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The truth and essence of Mudharabah

It is common for peoples who want to grow their capital or to have a value added of the capital/ asset. People are trying to grow their asset, use it in trade or to invest it in business. While as an owner, ones do not have capability to manage the fund, they will need the help of other party to manage the fund by establishing cooperation. Here both parties will make a common understanding for the effort to make profit for both. One of the cooperation in Islam is what we know as Mudharabah.

Meaning of Mudharabah
Mudharabah is a cooperation between an investor who gives fund/ capital to a party who will manage the fund/ capital for trading. The profit will be shared between two parties, Investor and the care taker. Mudharabah is a transaction between two parties. One party will give the capital/ fund to the other party to perform a business or trading with profit sharing as agreed before the transaction. So Mudharabah is one form of cooperation between two parties or more. In this case the owner of the fund or investor (shahib al mal) entrust a specific amount of capital/ fund to a manager/ care taker/ organizer (mudharib) with agreement for profit sharing. This form of cooperation is 100% capital from shahib al mal and the skills/ capability from mudharib.

Wisdom and philosophy of Mudharabah
It is wise that if the capital growth and increase of fund become Shariah. A capital can grow if managed properly or to use in trade. And it is understood that not everyone can do a business even though he/ she has money. Reversely not everyone who has the capability of doing business has the money/ capital required to do a business. One party has the advantage of capital while the other party has the advantage of ability to run a business. Due to the above Mudharabah is considered Shariah in Islam.

Islam affirms that cooperation in Mudharabah is Shariah to make the life easier, as part of the people have money but cannot run a business. Some of the others do not have money required for business but have capability to run a business and manage the fund to grow it. This Shariah allows the cooperation to gain benefit of such arrangement.
The investor (shahib al mal) benefited the skills of a care taker/ organizer (mudharib), while mudharib use the capital. So the cooperation between capital and work are materialized.

Types of Mudharabah
There are two types of Mudharabah, Unlimited and Limited Mudharabah.
Mudharabah al Muthlaqah (Unlimited Mudharabah)

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