The Precepts of Mu¤¡ribah
A Mu¤¡ribah is a contract wherein a person provides a capital to another person so that he may invest it in a commercial enterprise, and the profits derived from the investment are distributed between the two parties as an abstractly defined fraction, such as a half or a third.
The one who owns the capital is known as the owner, and the one who invests it in a commercial enterprise is known as the worker. An “offer” and an “acceptance” is consequential in the realization of such a contract, be it verbally expressed or by actions, such as a case wherein the owner gives the capital to the worker with the intention of mu¤¡ribah, and the worker expresses his acceptance by taking possession of it.
2266. The following conditions are consequential in the validity of a mu¤¡ribah:
1. Both the owner and the worker should be b¡ligh, sane and free to act. The owner should not be restrained from disposing of his property due to being feeble-minded or being bankrupt. It is also not permissible to carry out a mu¤¡ribah with a feeble-minded worker without the consent of his guardian.
2. The share of the owner and the worker from the profit should be specified, such a half, a third, a quarter or any similar fraction.
3. The profits should be shared between the owner and the worker. Hence if they stipulate that a portion of the profits should go to an individual who has not done anything for the partnership, the mu¤¡ribah will be void.
4. The worker should have the capacity to invest it in a commercial enterprise, even if it be by enlisting the help of others.
2267. According to the stronger view, the condition that the capital be gold or silver which has been minted into currency, is not consequential in the validity of the mu¤¡ribah; rather, it is permissible with all forms of capital which are exclusively used as capital, such as various kinds of currency notes. However, it is not permissible to carry out a mu¤¡ribah with a capital that is the liability of another individual, such as capital that one is owed by another individual. It is also problematic to carry out a mu¤¡ribah using commodities or benefits such as the right to reside in a house.
2268. The condition that the capital be at the disposal of the worker is not a consequential condition for the validity of the mu¤¡ribah; rather, if it remains at the disposal of the owner whilst the worker only carries out the transactions, the mu¤¡ribah will remain in order.
2269. Should the mu¤¡ribah be in order, the owner and the worker will share the profits. However, if the mu¤aribah is nullified because it lacks the conditions which are consequential for its validity, all the profit will belong to the owner. He in turn will have to remunerate the worker with an equivalent wage. In the event that the equivalent wage is more than the share promised to the worker in the mu¤¡ribah contract, the obligatory precaution is that the worker and the owner should reach a compromise settlement over the difference.
2270. In a mu¤¡ribah, any loss or damage incurred will be sustained by the owner, and if it is stipulated that the loss be sustained by the worker or by both of them, such a condition will be invalid. However, if it is stipulated that the worker will remunerate the owner for any losses incurred in the transactions, and give him the money from his own property, the condition will be valid.
2271. Mu¤¡ribah is one of the non-binding contracts, and both the owner and the worker have the right to cancel it at any time, be it prior to starting the work (the investment) or after it, and be it prior to acquiring a profit or after it.
2272. The worker may not mix the capital that he acquired from the owner with his own property or someone else’s property without the permission of the owner, even though such an act does not invalidate the mu¤¡ribah. However if he mixes the capital and it perishes, he will be held responsible for it.
2273. The worker must observe the conditions that the owner stipulates in the sale and purchase of commodities, such as stipulating that the worker buy a particular commodity, or sell it at a particular price. Otherwise, the transaction will be officious and will be contingent on the consent of the owner.
2274. If the owner does not limit and condition the transactions that the worker may carry out with the owner’s capital, the worker may carry out the transactions in any manner that he feels is in their best interest.
2275. If the worker travels with the permission of the owner, and it has not been stipulated that the travel expenses will be incurred by the worker, then the travelling expenses and the business expenses can be withdrawn from the capital. In the event that he works for more than one owner, he should distribute the expenses between them in proportion to the work he does for them.
2276. If the enterprise is profitable, then the amount that the worker withdraws from the capital to cover operating costs and travel expenses, should be deducted from the profit and added to the capital. The remaining profit should then be distributed according to the terms agreed within the contract.
