Mudarbah presentation (Essentials of Islamic Finance)

MUDARBAHGROUP MEMBERSMOHAMMAD YASEEN (1667)

HASSAN NASIR (2405)

DANIYAL FAIQ (1482)

AZAM ALIANI (2893)

REHAN ANSARI (1710)

SALMAN AKBANI (1708)

DEFINITION

• Agreement Between A Capital Supplier (Rabb-ul-Maal) And A Business Person (Mudarib)

• Funding To Be Overseen By The Mudarib

• Losses Are Bear By The Investor (Rabb-ul-Maal)

• Profit Is Shared Between Them On The Mutual Consent

TYPES OF MUDARBAH

AL MUDARABAH AL MUQAYADDAH (RESTRICTED MUDARBAH)

• Rabb-ul-Maal Imposes Specific Restrictions On The Mudarbah Terms.

• Determination Of Location, Period For Investment, Type Of Project And Commingling Of Funds.

AL MUDARIB AL MUTLAQAH (UNRESTRICTED MUDARBAH)

• Rabb-ul-Maal Permits The Mudarib To Manage The Mudarabah Capital Without Any Specific Restriction.

MUDARBAH IN THE LIGHT OF HADITH

Ibnu Abbas (may Allah be pleased with him) reported that: “When Abbas Ibn Abd al-Muttalib gave his property to someone for Mudarbah, he stipulated conditions for his partner not to bring the capital onto the sea; and not to bring with him the capital crossing a valley; and not to buy livestock with the capital; and if his partner violates the conditions, he should guarantee the loss occurred. These conditions have been brought to the attention of Prophet Muhammad (peace be upon him) and he approved them.”

HADITH # 1

Suhayb (may Allah be pleased with him) reported that the ProphetMuhammad (peace be upon him) said: “Three matters that have the blessing (of Allah): A deferred sale, muqaradah (Mudarbah), mixing wheat with barley for domestic use and not for sale.”

MUDARBAH IN THE LIGHT OF HADITH(CONT)

HADITH # 2

ROLES IN MUDARABAH CONTRACT

• Mudarib• Ras-ul-Maal• Rab-ul-Maal• Wakeel• Ameen• Kafeel

ROLES OF MUDARIB

• Ameen (Trustee) • Wakeel (Agent) • Shareek (partner) • Zamin (Liable) • Ajeer (Employee)

MUDARBAH EXPENSE

• If Mudarib is traveling on business and is overstaying the night, then the above expenses shall be covered from capital.

• If Mudarib goes for a journey which constitutes Safar-e-Sharai (more than 48 miles) but does not overstay the night, his expenses will not be borne by Mudarbah.

• All incidental expenses have to be paid by Mudarbah

• If Mudarib keeps an employee,a) This employee will not be allowed any expenses.b) Will not be sharing any profit.c) Will just get Ujrat-e-Misl (ordinary pay) for his job.

MUSHARKAH MUDARBAHAll partner invested Only Rab Ul Maal Invested

All partners participate in the management of the business and can work for it.

Rab-ul-maal has no right to participate in the management which is carried out by the Mudarib only.

All partners share the loss to the extent of the ratio of their investment.

Only Rab-ul-maal suffers loss because the Mudarib does not invest anything. However this is subject to a condition that the Mudarib has worked due to diligence.

DIFFERENCE BETWEEN MUSHARKAH AND MUDARBAH

COMBINE MUDARBAH

COMPONENTS IN MUDARBAH

• Contracting parties

• Offer and Acceptance

• Capital

• Profit

• Loss

COMPONENTS IN MUDARBAH (CONT)

CONTRACTING PARTIES

• Rabb-ul-Maal (the investor) and the Mudarib (the manager)

• Natural person or a legal entity

• Mudarbah involving more than one Rabb-ul-Maal a) Certain portion of the profit b) New Rabb-ul-Maal agrees to assume liability in respect of the Mudarbah

• Terms or conditions in the Mudarbah contract


OFFER (IJAB) AND ACCEPTANCE (QABUL)

• Entered into the contract by an offer and acceptance

• Verbally, in writing or any other methods


MANAGEMENT

• Manage by Mudarib

• Mudarib’s mandate

• Rabb-ul-Maal shall not be involved in managing the Mudarbah venture


• Provided by the Rabb-ul-Maal• Identifiable, readily available and accessible• Cash or in-kind, including intangible assets.• Valued based on a specific currency• Capital shall be returned to the Rabb-ul-Maal on termination• The defaulting rabbul mal • If the Mudarib has commenced work

CAPITAL


PROFIT

• PSR according to market conventions or practices.• A Mudarib shall not guarantee any profit• The PSR shall be determined at the time of entering into a Mudarbah contract.• The PSR may be revised during the tenure of the Mudarbah contract.• Multi-tiered Mudarbah• PSR may be varied • The profit as a reserve or for any other purpose.


