Deeper look at Mudarabah business plan

In-Depth Analysis

With a due apology to readers, the author would like to paste one-third of the content of last week's article here since it will make more sense to read the nature, importance, and effectiveness of the business plan and proper due diligence at one go. The lawyer with expertise in Islamic trade and investment transactions as well as in Islamic arbitration cases patiently heard Shafiq, Ebrahim, and Jamil before advising as follows: Ebrahim should not become a shareholder with Shafiq in the business immediately. He should first test the waters through a time-bound Mudarabah agreement which will provide Ebrahim with the opportunity to get to know the business and for Ebrahim and Shafiq to understand each other. As part of the Mudarabah arrangement, Ebrahim shall be the Rab Al Maal or the fund provider and Shafiq shall act as the Mudarib or fund manager. Based on the expertise Shafiq has acquired in the business, he is required to submit a detailed business plan to Ebrahim with the following factual information: the indicative overall current size of the tire and battery market in Kenya including local consumption and export to neighboring countries, and Shafiq's current share of that market and the expected growth in the next three years from now including setting up own company. Additionally required: a plan to manage two different businesses in a similar number of jurisdictions, a description of Shafiq's existing management team and the level of its professionalism as evidenced by standard operating procedures (SOPs) and manuals. Details on the types of insurance held covering the goods in transit, inventory, fixed assets and employees, and claims lodged with and payments received from the insurer must also be provided. Any outstanding lawsuits, liens, or judgments against the existing entity or its owner/employees, and how they were resolved, must be disclosed. The extent of the shareholding that Ebrahim shall be accorded with in the overall business covering Dubai and Kenya pursuant to the successful completion of the Mudarabah transaction must also be specified. Ebrahim did not hear from Shafiq for the next couple of weeks and had lost hope until one day he got a call. Shafiq told Ebrahim that he has never been probed in the way the lawyer wanted to reveal everything about the business. However, yesterday it dawned upon him that he would like to know exactly the same information if he would be looking to invest in a running business either temporarily through Mudarabah or considering to take a perpetual stake. What transpires from this little story is that Shariah provides a thorough system of checks and balances in an investment transaction including Mudarabah, with the rights of the investor and the entrepreneur equally preserved. Furthermore, the Shariah guidance in the process of making an investment decision is always based on a scientific approach, instead of based on an impulsive decision.