Mudarabah Contract

A Mudarabah contract is a partnership where one party, the investor (rabb-ul-mal), provides funds, and the other, the entrepreneur (mudarib), manages the investment. Profits are shared based on a pre-agreed ratio, while any losses are borne solely by the investor unless caused by the manager’s misconduct or negligence. This arrangement allows the investor to earn returns without actively managing the business, while the entrepreneur gets funding without giving up ownership. It fosters trust and cooperation, often used in Islamic finance to fund projects or businesses within ethical guidelines.