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Glossary

Mudaraba

Category — Islamic Finance
Mudaraba is one of the forms of investment in Islamic finance. At its core, Mudaraba is based on the partnership between wealthy and experienced people “capital and work”. So that the first party provides their money while the second party provides their expertise for the purpose of making a profit, which is divided between them in agreed rates.

Characteristics of Mudaraba:

1. Mudaraba is a company in making a profit from one side called (Rabb AL Mall), and work from the other side called (Mudarib).
2. Profit share is determined according to the ratio specified in the original contract.
3. If the Mudaraba company did not make any profit, the owner of the money (Rabb AL Mall) will get back his capital, and the Mudarib will lose their effort.
4. If the Mudaraba company loses, the loss is only borne by the owner of the money (Rabb AL Mall), and the Mudarib has lost their effort.

Types of Mudaraba:

1. Absolute Mudaraba:

The Mudarib is free to invest within the framework of Islamic Sharia, so the owner of the money (Rabb AL Mall) pays the Mudarib a sum of money to work on it without specifying the type of work.

2. Restricted Mudaraba:

The owner of the money (Rabb AL Mall) pays the Mudarib a sum of money to work on it, and limits him in terms of the type of work, place or time period.
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