In this contract the Bank as (Rab Al-Mal) pays to its client (Al-Mudareb) a certain amount of money to invest in a business where the profit is distributed between the Bank and its client upon a pre-agreed sharing ratio while the Bank bears the whole loss as (Rab Al-Mal), provided that no negligence or infringement is committed by the client whose loss is only limited to his/her efforts invested in the business.
Before financing a Mudaraba contract, the Bank should investigate the client's ability and qualifications to conduct the business. The Bank should also specify the capital of al-Mudaraba and the profit sharing ratio between the Bank and the client (Mudareb) where the profit sharing must be a percentage and not a pre-specified amount.