1. Cooperation: MudarabaH and MusharakaH
By GD

2. MUDHARABAH

3. Mudarabah
There were classical contracts applied among Arabic people which were deemed fair and respectable trading contracts.
Those contracts were practiced long before Islamic trading principles being introduced by the Prophet (pbuh).
Mudarabah was some of them which was lately accepted and being part of Islamic modes of financing instruments.
The Prophet (pbuh) did it directly by himself when he was a trader of Khadijah who later became his lovely wife.

4. Mudarabah
Rasulullah SAW practiced Mudarabah for more than fifteen years before the beginning of the revelation.
Even, Mecca society had adopted Mudarabah contract as their common business contract for a long time.
Mudarabah comes from the word: ”dharaba fi al ard” means to go out and work in order to live / to make ends meet.
The legal ruling of Mudarabah is the Hadith of Prophet (pbuh) that says:
“Three (things) have blessings: Sale of credit, Muqaradah (Mudarabah) and mixing wheat with barley for home not for sale” (Hadith narrated by Ibn Majjah)

5. Mudarabah
Mudarabah contract was a form of partnership where one party provided the funds while the other provided expertise and management.
The former was called shohibul maal and the latter was referred to as the Mudarib.
Any profit accrued in this business commitment was shared between the two parties on a pre-agreed basis, while loss was borne by the provider of the funds.
In the case of the Prophet (pbuh), he (pbuh) became the Mudarib whilst Khadijah was the shohibul maal and with his outstanding entrepreneurship skill Muhammad (pbuh) successfully generated a lot of profits for Khadijah’s business.

6. Mudarabah
On the liability side of the bank, Mudarabah is formatted as a time deposit or commonly known as Mudarabah time deposit and on the asset side Mudarabah is used in form of Mudarabah financing between bank and its entrepreneurs.
Contemporary Islamic banking theory classifies Mudarabah as equity based deposit/financing because of its investment characteristics.
Technically, both Mudarabah time deposit and Mudarabah financing are run under profit and loss sharing (PLS) mechanism

7. Mudarabah
Firstly, the depositor locates money in Mudarabah time deposit and he acts a shohibul maal whilst the bank functions as a mudarib (step 1). The bank then invests the funds to the projects under cooperation with the entrepreneur (step 2-3). When the projects being financed produce profit, it will be shared between the bank and entrepreneur and finally between the bank and Mudarabah time depositors (step 4). And, if loss occurs it will be borne by depositors through decreasing value of its deposit’s value (step 5). This mechanism popularly names in contemporary Islamic banking contract as two tiers Mudarabah

8. Mudarabah is based on classical literature but in the era of unlimited liability limited liability now. Mudarib may determine the approximate limit the profit that can be produced as well as smoothing the payment of profit to shahibul maal to create continuity flow of income for shahibul maal. Gross profit sharing may also, for example, only on the share of direct expenses, indirect expenses while so load mudarib / partner, but PLS mudarib ratio should be greater. End of the period based on mudarabah can set time, prior notice or upon liquidation of any assets.

9. PLS ratio may be changed despite being agreed in advance and may be asked to submit mudarib assurance that he was being careful. Mudarabah refund guarantee may be made by insurance but by no mudarib in a separate contract. Robul maal has no right to regulate / management but all business / goods etc. belong robul maal, pure mudarib managers and should not claim ownership over goods business, he is only entitled to a share of profits.

10. If there is a contract mudarabah productive (produce profit) then the project is sold, the rab al maal and mudarib has the right to profit. However, if the project is not profitable then they will not have the right to mudarib profit of selling the project.
If mudarib permitted (based istidanah) rob al maal to find additional capital (debt) company (origin not exceed the total capital of the company) then rob al maal not bear the loss arising from the additional capital they will be, according to sharaksi. Especially if mudarib borrow without istidanah.
Islamic law only recognizes the unlimited liability of syirkah. For example, the mudarabah contract, mudarib may permit (istidanah) of the owners of capital to buy something with a credit it appears that syirkah Wujuh new contract with the consequences if the goods they will be loss / loss then borne by all parties (mudarib and rob al maal)

11. MUSYARAKAH

12. Musharaka is derived from the word “syirkah”.
Syirkah means: mixing and undivided, it right in a single thing. This not only includes the partnership issue (rights and obligations, etc.). If Hambali says simple, participation of two or more persons in a transaction. Later in development, scholars define jusrist syirkah as contracts for two or more people in the capital and profit participation or participation in profits, but not in the capital

13. In the traditional books of Fiqh, syirkah, consisting of:
Syirkah Amwal (Partnership in capital) Syirkah Wujuh (partnership with eminent people) Syirkah Sana'is (company of workmanship). Mudarabah / qirod or Shirkah al ribh (share of profit). Syirkah Abdan / charity (work partnership)
Syirkah Amwal: some people joint venture capital to run a business / project with profit-loss sharing principle.

14. Therefore syirkah Amwal subdivided into two Syirkah 'inan (Hanafi concept) is a joint venture that is not the same amount of capital. Cooperation is limited to the capital paid up by each partner. Syirkah can inan two forms, general or specific, and can also be equipped by kafalah or third party guarantee Syirkah concept in Shafii limited, examples innan partner may not engage unless the credit contract may permit of his partner

15. The jurists argue when syirkah applies without any details then it syirkah inan. Syirkah mufawadah (Hanafi concept) is a joint venture in the same amount of capital for each partner. Here, each party shall not guarantee the other party / have their own. Profit and loss sharing on Syirkah Equally mufawadah done this and its joint venture unlimited time. This is similar to the corporate contract today but unlimited in time and responsibility.

16. Syirkah Wujuh: some people who have a good reputation to buy assets then sell cash credit, fortunately divided between them. Hambali and Maliki zaidi allow this but, Syafei, Zahiri not allowed on the grounds there was no involvement of labor and capital.
Syirkah Sana'is, which some professionals (experts) get together to do activities together according to its expertice respectively. The emphasis on skill instead of capital contributions. Syafei and zufar (the Hanafi scholars) are not allowed because there must be partnership capital.
Syirkah Abdan / Charity: a mix of capital and capital

17. In Musharakah the relationship was established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business.
It was an agreement under which one party provided funds, which were then mixed with the funds from other party (business enterprises) to form a joint business financing.
All providers of capital were entitled to participate in management, but not necessarily required to do so. The accrued profit was distributed among the partners in pre- agreed ratios. while the loss was also borne by every partner in proportion to his respective capital contributions.

18. After depositors put money in bank’s deposit (step 1), under Musharakah financing contract, Islamic bank and entrepreneur mix their funds together in order to finance an agreed project for a certain period of time (step 2).
Both of them also have a right to contribute in the management of the project. The same as Mudarabah financing contract, if the project produces profit, it belongs to both parties according to the pre-agreed ratio (step 3).
But, if it bears loss, it will be shared in proportion to capital contribution of every party effectively bringing down the asset value while keeping their respective shares in it unchanged (step 4).

19. Musyarakah

20. Finally, unlike Mudarabah contract, in Musharakah all parties involved in financing behave as both shohibul maal and Mudarib, there is no single Mudarib or shohibul maal.
Furthermore, a feature of the classical Mudarabah and Musharakah is that either of the parties to the agreement have an option to terminate the agreement or withdraw from the venture any time they deem fit.
Liquidity of investments is thus ensured for the partners. In termination date, profits are determined as the excess of the liquidated value of all assets over investment

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