---
title: "What is Mudarabah? | IslamicOpenFinance™"
description: "A partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider."
url: https://islamicopenfinance.com/glossary/mudarabah/
lang: en-GB
source: "IslamicOpenFinance"
---

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

Partnership and investment

# Mudarabah

A partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider.

Mudarabah is a partnership in which a capital provider, the rabb al-mal, contributes capital and an entrepreneur, the mudarib, manages it. Under the IFSB definition, profit is shared according to the percentage specified in the contract, while losses are borne solely by the capital provider unless they result from the mudarib's misconduct, negligence or breach of the contracted terms. Islamic banks use it on both sides of the balance sheet: to take investment accounts and to finance ventures.

## Sources

- [IFSB-23 Revised Capital Adequacy Standard (Banking Segment), 2021: Definitions, Mudarabah](https://www.ifsb.org/wp-content/uploads/2023/10/IFSB-23_En.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

[**Rabb al-mal** The capital provider in a mudarabah, who funds the venture, shares profit by the agreed ratio and bears financial loss.](https://islamicopenfinance.com/glossary/rabb-al-mal/) [**Mudarib** The manager in a mudarabah, who runs the venture and earns a share of profit rather than a guaranteed fee.](https://islamicopenfinance.com/glossary/mudarib/) [**Profit sharing ratio** The agreed split of profit between partners, expressed as a ratio of actual profit, never as a fixed sum or a share of capital.](https://islamicopenfinance.com/glossary/profit-sharing-ratio/) [**Profit-sharing investment account (PSIA)** An account whose funds the bank invests, usually as mudarib, with returns based on actual results rather than a promised rate.](https://islamicopenfinance.com/glossary/profit-sharing-investment-account/) [**Musharakah** A partnership in which each partner contributes capital; profit is shared as agreed and loss in proportion to capital.](https://islamicopenfinance.com/glossary/musharakah/)

**Partnership and investment**

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

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