Deposit Mobilization through Mudarabah Contract

Introduction

Mudarabah is a kind of partnership contract, where one party, known as Sahib-Al-Maal i.e. customer (Capital Provider) extends the capital, and the other party, known as Mudarib i.e.IFI/Bank (Fund Manager) provides skill and labor to manage the business complying Shari’ah principles. Sahib-Al-Maal cannot take part in the management of the business. Profit is shared as per the pre-agreed ratio, while loss is borne by the Rab-Al-Maal. Mudarib does not bear a share of the loss but in case of negligence, misconduct, and breach of contract, Mudarib, i.e. IFI/Bank has to bear the loss of capital only. Under Islamic banking and financing, the Depositor is Sahib-Al-Maal and the IFI/Bank is the Mudarib.

Definition of Mudarabah

The word Mudarabah (مضاربة) is an Arabic term of Islamic business law. The worldly meaning of Mudarabah is to travel for business. It also refers to “trustee finance” or passive partnership contract.

According to AAOIFI’s Shari’ah Standard No.13(2), Mudarabah is a partnership in profit whereby one party provides capital (Rab al-Mal) and the other party provides labour (Mudarib). By nature, Mudarabah is a special type of partnership between at least two types of partners where one partner provides the capital who is or as rabb-ul-maal or the investor, and the second is termed as amil or Mudarib who is responsible for the working and management of business (Saleh, 1986).

Types of Mudarabah

Mudarabah is of two types:  

    a) Unrestricted Mudarabah, and  

    b) Restricted Mudarabah  

(a) Unrestricted Mudarabah (المضاربة المطلقة) 

It is a contract in which the capital provider permits the Mudarib to administer and utilize a Mudarabah fund without any restriction like; “Do business according to your expertise” type freedom in the business operations.  But the freedom of Mudarib is confined to the interest of the Mudarabah contract i.e. making a profit. Because of this, the fundamental goal of the Mudarabah contract is to make a profit through properly utilizing the fund. Shari’ah compliant all types of businesses/products are allowed in the context of unrestricted Murdarabah. 

Fonebank shall receive the unrestricted funds for financing the funds in Shari’ah-compliant sectors keeping in mind the interest of the depositors. Fonebank may finance the funds among others in retail, corporate, home finance, trading, fixed and floating assets, SME, etc.

(b) Restricted Mudarabah (المضاربة المقيدة)   

It is a contract in which the capital provider restricts the action of Mudarib to a particular location or particular type of investment. Particular location i.e. the city of Texas or Dallas, etc. Particular types of investment i.e. House financing, industrial financing, capital machinery financing, education sector, health sector, etc. However, the Sahib-Al-Maal cannot control the everyday business activity of the Mudarabah enterprise or even cannot participate in the daily business activities.  

Fonebank shall utilize the restricted funds for financing in Shari’ah-compliant fixed sectors which have been selected or directed by the depositors i.e., Sahid-al-Mal can fix the financing field like the fund must only be used for retail, corporate, home finance, trading, fixed and floating assets, SME, etc. financing.

Shari’ah Basis

In accordance with the AAOIFI’s Shari’ah Standard No.13 on Mudarabah; the Mudarabah contract derives its permissibility from the following:

(a)  From the Qur`an is the Saying of Allah, the Almighty: “Others
traveling through the land, seeking of Allah’s bounty” [Al-Muzzammil: 20] This verse is interpreted to mean those who travel for the purpose of trading and seeking permissible income in order to provide for themselves and their family.

(b) From the Sunnah is the Hadith that says, “Al-’Abbas Ibn Abdul Muttalib used to pay money for Mudarabah and to stipulate to the Mudarib that he should not travel by sea, pass by valleys, or trade-in livestock and that the Mudarib would be liable for any losses if he
did so. These conditions were brought before the Prophet (peace be
upon him) and he approved them” Al-Bayhaqi [6: 111].

Among the Hadiths regarding the permissibility of Mudarabah is the case that states that “Umar Ibn Al-Khattab gave one man the funds belonging to an orphan for the purpose of Mudarabah and the man was trading with these funds in Iraq.” [The Hadith has been related by Al-Bayhaqi in “Al-Ma’rifah” (Al-Zayla’i, “Nasb AlRayah”)].

(c) Ibn Al-Mundhir mentioned that there is general consensus among the scholars with respect to the permissibility of a Mudarabah contract. “Al-Mughni” [7: 133-134].

Shari’ah Parameters

• • The Mudarabah contract may be concluded on the basis of a general framework or MoU.  

• • The profit ratio must be predetermined.

• • Loss shall be borne by the Sahib-al-Mal as per the capital ratio, if any.

Mudarabah is a trust-based contract (Amanah); so Mudarib will not be liable for any losses except in three cases:

a) Negligence,

b) Misconduct, and

c) breach of the terms of the contract.

Modes of Contract

Mudarabah

Type of Investment

1. 1. Term
   2. Recurring

1.  

