The meaning of mudarabah is that capital is entrusted to someone who will trade with it in return for a known undivided share of the profit.

Our saying, “a share,” excludes the whole amount. Thus, if he gives him the money and says, “Trade with it, and you may keep all its profit,” this is not mudarabah; rather, it is an act of kindness and a voluntary gift.

Likewise, if he says, “You may have one hundred dirhams of the profit,” it is not a valid mudarabah, because this is a specified amount. There must be an undivided share. If he says, “You may have some of its profit,” it is not valid, because it is unknown. But if he says, “Take this, trade with it, and you may have half its profit,” this is permissible, on condition that he considers it to be the best arrangement for this child’s wealth.

This is part of the breadth of the Islamic Shariah. Some people possess wealth but do not know how to manage it, while others are capable of managing wealth but possess none themselves. Thus, each complements the other: the owner of the capital gives it to someone skilled in managing it as a mudarabah investment, in return for a share of the profit. Here, the guardian must choose the offer involving the lowest share of profit, where the prospective traders are equal in competence and trustworthiness.

For example, he offers ten thousand and says, “I wish to invest it as a mudarabah.” Two men come forward: one says, “One sixth of the profit is sufficient for me,” while the other says, “Nothing less than one quarter will suffice me.” In that case, we give it to the one who asked for one sixth, provided that the two men are equal in trustworthiness and competence. But if the one who requested one quarter is more trustworthy and more skilled, then he is to be preferred, because he is more likely to yield a substantial profit. Allah Most High may, however, grant profit to an incompetent man who knows nothing; yet a person can only judge by what is apparent.