Mudarabah Capital, Profit and Manager-Mandate Checklist

A Mudarabah arrangement separates capital from management: one party provides capital and another manages the venture under an agreed profit-sharing framework. The contract needs evidence for authority, permitted activity, profit measurement and loss responsibility.

Educational information only: This is not a Shariah ruling, legal opinion, tax opinion or investment recommendation. Have the actual agreement reviewed by qualified professionals.

1. Identify the parties and capacity

Record the capital provider, manager and any agent, administrator or guarantor. Confirm legal names, authority and signing capacity.

2. Define the capital

State the amount, currency, payment date and permitted form of contribution. Link every contribution to bank and accounting evidence.

3. Confirm capital receipt

Record the account receiving funds, value date and acknowledgement. Investigate differences between the committed and received amount.

4. Describe the permitted business

Set the mandate, industries, assets, geography and prohibited activities. Avoid vague authority that prevents meaningful monitoring.

5. Define management powers

List decisions the manager may make alone and those requiring capital-provider approval. Include borrowing, guarantees, related parties and asset sales.

6. Set the profit-sharing ratio

Record the agreed proportions clearly. Distinguish a profit ratio from a fixed return on capital and refer the structure to the Shariah reviewer.

7. Define distributable profit

Specify accounting standards, allowable expenses, reserves, unrealised gains and prior losses. Profit should be reproducible from approved accounts.

8. Record loss treatment

Document how ordinary commercial loss affects capital and how negligence, misconduct or breach is assessed. Avoid assuming every poor result creates manager liability.

9. Control manager remuneration

Separate the Mudarabah profit share from any independently justified fee. Record the service, amount, approval and Shariah basis.

10. Govern related-party transactions

Require disclosure, pricing evidence and approval for transactions involving the manager or connected persons. Preserve the conflict decision.

11. Establish reporting duties

Set the budget, bank reporting, management accounts, financial statements and exception reports. Give the capital provider access to agreed evidence.

12. Protect custody and banking

Record accounts, signatories, payment limits and asset custody. Keep venture money separate from unrelated personal or business funds.

13. Plan additional or withdrawn capital

Define how further funding, partial withdrawal and changes to the mandate are approved. Do not treat an undocumented advance as automatic capital.

14. Define termination and handover

Cover expiry, breach, incapacity, insolvency, asset realisation, final accounts and document transfer. State how unsettled receivables are handled.

15. Maintain the governance register

• Parties, capital and receipt evidence

• Mandate and authority

• Profit ratio and accounting method

• Loss, conflicts and reporting

• Termination, legal and Shariah review

Useful official starting points include CIPC, the Companies Act and FSCA regulated-entity information where the activity is regulated.

The completed register should let both parties trace the capital, mandate, profit calculation and decisions without converting commercial risk into an undocumented guarantee.