Why a business plan in a Mudarabah transaction matters

In-Depth Analysis

In the opening article of Mudarabah (article 81), the author had briefly mentioned about the business plan the Mudarib submits to the Rab Al Maal. In present-day circumstances, the potential Mudarib submits a business plan or a feasibility study to a potential Rab Al Maal where it exhibits the expertise it holds, the required amount of the Mudarabah capital, the time period for which the Mudarabah capital needs to remain invested, the profit expected to be generated from the venture, and the ratio of profit distribution between the Rab Al Maal and the Mudarib. It is to be noted that the underlined part refers to the distribution ratio of whatever actual profit is generated and not the rate of return which shall make it into interest. Ebrahim's parents passed away last year and as per the Islamic inheritance law, the wealth was distributed between the two brothers (including Ebrahim) and one sister who are the only surviving heirs. The wealth was divided into five shares of equal value: the sister received one share whereas each brother got two shares, comprising property, stocks, and cash. Ebrahim has been trying to start some business activity with the cash and has been unsuccessful. His cousin Jamil calls to inform him of an investment opportunity in a business owned by his cousin Shafiq, who imports goods from Chinese manufacturers for re-export to regular buyers in East African countries. Shafiq now wants to establish his own company in Kenya to avoid double shipping costs (China-Dubai, Dubai-East Africa) by getting the goods directly shipped from China to Kenya. The 6-point business plan required by a lawyer expert in Islamic trade and investment transactions includes: (1) year-on-year growth Shafiq has achieved in the eight years in the business; (2) evidence of the distributorship from Chinese manufacturers including its validity and product range; (3) terms of import from China and re-export to East Africa including payment terms at both ends; (4) summary of the audited financial statements including cash flow position for the last three years; (5) full details on setting up own company in Kenya including business justification, breakdown of needed funds, pros and cons/SWOT analysis, expected boost to revenue and profitability and the targeted countries in East Africa; and (6) a three-year consolidated financial projection covering Dubai and Kenya operations, exhibiting the revenue and gross profit/net profit outlay and the expected profit for both parties based on the ratio of profit distribution between the Mudarib and the Rab Al Maal.