International Journal of Asian Social Science, 2013, 3(5):1236-1243
International Journal of Asian Social Science
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MUDARABAH IN ISLAMIC FINANCE:
INTERPRETATION & IMPLICATIONS
A CRITICAL ANALYSIS OF
Farooq Aziz
Department of Business Administration Federal Urdu University, Gulshan-e-Iqbal Campus, Karachi
Mahwish Anjam
Assistant Professor, Department of Management Sciences, DHA Suffa University, DHA, Karachi
Syed Muhammad Fahim
Department of Management Sciences, Assistant Professor, DHA Suffa University, DHA, Karachi
Faisal Saleem
PhD Research Scholar, ,Khadim Ali Shah Bukhari Institute of Technology, Karachi, Pakistan
ABSTRACT
Mudarabah is one of the important methods of Islamic financing broadly used in different fields
including Islamic banking. It is normally considered as lawful and arguments from Quran &
Hadith and other sources are given for its justification. But the real fact is that, its legitimacy
cannot be proved from any source. The verses of Quran which are presented in favour of it, do not
have any relationship with this typical type of partnership. Same as any proof from the books of
Hadith cannot be presented in this regard. On the same line, arguments other then Quran and
Hadith are also unable to provide any reason for its validity.
Keywords: Mudarabah, Quran, Hadith, Justification, Arguments.
INTRODUCTION
By nature Mudarabah is a special type of Partnership between at least two types of partners one
partner provides the capital who is or as rabb-ul-maal or the investor and the second is term as amil
or Mudarib who is responsible for the working and management of business (Saleh, 1986).
According to the conditions imposed by Muslims scholars formers role is restricted to provide
finance in the business and he cannot take part in the business even his agent also cannot participate
in the business (Gazi, 1993). The worker or amil is completely responsible for all the affairs of the
business (Chapra, 2005). Whereas the distribution of profit loss is concern in case of profit it will
be distributed in a pre-decided ratio and in case of loss only rabb-ul- maal bear it (Siddiqui, 1969).
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The reason is that since amil has not invested in the business hence is loss will be in that form of
labour which he has lost. But if this loss is due to the negligence of worker then he will also
responsible for that. In this type of partnership in case of liquidation the liability of rabb-ul-maal is
limited to his investment unless he has permitted the mudarib to incur debts on his behalf. In this
case all assets which are purchased by mudarib are solely owned by rabb-ul- maal and mudarib
can earn his share in the profit only and cannot claim his share in the ownership of assets.
(www.islamicbanker.com/mudarabah-introduction).
JUSTIFICATION OF MUDARABAH
From Islamic point of view it is an important method of financing and provides a sound base of
working for Interest Free Banking, which is largely dependent on it (Rammal and Zurbuegg, 2007).
Whereas the legal base or justification of this method is concern three types of arguments are given
in this regards. These sources are Quran, Hadith and some analogous arguments. These reasons and
their critical analysis is as follows.
Quranic Arguments in Favour of Mudarabah
Three different verses of Quran are presented to justify this act. These verses are as follows.
Translation: While others travel in the land in search of Allahs bounty (Chapter 73, Verse 20).
It is claimed that, justification of Mudarabah can be proved from the initial four words.
Mudarabah is derived from the word Zerab which is used in the Arabic language in the meaning of
to beat, to hurt, and to Struggle. On this basis these words have the meaning of struggle or
walk on the earth. Since in the case of Mudarabah, partners do the struggle for the bounty of Allah,
hence these words justified the act of Mudarabah (Taseen, 2002).
In this context second and third verses are as follows.
Translation: And when the prayer in ended, then disperse in the land and seek of Allahs bounty
(Chapter 62, Verse 10).
Translation: It is no sin for you that you seek the bounty of Allah (by trading) (Chapter 2, Verse
198).
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It is reason that since in these words order is given to Muslims for the struggle of bounty of Allah
and in case of Mudarabah partners struggle for the same, hence these words also prove the
legality of this act.
Rebuttal of Arguments Given From Quran
In- fact all conclusion which are drawn from the first verse are completely out of context, it can be
cleared from the following facts.