LOSS

• Loss shall be borne by a rabbul mal • Mudarib shall not be liable unless the loss is due to him• If loss, mudarib shall provide the reason• In the case of multiple rabbul mal in a single mudarabah

PROPER DISTRIBUTION OF PROFIT AND LOSS WHEN MUDARIB INJECTS CAPITAL

TERMINATION

• Terminated any time by either of the two parties by giving notice.

• Specific period Mudarbah contract comes to end, contract gets terminated.

• Mutual agreement to terminate.

PROFIT DISTRIBUTION WHILE TERMINATING

• If assets are in cash, agreed ratio.

• If assets are not in cash, sold or liquidate.

• If breakeven, Mudarib will get nothing.

ASSESSMENT PROCESS FLOW

BENEFITS OF MUDARBAH

• Business Opportunity

• Tax benefits

• Maximum Profit Distribution

USES OF MUDARBAH

• Short/Medium/Long - Term Financing • Project Financing• Small & Medium Enterprises Setup Financing • Large Enterprise Financing• Import Financing • Import Bills Drawn Under Import Letters Of Credit • Inland Bills Drawn Under Inland Letters Of Credit • Bridge Financing• LC Without Margin (For Mudarba) • LC With Margin (For Musharakah) • Export Financing (Pre-shipment Financing) • Working Capital Financing • Running Accounts Financing / Short Term Advances

ASSET SIDE FINANCING

• For current /saving/mahana amdani/investment accounts (deposit giving

• Profit based on Musharkah / Mudarbah – with predetermined ratio)

• Inter- Bank lending / borrowing • Term Finance Certificates & Certificate of Investment • Treasury Bill and Federal Investment Bonds / Debenture• Securitization for large projects (based on Musharkah)• Certificate of Investment based on Mudarbah (Eg: Al

Meezan Riba Free)• Islamic Musharkah bonds (based on projects requiring large

amounts – profit based on the return from the project)

LIABILITY SIDE FINANCING

USES OF MUDARBAH( CONT)

LIST OF COMPANIES USING MUDARBAH

SR. NO. NAME OF MUDARBAH RS IN MILLIONS

TOTAL ASSETS PAID UP EQUITY CASH DIVIDEND

1 ALLIED RENTAL MUDARBAH 4,440 975 2,353 30%, 5% (BONUS)

2 B.F. MUDARBAH 129 75 123 NIL

3 B.R.R. GUARDIAN MUDARBAH 3,012 780 802 3.10%

4 CRESCENT STANDARD MUDARBAH 161 200 125 1.50%

5 FIRST AL-NOOR MUDARBAH 359 210 324 5.00%

6 ELITE CAPITAL MUDARBAH 193 113 134 5.50%

7 FIRST EQUITY MUDARBAH 666 524 628 NIL

8 FIRST FIDELITY LEASING MUDARBAH 374 264 344 NIL

9 FIRST HABIB BANK MUDARBAH 883 397 716 14.75%

10 FIRST HABIB MUDARBAH 4,719 1,008 3,053 20.00%

11 FIRST IBLMUDARBAH 220 202 174 3.35%

12 FIRST IMROOZ MUDARBAH 309 30 133 100.00%

13 FIRST NATIONAL BANK MUDARBAH 2,004 250 298 NIL

SR. NO. NAME OF MUDARBAH RS IN MILLIONS

TOTAL ASSETS PAID UP EQUITY CASH DIVIDEND

14 FIRST PAK MUDARBAH 79 125 73 1.20%

15 FIRST PARAMOUNT MUDARBAH 267 76 176 11%, 10%(BONUS)

16 FIRST PRUDENTIAL MUDARBAH 585 872 516 2.30%

17 FIRST PUNJAB MUDARBAH 1,569 340 33 NIL

19 FIRST UDL MUDARBAH 794 264 551 20.00%

20 KASB MUDARBAH 1,516 283 266 NIL

21 MUDARBAH AL-MALI 239 184 179 1.25%

22 STANDARD CHARTERED MUDARBAH 6,840 454 1,003 20.00%

23 TRUST MUDARBAH 429 298 305 6.00%

24 FIRST TREET MANUFACTURING MUDARBAH 1,644 1,304 1,519 9.50%

TOTAL 31,431 9,228 13,828 NIL

LIST OF COMPANIES USING MUDARBAH (CONT)

DIFFERENCES IN THE ROLE OF IFI IN MUDARBAH

IFI’S ROLE AS A RABB-UL-MAAL

IFI’S ROLE AS A MUDARIB

The purpose of the Mudarbah venture The contractual relationship between the various parties The rights, roles and responsibilities of the parties to the Mudarbah

venture the amount of capital contributed by the Rabb-ul-Maal The Profit Sharing Ratio(PSR) The loss that shall be borne by the relevant contracting parties The calculation methodologies and timing for profit distribution; The tenure of the Mudarbah venture The pricing or valuation method of underlying assets The terms and mechanism of exit

THINGS TO BE CONSIDER WHILE DOCUMENTATION

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