The Name of the Products

1. Mudarabah General Investment Account (Unrestricted- Term and Recurring)
2. Mudarabah Restricted Investment Account (Term and Recurring)
3. Mudarabah Short Notice Investment Account 
4. Mudarabah Profit Earners Investment Account (Restricted and Unrestricted – Term)  
5. Mudarabah Cash Waqf Scheme (Term and Recurring)
6. Mudarabah Recurring Investment Scheme  
7. Mudarabah Recurring Hajj Deposit Scheme 
8. Mudarabah Recurring Umrah Deposit Scheme 
9. Mudarabah Recurring Retirement Deposit Scheme 
10. Mudarabah Recurring Spiritual Leaders Deposit Scheme 
11. Mudarabah Women Investment Scheme (Restricted and Unrestricted – Term and Recurring)    
12. Mudarabah Recurring Marriage Deposit Scheme 
13. Mudarabah Recurring Education Deposit Scheme  
14. Mudarabah Non-Immigrant Investment Scheme (Restricted and Unrestricted – Term and Recurring)    
15. Mudarabah Flexible Investment Scheme 
16. Mudarabah Recurring Real Estate Investment Scheme 
17. Mudarabah Money/Capital Market Investment Scheme (Restricted – Term and Recurring) 

Mudarabah Restricted Term Investment/Deposit

Products under Term Restricted Mudarabah

1.  Mudarabah General Investment Account
2. Mudarabah Profit Earners Investment Account
3. Mudarabah Short Notice Investment Account 
4. Mudarabah Cash Waqf Scheme 
5. Mudarabah Women Investment Scheme
6. Mudarabah Non-Immigrant Investment Scheme
7. Mudarabah Money/Capital Market Investment Scheme

Mudarabah Unrestricted Term Investment/Deposit

Products under Term Unrestricted Mudarabah

1. Mudarabah General Investment Account
2. Mudarabah Profit Earners Investment Account
3. Mudarabah Short Notice Investment Account
4. Mudarabah Cash Waqf Scheme
5. Mudarabah Women Investment Scheme
6. Mudarabah Non-Immigrant Investment Scheme

Mudarabah Restricted Recurring Investment/Deposit

Products under Recurring Restricted Mudarabah

1. Mudarabah General Investment Account 
2. Mudarabah Cash Waqf Scheme 
3. Mudarabah Recurring Investment Scheme  
4. Mudarabah Recurring Hajj Deposit Scheme 
5. Mudarabah Recurring Umrah Deposit Scheme 
6. Mudarabah Recurring Women Investment Scheme
7. Mudarabah Recurring Non-Immigrant Investment Scheme
8. Mudarabah Recurring Real Estate Investment Scheme 
9. Mudarabah Money/Capital Market Investment Scheme

Mudarabah Unrestricted Recurring Investment/Deposit

Products under Recurring Unrestricted Mudarabah

1. Mudarabah General Investment Account 
2. Mudarabah Cash Waqf Scheme 
3. Mudarabah Recurring Investment Scheme  
4. Mudarabah Recurring Hajj Deposit Scheme 
5. Mudarabah Recurring Umrah Deposit Scheme 
6. Mudarabah Recurring Retirement Deposit Scheme 
7. Mudarabah Recurring Spiritual Leaders Deposit Scheme 
8. Mudarabah Recurring Women Investment Scheme
9. Mudarabah Recurring Marriage Deposit Scheme 
10. Mudarabah Recurring Education Deposit Scheme  
11. Mudarabah Recurring Non-Immigrant Investment Scheme
12. Mudarabah Flexible Investment Scheme Mudarabah Recurring
13. Real Estate Investment Scheme  

Restricted Financing

The Bank can finance the funds from this investment pool in Shari’ah-compliant goods and services instructed by the customer(s). Such as;

• Home Finance
• Consumer Finance
• Manufacturing Finance
• SME Finance
• Stock Finance
• Corporate Finance
• Transport Finance
• Customers may select any other sector from the options available under the Bank’s incorporated lists.

Unrestricted Financing

The Bank can finance the funds from this investment pool in Shari’ah-compliant goods and services in accordance with the expertise of the IFI/Institute.

Client Segments & Sectors

• Personal
• Industrial
• Retail
• Corporate
• Any other, if any……

Required Documents

• Duly completed Account Opening Form (AOF) with signs of the client(s)
• Any US National or Foreign National aged 18 years and above can open an Account.
• Issuing A/C Payee Check/ Pay Order/ Online Fund Transfer/ EFT etc. in favor of FoneBank.
• Verified Photos/ NID/ Passport/ Driving License/ any other valid photo paste ID card of the client(s) by the FoneBank Official(s).
• Endorsed Photos/ NID/ Passport/ Driving License/ any other valid photo paste ID card of the nominee(s) by the client(s).
• Additional Docs based on the organization type: TIN/VAT Certificate/ updated Trade License/ Trust Deed/ By-laws/ constitutions/ detail identification of the related committee or bodies.
• Any other document, if required by the regulatory authority or FoneBank from time to time.

Termination of Mudarabah Contract

Mudarabah contract can be terminated anytime by either party, by giving due notice. The following must be considered, at the time of termination of Mudarabah:

• If assets/funds are in cash form and some profit has been earned, it will be distributed among the parties, according to the pre-agreed ratio.
• If assets/funds are not in cash form, the Mudarib/Institute may sell and liquidate them, to determine the actual profit. However, constructive liquidation can also be conducted.
• If the period of the contract is fixed, all parties are responsible for completing the tenure.

In the case of pre-encashment, the profit rate will be parameterized.

Regulatory Charges

Regulatory charges will be realized as per the Government rule.