Whereas the words of first words are concern in these words a general order is given to all Muslims
for the struggle of bounty of Allah. These efforts may be in unlimited forms and Quran has not
emphasized on a particular form like mudarabah or any other condition. Hence it is impossible to
draw a conclusion about any specific form of business from these words.
The words which are used in these verses are also repeated at some other places e.g. In the verse 94
of Chapter 4 these are used for any struggle in the way of Allah. In the same line verse 101 of
same Chapter these are used just in the meaning of travelling. Hence it is impossible to draw the
sense of any specific meaning for these words.
As far as the last two verses are concern which are given in this regards, in both of these verses
again a general order is given to all Muslims to struggle for the fadal of Allah. Fadal is another
Quranic term which has the meaning of excess wealth, power, courtesy of Allah, increase in
honour, respect etc (Siddiqui, 1996). Again it is a general order given to all Muslims and a
conclusion about any specific form of business cannot be drawn from them.
On the basis of above arguments it can be said that justification of Mudarabah from Quran is not
possible, because all verses which are presented in this regards do not have any direct or indirect
link with this special type of partnership. It is interesting to note that validity of Mudarabah cannot
be proved from Quran in-fact Quran openly deny its base. As a matter of fact Quran did not
recognize the reward of any capital in any form (Aziz et al., 2011). On this basis Mudarabah is
completely against the teaching of Quran. The reason is that in such type of partnership the financer
(Rab-ul-mal) takes the rewards of his capital which is strictly prohibited by Quran in Chapter 2
verses 275-179. Hence, this method is against the basic teaching of Quran.
Hadith as a Reason of Mudarabah
From this source five different types of arguments are given in this regards which are as follows:
It is claim that some companions of Prophet Muhammad (P.B.U.H) has done this types of
partnership. The Prophet Muhammad (P.B.U.H) did not stop them but allowed them to do the
same. In this regards the names of some prominent sahabah-e-kram e.g. Umar Farooq, Utman
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(second and third caliphs), Abu Musa Ashari & Abbas are given and it is claimed that these
personalities were involved in this types of business (Qasim, 2003 ).
Some impressions of companions of Prophet are also coated in this context regarding the very nice
behavior of Prophet Muhammad (P.B.U.H) as a businessman or as a partner in the business.
One incidence from the life of Prophet Muhammad (P.B.U.H) is quoted in this context. According
to this event Prophet Muhammad (P.B.U.H) has given one denarto a sahabiUrvab. AbiJaad Albarti to purchase a goat for the purpose of quarbani(slaughtered animal in the way of Allah). He
has purchased two goats from this amount and sold one of them against one denar, and presented
the goat and one denarto prophet Muhammad (P.B.U.H) and described all details of the event.
Prophet was happy and gave him blessings and donated that, particular denar, (Abu-Daud et al.,
1950). Supporters of mudarabahclaim that, it is an example of this type of agreement. Hence on
this basis mudarabahis lawful.
Another event which is reported in the Sanun-al-Kubra Al-Bay, bahaki also presented as a proof of
mudarabah. According to the text, two sons of second caliph Ummer Farooq were included in an
army mission which was sent to Iraq. This army has stayed at Basara Province. The governor of
Basra has given warm welcome to the sons of caliph and when this mission was returning to
Madina City he handed over them some mal (Cash and merchandise etc.) to deliver it to the caliph.
With that he suggested if, they can purchase some commodities form his province with this mal
and sell them out in Madina. Keeping the profit by themselves and will return the original amount
to government exchequer. They have liked this suggestion and followed the same line of action.
But when caliph came to know this event he ordered them to return the profit also to government
exchequer because it was an open discriminatory action, which has given undue advantage to his
sons as compare to the rest of army men. On his order, one of his sons has followed it, but the
second raised the point that, they were collateral of that merchandise. If it was lost or damaged in
any form then they were responsible for that. But the caliph did not accept this reason and kept his
decision intact. At this time one person who was present there during this discussion suggested the
caliph to consider this transaction as mudarabah. This point has impressed the caliph and he has
allowed to keep the profit to his sons (Al-Bayhaki et al., 458H). This event is also presented as an
example of mudarabah. (Ayub, 2010).
