Mudarabah & Musharakah
Understanding Islamic Contracts • Module 1 of 4
Muḍārabah (Profit-Sharing Partnership)
A partnership where one partner (Rabb al-Māl) provides 100% of the capital and the other (Muḍārib) provides labor and expertise. Profit is shared according to a pre-agreed ratio. Financial loss is borne solely by the capital provider, while the manager loses their time and effort. This is a cornerstone of Islamic venture capital and investment funds.
Example: Example: An investor gives capital to a tech expert to build an app. They share profits 60/40, but only the investor bears financial loss.
Mushārakah (Joint Venture Equity)
An equity partnership where all partners contribute capital and/or labor. All partners share in the profits according to an agreed ratio, but losses are strictly shared in proportion to capital contribution. It represents true co-ownership and risk-sharing, ideal for joint ventures.
Example: Example: Two people contribute capital to buy a property to rent out. They share profits and losses proportional to their ownership stake.
Key Difference
In Mudarabah, only the capital provider bears financial loss. In Musharakah, all partners share financial loss in proportion to their investment.