---
title: "What is Capital protection (as distinct from a guarantee)? | IslamicOpenFinance™"
description: "Using permitted methods to safeguard invested capital, which AAOIFI distinguishes from the manager guaranteeing it."
url: https://islamicopenfinance.com/glossary/capital-protection/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Partnership and investment](https://islamicopenfinance.com/glossary/#partnership)

Partnership and investment

# Capital protection (as distinct from a guarantee)

Using permitted methods to safeguard invested capital, which AAOIFI distinguishes from the manager guaranteeing it.

Capital protection means using permitted methods to prevent loss, decrease or destruction of invested capital. AAOIFI's standard on protection of capital distinguishes it from a guarantee, which is one party's undertaking to bear any loss, and says that an investment manager, whether mudarib, investment agent or managing partner, must exercise due diligence but may not be made unconditionally liable for losses other than those caused by its misconduct, negligence or breach. Products described as capital protected should therefore say how protection works and who, if anyone, stands behind it.

## Sources

- [AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 45, Protection of Capital and Investments, items 2 and 3](https://aaoifi.com/wp-content/uploads/2017/12/Shariaa-Standards-ENG.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Mudarabah** A partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider.](https://islamicopenfinance.com/glossary/mudarabah/) [**Wakalah bil-istithmar (investment agency)** Investment agency: the agent invests the principal's funds for a fee, and the profit or loss belongs to the principal.](https://islamicopenfinance.com/glossary/wakalah-bil-istithmar/) [**Ta'addi and taqsir (misconduct and negligence)** Misconduct and negligence: the two grounds that make a trustee, agent or mudarib liable for a loss it would otherwise not bear.](https://islamicopenfinance.com/glossary/taaddi-and-taqsir/) [**Investment risk reserve** An amount set aside from investment account holders' profit, after the bank's share, to cushion their future investment losses.](https://islamicopenfinance.com/glossary/investment-risk-reserve/) [**Kafalah** A guarantee: a guarantor joins the guaranteed party in assuming a specified liability.](https://islamicopenfinance.com/glossary/kafalah/)

**Partnership and investment**

1. [Mudarabah](https://islamicopenfinance.com/glossary/mudarabah/)
2. [Musharakah](https://islamicopenfinance.com/glossary/musharakah/)
3. [Diminishing musharakah](https://islamicopenfinance.com/glossary/diminishing-musharakah/)
4. [Rabb al-mal](https://islamicopenfinance.com/glossary/rabb-al-mal/)
5. [Mudarib](https://islamicopenfinance.com/glossary/mudarib/)
6. [Profit sharing ratio](https://islamicopenfinance.com/glossary/profit-sharing-ratio/)
7. [Restricted mudarabah](https://islamicopenfinance.com/glossary/restricted-mudarabah/)
8. [Unrestricted mudarabah](https://islamicopenfinance.com/glossary/unrestricted-mudarabah/)

[All 221 terms](https://islamicopenfinance.com/glossary/)