The economic transaction between Prophet Muhammad (P.B.U.H) and Hazrat Bibi Khadija before
Prophet-hood is also presented as an example of mudarabah transaction
REFUTATION OF REASONS DERIVED FROM HADITH
As far as these reasons are concerned none of them fulfill any standard of reasoning. Their critical
analysis is as follows:
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Whereas the first argument is concerned it cannot be acceptable, because any detail of such type of
agreements is not available in which it is described that, what was the nature of agreement? With
what terms and conditions it was applicable? etc. definitely it is not enough just to say that any
particular sahabi has done the same until its detail is not found. Hence this claim cannot be a base
of justification of mudarabah.
The situation is quite same in the case of second reason, any detail of any partnership deed is not
available on which it can be said that, Prophet Muhammad (P.B.U.H) has ever done any such type
of agreement. Hence this claim also cannot be accepted.
As far as that event is concerned in which as Sahabi has purchased a goat under the order of
Prophet Muhammad (P.B.U.H), this event cannot be treated as a mudarabah agreement on the
following grounds:
According to the conditions of mudarabah it should be a business agreement. But in this case it
was not so. Prophet has given the order to purchase the goat just for the purpose of sadaqa
(donation in the way of Allah) not for any business deal. Hence it cannot be treated as mudarabah.
In mudarabah agreement profit / loss should be decided at the start of the business in this
transaction this condition is not fulfilled.
Another condition of mudarabah is also absent in this case under which partnership should be
based on a agreement between finance and worker for a particular business.In this event prophet
did not give the permission to do any business to the sahib. It was his personal decision. Hence any
condition of mudarabah is not applicable here.
It is important to note that, Prophet Muhammad (P.B.U.H) has donated that particular denar which
was saved by that Sahabi, this action of the Prophet clearly shows that he was not ready to keep
that income which was not the result of his dint of labour. This fact also proves that it was not a
agreement of mudarabah. The event which is related to the sons of second caliph ummer is also
failed to qualify as mudarabah agreement due to the following reasons.
The amount which was given to them was a debt, whereas in case of mudarabah the amount given
by the financer to worker is treated as a charge or deposit. In this case both brothers were
guarantors of that merchandiser. Hence it cannot be seen us any mudarabah agreement. In case of
mudarabah it is necessary that profit / loss ratio should be decided at the start of the business. This
basic condition is also violated in this agreement. Hence again it cannot treated as any mudarabah
agreement. In the event which is related to the sons of caliph, it is interested that, both Sons were
not aware of the fact that they were doing an agreement of mudarabah, It was just a suggestion
given by that person which was present at time. It was not a predicated matter neither profit I loss
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ratio was decided. Moreover the role of governor of Basra cannot be treated as financer. Hence
from any angle this event cannot be treated as mudarabah.
On the same line the economic transaction between Prophet Muhammad (PBUH) and HazratBibi
Khadija cannot be and base of mudarabah because all books in which this event is reported
categorically admit that, it was not the case of profit sharing, because the remuneration of Prophet
in each visit was pre-decided. Moreover two other factors also prove that it was not the case of
mudarabah. First one slave of HazratBibi Khadija Maysara was with the Prophet in both visits. It is
an open violation of this type of agreement, according to which financer or his agent cannot take
part in business in any way. Second Prophet Muhammad (P.B.U.H) has sold the merchandise of
HazratBibi Khadija in Syria and purchased some other commodities for HazratBibi Khadija and
delivered them to her, which she personally sold. This act is another violation of this type of
agreement according to which there is no role of financer in the business. Hence it is concluded
that, this transaction cannot be treated as mudarabah from any angle.
SOME ANALOGOUS ARGUMENTS
Following presumptive reasons in favour of this act are also given:
It is said that, this agreement has a deep resemblance with Ijara (rent) and mazara (share cropping).
Since both of these are considered as lawful hence on this basis mudarabah should also be treated
as lawful.another reason is that, since in the eyes of shariah the income which is subject to risk is
considered as lawful. Hence on this basis income of this agreement should also be considered as
valid.
