Mudarabah

Mudarabah is an Islamic financing arrangement where one party, the investor (rabb-ul-mal), provides capital, while the other party, the entrepreneur (mudarib), manages the business. Profits generated are shared according to a pre-agreed ratio, but losses are borne solely by the investor, unless due to negligence by the entrepreneur. This structure promotes a partnership model focused on mutual benefit, risk-sharing, and ethical financial practices in line with Islamic principles. Mudarabah is commonly used in banking and investment to fund ventures without involving interest (riba), which is prohibited in Islam.