Mudârabah or Silent partnership

Bahishti Zewar, Fiqh, Part 5-Principles of Business / Tuesday, October 12th, 2010

1. You gave some money to a person in order to conduct some business. You told him that he should conduct some business and the profits that accrue from there will be shared between the two of you. This is permissible. This is known as mudârabah. However, there are several conditions for this. If these conditions are fulfilled, it will be valid. If not, it will not be permissible and will be regarded as fâsid. The conditions are:

(a) You must mention the amount of money you wish to give him and also hand it over to him in order to conduct the business. If you do not hand over the money to him and keep it with you, this agreement will be fâsid.

(b) You should also specify how the profits will be shared by mentioning the percentage that each one will receive. If this is not specified and you merely said that we will share the profits, this will be fâsid.

(c) When specifying the share of profits, do not say that from all the profits, R100 will be mine and the balance yours or R100 yours and the balance mine. Instead, you should specify the percentage, e.g. half the profits will be mine and the other half yours, one third mine and two thirds yours or one quarter mine and three quarters yours. In short, the distribution should be according to the profits that accrue. If this is not so, the agreement will be fâsid.

(d) Only if there is a profit will the person who is working receive a share of the profits. If there are no profits, he will not receive anything. If you say that even if there are no profits I will give you a certain amount from the capital, this agreement will be fâsid. Similarly, if you make this condition that if there are any losses, they will be borne by the person who is working or borne by both of us, it will also be fâsid. The rule is that if there are any losses, it will be the responsibility of the owner and it will be his money that has been lost.

2. As long as the person has the money with him and has not purchased the goods for trade as yet, you have the right to dismiss him and take the money back. Once he purchases the goods, you do not have the right to dismiss him.

3. If you make this condition that I will work with you or a certain employee of mine will work with you, then this agreement will be fâsid.

4. The rule with regard to mudârabah is that if the agreement is valid and there are no nonsensical conditions in it, then both of them will be partners in the profits. They must divide the profits according to their agreement. If there are no profits or if they suffered any loss, then the person who is working will not receive anything and he will not have to pay any compensation for the loss. If the agreement becomes fâsid, the person who is working will not be regarded as a partner in the profits. Instead, he will be regarded as any other ordinary employee. You must check the amount of salary he would have received had he been employed as an ordinary employee and pay him accordingly. He will receive a salary irrespective of whether there are any profits or whether they suffer a loss. All the profits belong to the owner. However, if his salary is more than the profits, in such a case he will not receive a salary. Instead, the profits will have to be shared.

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