The Revival of Mudharabah Contract: Proposed Innovative Solutions

Abstract

The repulsion of mudharabah (Islamic profit sharing) concept surfaces more obviously than before particularly in the banking sector. As a consequence, the product become less attractive and could be scrapped off from the banking services which eventually give negative image to the Islamic principles claimed as the way of life. While the banking sector may not be a fertile soil for mudharabah to bloom, a real business relationship context between investors and entrepreneurs is believed to be the future home for pure (non-engineered) mudharabah to recognise its real benefits. We believe that to realise the mudharabah’s true potentials, among others, the contract needs to be revived. The purpose of this study is to propose solutions in reviving the mudharabah contract between the sahibul mal (investor) and the mudharib (entrepreneur). The research methods used in this study were content analysis of the current contract guideline and in-depth interview of five different stakeholders; investor, entrepreneur, Shariah advisor, academician and lawyer. As a result, the new framework, clauses and format were recommended to revive the mudharabah contract to include procedures to prevent anticipated problems and to preserve the agreement based on Shariah as well as to encourage venturing into high profitability potential business. This proposed solution could serve as an innovative and comprehensive template for future mudharabah contract that seem to be more understandable, implementable and has substance over form. The revived contract template may also be used to convince the interested parties to have more faith on pure mudharabah benefits.