Written by: Fatwa Saudi Fatwa Committee
Conditions for Providing Capital in Mudarabah
The conditions for providing capital in Mudarabah are as follows:- The Capital Must Be Known and in the Form of Currency
The capital should be in the form of known currency, such as coins (dirhams and dinars) or paper currency. This is because if the capital is in the form of goods, the prices of goods can fluctuate. For example, the price of a certain good could be 1,000 at the time of the agreement, but when the accounts are settled, its price may have increased to 2,000 or decreased to 500. Based on this reasoning, scholars have prohibited using anything other than cash as capital in Mudarabah. For example, if you give someone cars for a Mudarabah business, it is not permissible because the value of the cars could increase from 100,000 to 200,000 by the time the contract is concluded. - Agreement on the Estimated Price of Non-Cash Capital
Some scholars have allowed using non-cash assets like land or vehicles in Mudarabah, provided their value is estimated at the time of the contract. This ensures that both parties can calculate profit and loss accurately when the Mudarabah ends. This opinion is considered the correct one and is currently in practice. However, it is necessary to have an agreed-upon estimate of their value at the time of the agreement. - The Profit Share of the Agent Must Be a Defined Portion
The agent’s share in the profit must be a defined and agreed-upon portion. For example, if you give the agent 100,000 to trade with, it should be clearly agreed whether their share will be one-third, one-fourth, one-half, or any other proportion. It is not correct to say, "You trade with this money, and you will be given some share of the profit," because the profit may be much more than expected. Therefore, the agent's share must be fixed and determined in advance.
Similarly, it is not permissible to say, "Trade with this money, and the profit from clothes will be yours, and the profit from vehicles and utensils will be mine." This is not allowed because it is possible that one type of trade may result in profit, and the other may not. This is why the Prophet Muhammad (PBUH) prohibited such arrangements in Muzar'ah, where the agent is told, "The eastern field is mine, and the western one is yours" or "The barley harvest is yours, and the wheat harvest is mine." This condition also applies in Mudarabah.