Mudaraba
In a mudaraba arrangement, a capital provider supplies funds and a manager contributes expertise and manages the venture. Profits are shared according to an agreed ratio rather than as a guaranteed fixed return on capital. Subject to contract and applicable principles, a genuine business loss is borne by the capital provider, while the manager loses the reward for effort, except where negligence, misconduct or breach changes liability. Check the agreement and do not assume that the capital provider has the same management role as a partner in every musharaka.
Worked example
An investor provides $100,000 and an entrepreneur manages a venture; they agree to share any profit 60:40. If the venture makes $20,000 profit, their shares are $12,000 and $8,000 under that agreement; an actual loss requires separate analysis of its cause and contract.
Common mistake
Treating the manager's profit share as a guaranteed interest payment or assuming that the profit-sharing ratio is also an automatic formula for allocating capital losses.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |