This is called loaning (Qiradh), and it is the partnership of a body with property. It means that one pays his property to another person so as to trade with it for Him and the resulting profit is divided amongst them according to what they stipulated. The loss in the Mudharaba is not subject to the agreement of the partners but rather to that which came in the Shar’a. This loss is defined by Shar’a to be only on the property, none of it is upon the body (Mudharib). Even if the capital partner and the mudharib were to agree that the profit and loss is divided among them, the profit would be between them while the loss is only on the property. This is because the company is similar to representation (Wikala) and the agent (Wakeel) does not guarantee. The loss is upon the principal (Muwakkil) only. This is due to what ‘Abdurraziq narrated in Al-Jam’i from ‘Ali (ra): “The loss (Al-Wadhi’a) is on the property and the profit is according to what they stipulated.” The body however does not lose property, it loses what it spent of effort only and the loss remains on the property. Mudharaba would not be valid until the property is given to the worker (‘Amil) and He is given a free hand over it, because Mudharaba requires handing over the property to the Mudharib. In Mudharaba, the share of the worker must be defined and the property used in the Mudharaba contract must be of a defined amount. It is invalid for the owner of the property to work with the Mudharib, even if He stipulated to do so. This is because He has no right to dispose of the property that belongs to the company, on the company’s behalf. It is the mudharib who disposes and works, and He has full control over the property. This is because the contract of the company was concluded on the body of the Mudharib, and the property of the partner. It is not concluded on the body of the owner of the property, who is like a foreigner to the company and who does not have the right to dispose of anything which belongs to the company. However, the Mudharib is restricted in his disposal to that with which the owner of the property permitted. He is not allowed to disagree with Him because He disposes by permission. If He permitted Him to trade with wool only or He prevented Him from shipping the goods by sea, the owner has this right to restrict Him in these matters. However, this does not mean that the owner of the property disposes in the company. Rather it means that the Mudharib is restricted within the limits defined by the owner of the property. Despite this, the disposal in the company is confined to the worker (Mudharib) only, and the owner of property has no right of disposal.

One form of Mudharaba is where two properties (of two persons) enter into partnership with the body of one of them. So if two persons had between them three thousand of something, one of them having two thousand and the other one thousand, and the owner of the two thousand permitted the other to dispose of the capital so that the profit is divided between them by halves, the company would be valid. The worker would be the owner of the one thousand of the items as a Mudharib to the owner of the two thousand, and would also be his partner. Similarly, Mudharaba could be through the partnership of the capital of two persons and the body of a third person. All these are forms of the Mudharaba.

Mudharaba is allowed by Shar’a due to the narration that “Al-’Abbas ibn ‘Abdul-Muttalib used to pay the property of the Mudharaba and put certain conditions on the Mudharib.” This (information) reached the Messenger of Allah (pbuh) and He consented to it. Ijma’a of the Sahaba was established that the Mudharaba is allowed. Ibn Abu Sheeba narrated from ‘Abdullah ibn Hameed from his father from his grandfather “that ‘Umar ibn Al-Khattab gave Him the property of an orphan as a Mudharaba so He worked with it and gained a profit, and ‘Umar divided the surplus with him.” Ibn Qudamah narrated in Al- Mughni from Malik ibn al-’Alaa ibn ‘Abdurrahman from his father from his grandfather that “‘Uthman loaned Him property as a Mudharib (Qaradh).” It was also narrated from ibn Mas’oud and Hakeem ibn Hizam that ‘the two of them entered into loan (Qaridha).’ All of this occurred with the knowledge of the Sahaba and none was reported to disagree with the proceedings or deny their validity, confirming their Ijma’a on the Mudharaba.