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The Arabic word "mudharabah" means to travel the earth for trade or business. It is even a term mentioned in the Quran, the holy book of Islam revealed to the prophet Muhammad (S) by the angel Gabriel. It is written: "Others (making dharb on earth) traveling through the land, seeking of Allah's bounty" [74:20]. The term refers to those who can almost be called nomadic businessmen, traveling around the world seeking God's help and sustenance in business and trade.

The term has a more specific meaning, too, however. Mudharabah in Shar'iah, or Islamic law, refers to the payment of a specific amount of money to a person who uses it for business and makes a profit from it, or an investment. This form of a contract is permissible according to Islamic scholars. Islamically, interest is forbidden. It is definitely forbidden to take interest when loaning someone money if one is a Muslim, and those Muslims who adhere to a stricter interpretation on Islam believe that this rule means that it is also forbidden to pay interest on bank loans, meaning they search for no-interest loans or alternate forms of payment often offered by Islamic banks and lending companies owned by Muslims. Therefore, this form of contract is much preferable. It was present during the time of the Prophet (S) and he approved of it, and it was also approved by his first four caliphs and others.

The concept of the mudharabah contract worked because it made good sense. People need money, and they need to perform work or make goods for money, and they can't engage in that business except by obtaining money to start it. After all, money grows in a given society through circulation and trade and investment. Ibn al Qayyim said, "The mudharib is a trustee, an employee, a deputy and a partner. He is a trustee when he takes the money; a deputy when he uses it, an employee in the work that he executes, and a partner in the profit. For Mudharabah to be (Islamically) valid, the share of the worker should be named."

The mudharabah contract is beneficial to the worker and to the society, and that was why it was so popular and remains intact in the collection of business terminology. The Arab Muslims were prominent businessmen and responsible for much of the economic growth and triumph enjoyed by the Middle East and outreaching parts of the world for many, many centuries. In addition to that, the Quran was not only a moral and religious guide, but a social, legal and business guide that instructed its followers on how to conduct themselves in business and other legal matters, so it comes as no surprise that mudharabah was put in practice and used for so long.

Learn more about this author, Huma Rashid.
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