Understanding Mudarabah

Mudarabah is a contract between a capital provider and an entrepeneur, in a partnership contract. The capital provider or known as Rabb al Mal will provide the full amount of capital upfront to the entrepeneur (Mudarib). And the resultants profit will be shared according to a pre-determined profit sharing ratio by both parties.

Generally there are 2 types of Mudarabah, that is restricted (Muqayyadah), and unrestricted (Mutlaqah).

In restricted Mudarabah, the capital provider imposes certain restrictions as to where, how and for what purpose his funds are to be invested. As for unrestricted Mudarabah, the capital provider authorizes the Mudarib to use or to invest the fund in a manner which he deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested.

GIA (General Investment Account) is one of the example of Mudarabah partnership you can find nowadays. Most of Islamic bank in Malaysia providing this General Investment Account for its customer. In GIA, the account holder will be capital provider, and the Islamic bank as a Mudarib.