Mudaraba Sukuk

A Mudaraba Sukuk is based on Mudaraba contracts, they are partnership instruments representing projects or activities that are managed on the basis of Mudaraba by appointing Mudarib, “the issuer”, to manage them.

Characteristics of Mudaraba Sukuk:
1. The Sukuk originator acts as “Mudarib” (entrepreneur or managing partner)
2. Sukuk holders act as “Rabb AL-Maal” (financiers or silent partners).
3. The realized profits are divided according to certain ratios, while the loss is borne by the Sukuk holders.
4. The profit rate is usually set at 10% for the Mudarib “issuer” and 90% for the Sukuk holders.
5.The Mudaraba Sukuk structure is common for large investments in infrastructure projects to attract greater public participation.
6. The structure of Mudarab Sukuk is suitable where specific tangible assets might not be easily identifiable.

Types of Mudaraba Sukuk:
1. Absolute Mudaraba Sukuk:
These are instruments that are not allocated to a specific project, but rather entitles the Mudarib (the issuer) to invest them in any project.
2. Restricted Mudaraba Sukuk:
These are instruments that are limited to a specific project (real estate, factories etc.).

Advantages:
1. Mudaraba Sukuk can be traded in the secondary market.
2. These Sukuk do not create fixed obligations on their issuer, because they are based on the principle of profit and loss sharing.

Disadvantages:
1. Credit rating is not possible, as Mudaraba Sukuk do not guarantee the capital.
2. Risk of Mudarib mismanagement, resulting in less profit or even a loss.