. If the mudarabah is carried out accordingly, it is lawful according to Shariah and there is no exploitation of the investor.


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