Mudarabah is permissible as long as it does not involve unlawful matters.
Linguistic explanation: The word Mudarabah is a verbal noun from the root ضَارَبَ يُضَارِبُ (Mufāʿalah). It is also called Muqāradah, meaning partnership in trade.
Technical definition: A trade in which the capital belongs to one person and the labor to another, on the condition that the profit is divided between them according to agreed terms, and in case of loss, only the owner of the capital bears the loss while the worker loses his effort and labor.
[Al-Fiqh al-Islami wa Adillatuh: 3924/5, Tabyeen al-Haqaiq: 52/5, Takmila Fath al-Qadeer: 57/7]
➊ When Hazrat Hakim bin Hizam (RA) gave someone his capital on mudarabah, he would stipulate that they should not trade animals with his capital, nor take it to the sea, nor to flood-prone areas. If they did so, they would be responsible and guarantors for his capital.
[Sahih: Irwa’ al-Ghaleel: 293/5, Dar Qutni: 63/3, Bayhaqi: 111/6]
➋ There is consensus on the legitimacy of this sale because many companions used to give the property of orphan children on mudarabah, and no one expressed surprise at this.
[Nasb al-Rayah: 113/4]
➌ Among the companions, this sale is practically established from Hazrat Hakim bin Hizam, Hazrat Ibn Mas’ud, Hazrat Abbas, Hazrat Jabir, Hazrat Abu Musa, Hazrat Ibn Umar, Hazrat Umar, and Hazrat Uthman (RA).
[Abd al-Razzaq: 248/8, Dar Qutni: 242, Talkhees al-Habeer: 58/3, Nasb al-Rayah: 114/4, Tarteeb al-Musnad lil-Shafi’i: 169/2]
(Ibn Hazm) The presence of this sale during the Prophetic era and the Prophet’s (PBUH) not expressing surprise at it is clear evidence of its legitimacy.
[Maratib al-Ijma’: p.19]
(Al-Albani) The original ruling in transactions is permissibility; therefore, due to no prohibition, this sale is valid.
[Irwa’ al-Ghaleel: 294/5]
(Ibn Hajar) If mudarabah were not permissible, the Prophet (PBUH) would have forbidden it.
[Talkhees al-Habeer: 58/3]
(Ibn Taymiyyah) Its legitimacy is established by text and consensus.
[Majmoo’ al-Fatawa: 195/19]
◈ Some have objected that since this sale is not proven from the Prophet (PBUH), it is not permissible.
The answer is that there is a type of hadith called “Taqreeri Hadith,” meaning an act that occurred during the Prophet’s time and was known to him, but he did not forbid it and remained silent. Thus, the Prophet’s (PBUH) allowing the act despite knowing about it is a type of hadith and proof of its permissibility.
Moreover, the principle in transactions is original permissibility unless there is clear prohibition. Therefore, this sale is established by reason and transmission.
[Talkhees al-Habeer: 58/3, Majmoo’ al-Fatawa: 195/19]
◈ Qiyas (analogy) also proves the legitimacy of this sale, as follows: a person can be rich or poor; how can it be forbidden for someone without capital to earn profit through mudarabah from a capitalist to feed his family, while Allah has made contracts and sales permissible to fulfill human benefits, interests, and necessary needs?
[Bada’i’ al-Sana’i’: 79/6, al-Mabsut: 81/22, al-Muhadhdhab: 384/1]
When partners dispute over the width of a path, it should be seven hands wide, and no neighbor should prevent his neighbor from placing a beam on his wall.
It is narrated from Hazrat Abu Hurairah (RA) that the Messenger of Allah (PBUH) said:
إذا اختلـفـتـم فـي الطريق فاجعلوه سبعة أذرع
“When there is a dispute, measure the width of the path as seven hands.”
[Bukhari: 2473, Book of Oppressions and Usurpations: Chapter on Disputes over Dead-End Roads, Muslim: 1613, Tirmidhi: 1356, Abu Dawood: 2632, Ibn Majah: 2338]
It is narrated from Hazrat Abu Hurairah (RA) that the Messenger of Allah (PBUH) said:
لا يمنع جار جاره أن يغرز خشبه فى جداره
“No person should prevent his neighbor from driving a beam into his wall.”
Then Hazrat Abu Hurairah (RA) used to say: What is this that I find you turning away from it? By Allah! I will keep declaring this hadith before you.
[Bukhari: 2463, Book of Oppressions and Usurpations: Chapter on Not Preventing a Neighbor from Driving Wood into His Wall, Muslim: 1609, Ibn Majah: 2337, Abu Dawood: 3634, Muwatta: 32, Ahmad: 313/1, Bayhaqi: 29/6, Tirmidhi: 1353]
None of the partners should cause harm or cause more pain than the harm inflicted, and whoever harms his partner, the Imam may punish him by uprooting his tree and selling his house.
It is narrated from Hazrat Ibn Abbas (RA) that the Messenger of Allah (PBUH) said:
لا ضرر ولا ضرار
[Sahih: Irwa’ al-Ghaleel: 896, Sahihah: 448/1, Ibn Majah: 2341, Book of Judgments: Chapter on Building Something Harmful to One’s Neighbor, Hakim: 57/2, Ahmad: 313/1, Tabarani Kabir: 302/1, Nasb al-Rayah: 384/4]
➊ Hazrat Zubair (RA) and an Ansari had a dispute over watering crops, and the Messenger of Allah (PBUH) gave a strict ruling against the one causing harm.
[Bukhari: 2359-2360, Book of Irrigation: Chapter on Blocking Rivers]
➋ Imam Bukhari (RA) established a chapter:
الإمام ياتي قوما فيصلح بينهم
“The Imam comes among the people and reconciles their mutual affairs.”
[Bukhari: Before the Hadith/7190, Book of Judgments]
➌ Hazrat Samurah bin Jundub (RA) had a tree in an Ansari’s garden where he lived with his family. Samurah’s presence caused harm and distress to the Ansari, who demanded some transaction from Samurah. He refused. When the matter reached the Prophet (PBUH), he told Samurah to sell his tree. He refused. Then the Prophet (PBUH) told him to make some transaction. He refused again. Then the Prophet (PBUH) told him to gift the tree. He refused a third time. Then the Prophet (PBUH) told the Ansari that this person is causing harm; uproot his tree.
[Bayhaqi: 158/6, Abu Dawood: in al-Marasil: 407]
