Rukn (Pillars) of Mudharabah

Mudharabah is cooperation between an investor who gives fund/ capital to a party who will manage the fund/ capital for trading. Mudharabah has three rukn (pillars).
First, there are two or more parties; they are investor, and care taker/ organizer.
Second, object of the cooperation, this included fund/ capital, business and profit.
Third, saying the agreement orally (sighat).

The first pillar, two or more parties should involve in the cooperation, they are the investor and the care taker or organizer. All parties should have competencies required (jaiz al tasharruf), meaning that all parties are mature enough (baligh), have normal sense (not idiot), rasyid (normal) and are allowed to make transaction to their wealth.


The second pillar, object of cooperation included fund/ capital, type of business and profit.
a. Fund/ Capital
The requirements of capital are as follows:
1. Fund/ Capital should be in the form of monetary exchange (al naqd). The base is Ijma, or goods in which the value is determined before the transaction.
2. Fund/ Capital which is given should be known clearly.
3. Fund/ Capital which is given should be determined before the transaction.
4. Fund/ Capital which is given should be received by the care taker/ organizer directly, and he can make transaction with it.

So in Mudharabah, capital should be known, and given to care taker (mudharib), also it should be in monetary value like gold, silver or a common monetary exchange. It should not be in form of goods, unless the value of the goods is calculated based on value of money at the time the transaction taken place, so the value of the goods become the capital of Mudharabah.

It is important to have clarity of total value of the capital to determine the profit sharing. If the capital are in form of goods and are not clear at the time of transaction, the value of the goods may changes as the time goes by and it may lead to dispute at the time of profit sharing.

b. Type of business
The requirements for type of business are as follows:
1. It is in trading sector.
2. It is not putting the care taker/ organizer in difficult position, example the capital should be used to trade on very expensive jewelry or diamond which is very rare and difficult to trade.
3. It is not prohibited by Shariah like alcoholic beverage or pork.
4. There is a time limit or time frame of the investment.

c. Profit
The purpose of any work is to get profit. In Mudharabah the requirement of profit are as follows: 1. Profit is only for the parties who joined the cooperation. It is not allowed to share the profit with the party who are not involving in the cooperation.
2. Profit sharing is for both parties, it is not allowed to give the profit only for one party.
3. It is required to have the clarity of the profit.
4. It is required to define the percentage of profit sharing for the investor and the care taker/ organizer.

While at the time of sharing the profit, we need to see the following:
1. Profit sharing is done based on the agreement by both parties, but the investor need to bear all the loss.
2. The care taker/ organizer should define his part from the profit sharing. If both parties are not defining it, then the care taker/ organizer should receive salary, and the profit will become the right of the investor.
3. The care taker/ organizer should not receive his part from the profit sharing before he hand over the whole fund/ capital to the investor. If there is any profit and loss at the same time, the loss should be covered from the profit. It’s mean that the profit is defined from the excess of the initial fund/ capital.
4. Profit can be shared at the middle of the cooperation as long as it is agreed by both parties.
5. Profit sharing should be done after final calculation has been done for the cooperation.
There are two applications for final calculation:
- To do the final calculation at the end of the cooperation, so the investor can withdraw the fund/ capital and ends the cooperation.
- Finish cleansing toward the profit calculation. This is done by cashing all the assets and calculates the value. At this time the investor is allowed to withdraw the capital. He is also allowed to re-invest the capital with the new contract/ agreement. The contract cannot be rolled over without making new contract.


The third pillar, saying the agreement orally (sighat the transaction).
Sighat is saying the transaction by both parties who join the cooperation. It shows the expression and desire of doing the cooperation. The Mudharabah transaction is considered valid by saying the desire of doing the cooperation and by doing the transaction.

More explanation about this topic can be found here.