It is claimed that in this case worker and financer got the reward of their labour and capital
respectively which is according to the law and justice. Hence no objection can be raised in this
context on the validity of this agreement.
Last reason in this context is that mudarabah is a good method both for financer or worker. In case
financer do not has skill and worker does not has finance. Then through this method both of them
can utilize their resources and got profit from the business.
NEGATION OF ANALYSIS ARGUMENTS
All arguments which are given under this title are completely baseless. Their critical analysis is as
follows:
It is claimed that mudarabah should be considered as valid because it is quite similar to mazara
(share cropping) and ijara (rent). Since both of these are recognized hence it should be considered
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as lawful. In this regard whereas the concept of mazara is concerned, it cannot be said that it is a
well recognized concept. There are a lot of conflicts between Muslim thinkers in its validity. Hence
on the basis of a quite controversial concept how another concept can be recognized? Moreover
since Quran did not recognize the concept of Private ownership of land (Aziz and Naveed-urRehman, 2012), hence on this basis concept of mazara automatically vanished out whereas ijara
(rent) is concerned not doubt it is well accepted by Muslim thinkers but the matter of fact is that it
is openly against of Quranic teachings and all agreements which are given in this regard are
completely base less (Aziz and Farooq, 2004). Hence Ijara cannot be treated as base for the
validity of mudarabah.
As far as the validity of that income is concerned which is considered as lawful on the basis of risk,
it can be proved in any way. The simple proof in this regard is that, Quran has strictly prohibited
any gambling transaction (Chapter 5, verse 90) in which the highest degree of risk is involved.
Hence on this basis it can be claimed that risk in any case cannot be the base of legal income.
Hence from this agreement also validity of mudarabah cannot be proved.
CONCLUSION
On the basis of this discussion it can be concluded that, all arguments which are given to prove the
validity of mudarabah from Quran, Hadith and in the form of analogous arguments are unable to
provide any solid reason to justify the mudarabah agreement. Conclusions which are drawn from
first two sources do not have any relationship with this particular type of agreement. The last types
of arguments are against the basic teachings of Quran. Hence mudarabah is a completely unlawful
agreement and do not has any legitimate base.
REFERENCES
Abu-Daud, b. Sulayman and Al-Ashath, 1950. Sunan, cairo 229.
Al-Bayhaki, A.J.A.B.A. B. and A. Hassan, 458H. Sunan al-kubra lal bayhaki, Multan.
221-222.
Ayub, M., 2010. Islami malayat urdu, Islamabad. 424.
Aziz and Farooq, 2004. Murvija islami muashi taswarat qurani tanazur main urdu, Karachi
141 150.
Aziz, Farooq, Abbas and Hussain, 2011. Interest (riba) in quranic perspective. Eurpoean
Journal of Social Science, 22(3): 338-341.
Aziz, F., Khan, and Naveed-ur-Rehman, 2012. Refutation of private ownership of land:
Islamic perspective. Journal of Islamic Economics, Banking & Finance, 8(2): 8190.
Chapra, M.U., 2005. Towards new monetary policy urdu trans. Farooqui, aijaz ahmed, aik
munsifana zari nizam, Karachi. 242-243.
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Gazi, M.A., 1993. Hurmat-e-riba aur ghair sudi nizam urdu, Islamabad. 74-76.
Qasim, M.A.H., 2003 Hazrat muhammad bahasiat mahir-e-muashiat urdu. 149.
Rammal, H.G. and R. Zurbuegg, 2007. Answers of islamic banking product among
muslim. The case of Australia. Journal of Financial Services Marketing, 12(1):
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Saleh, N., 1986. Unlawful gains and legitimate profit in islamic law: Riba gharar and
islamic banking. U.K: Cambridge University Press.
Siddiqui, M.M., 1996. Quran-e-majeed ka arabi urdu lugat urdu, Dehli. 419.
Siddiqui, M.N., 1969. Shirkat-o-mudarbat kay shari asool urdu, Lahore 18-21.
Taseen, M., 2002. Islami iktisad kay chand poshida goshay urdu, Karachi. 194-197.
Website:
www.islamicbanker.com/mudarabah_introduction
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