Mudarabah

A profit-sharing partnership where one party (Rab al-Maal) provides capital and the other (Mudarib) provides expertise and management. Profits are shared according to a pre-agreed ratio — for example, 60/40 or 70/30. Financial losses are borne entirely by the capital provider unless caused by the manager's negligence or breach of contract terms.

The mudarib's loss is limited to their time and effort. Mudarabah is used in Islamic banking for investment accounts, mutual funds, and some business financing arrangements. It is one of the two foundational partnership structures in Islamic finance (alongside Musharakah).

Mudarabah is the classical investment partnership: one side (rab al-maal) supplies capital, the other (mudarib) supplies work and expertise, and profits split by a pre-agreed ratio — while financial losses fall entirely on the capital provider, with the manager losing only their effort. That asymmetry is deliberate: each party risks what they contributed.

The Prophet himself traded Khadijah's capital on this basis before revelation, and AAOIFI codifies the contract in Shariah Standard No. 13. Its rules are strict where it counts: the profit split must be a ratio of actual profit (never a guaranteed sum or percentage of capital — either would be riba), the mudarib cannot guarantee the capital, and the provider cannot micromanage (though they may restrict the mandate: 'restricted Mudarabah').

Modern uses: Islamic banks' profit-sharing investment accounts are Mudarabah (depositors are collectively rab al-maal, the bank is mudarib — which is why 'expected profit rates' are targets, not promises); many Takaful operators manage the participants' fund as mudarib; Sukuk al-Mudarabah fund ventures; and the contract is the fiqh template for evaluating VC-style arrangements where one party backs another's execution. The consumer red flag it teaches: any 'Islamic investment' that guarantees your principal AND a return has abandoned Mudarabah mechanics and is functionally a loan.