2277. In a mu¤¡ribah, the condition that the owner be a single person and the worker also be a single person is not a consequential condition for its validity; rather, it can be between multiple owners and a single worker, or between a single owner and multiple workers, regardless of whether an equal share is fixed for the workers in the mu¤¡ribah contract or variable shares are fixed between them.
2278. If two people jointly provide the capital for a mu¤¡ribah and the worker is a single person, and they stipulate that—for example—half of the profit be appropriated for the worker, and the other half be distributed between the owners in an unequal manner, in that the share of one owner be greater than the other, even though they had provided the capital equally, or they stipulate that the remaining half be equally distributed between the two even though the capital provided by one is greater than the other, the mu¤¡ribah (in both the cases) will be void, unless the extra profit is appropriated for one of them in return for a service that he performs for the business, in which case it will be valid.
2279. If the owner or the worker passes away, the mu¤¡ribah will be void.
2280. The worker may not form a mu¤¡ribah contract with another person using the capital he acquires from the owner without the permission of the owner, or consign the task of investing the capital to another individual, or hire another individual to invest the capital. If he does so without the permission of the owner, and the owner also does not consent to it, then if the wealth is lost, the worker will be held responsible for it.
There is no problem however in hiring someone to perform the preliminaries of the transaction, or deputizing someone to carry it out.
2281. The owner and the worker can stipulate on each other any condition that is permissible within the shari’a. For example, one may stipulate that the other pay a certain amount, or perform a particular task. In return it is obligatory for the other party to fulfill the condition, even though the worker may not have invested the capital or performed any work, or may have but fails to acquire any profit from it.
2282. Whenever the enterprise yields a profit, the worker owns the portion that has been appropriated for him in the contract, even if the profit has not been divided. However, all loses and damages must be redeemed.
In addition, whenever a profit is obtained, if the owner does not approve of dividing it, the worker has no right to compel him to it. However, if the worker does not approve to dividing it, the owner may compel him to accept its division.
2283. If the profit is divided, and thereafter the capital incurs a loss, and subsequently a profit is acquired which is not less than the loss, then the loss will be redeemed by the profit.
However, if the profit is less than the loss, the worker will have to redeem the loss through the profit that was divided. Then if the loss is less than the (net) profit, the remaining balance will belong to him. However, if the loss is more than the (net) profit, the worker will not be held responsible for the amount (of the loss) that exceeds the profit.
2284. As long as the mu¤¡ribah contract has not been terminated, any losses incurred on the capital will be redeemed by the profits acquired from the work, regardless of whether the loss is incurred before the profit is acquired or after it.
If the loss is incurred prior to commencing the work, then if a portion of the capital is lost, that loss is redeemed by the profit. However, if the entire capital is lost without anyone causing it to be lost, then the mu¤¡ribah will be nullified. If on the other hand someone causes the capital to be lost, and he replaces the lost amount, the mu¤¡ribah will not be nullified.
2285. If the work stipulates that the losses incurred on the capital would not be redeemed by the profit, the condition will be valid and it will not be deducted from the worker’s portion.
2286. The owner and the worker—as elaborated earlier—may cancel the mu¤¡ribah contract at any time, even if it be after the work has commenced and before a profit is acquired. However, if the worker travels with the permission of the owner and has spent some of the capital on his travel expenses, and thereafter wishes to cancel the mu¤¡ribah, the obligatory precaution (in this case) is that he should satisfy the owner.
2287. If the mu¤¡ribah is cancelled after a profit is acquired, the profit should be divided between the owner and the worker according to the terms of the contract. In the event that one party does not agree to dividing the profit, the other party has the right to force him to divide it.
2288. If the mu¤¡ribah is cancelled, and a part of the capital or its entirety has been loaned, the worker must reclaim it from the debtor and return it to the owner.
2289. If the mu¤¡ribah capital lies with the worker and he passes away, then if the capital itself is known, it returns to the owner. If it is not known, it should be determined by drawing lots, or else the owner may reach a compromise settlement with his heirs.