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Intermediate
9 min read

Mudarabah: The Profit-Sharing Investment Model

Mudarabah aligns the interests of investors and entrepreneurs. Learn how NIB banks use it for investment accounts and business finance.

Mudarabah is one of the most elegant instruments in non-interest finance — a true partnership between capital and skill.

The Mudarabah Framework

  • Rabb ul Mal (Capital Provider): Provides 100% of the capital. Bears all financial loss if the venture fails (except in cases of misconduct).
  • Mudarib (Entrepreneur/Manager): Provides expertise, management, and effort. Loses time and effort if the venture fails, but not capital.
  • Profit: Shared according to a pre-agreed ratio (e.g., 60:40, 70:30)
  • Loss: Borne entirely by the Rabb ul Mal (unless the Mudarib was negligent)

    • Two Types of Mudarabah

    1. Restricted Mudarabah (Al-Muqayyadah): Capital can only be invested in specified sectors or activities

    2. Unrestricted Mudarabah (Al-Mutlaqah): Capital can be invested in any Shariah-compliant activity

    Mudarabah Investment Accounts

    NIB banks in Ghana use Mudarabah for savings and investment accounts. Instead of paying a fixed interest rate, the bank invests depositors' funds and shares the profits when they materialise.

    Example

    You deposit GHS 10,000 in a Mudarabah investment account for 12 months with a 70:30 profit ratio (you:bank). If the bank earns GHS 2,000 from investing your funds, you receive GHS 1,400 (70%) and the bank keeps GHS 600 (30%).

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