its fourteenth session convened in Mecca, which began on Saturday, 20 Shaʿbān 1415 AH (21 January 1995 CE), considered this matter and resolved that, in a muḍārabah partnership, it is not permissible for the working partner (muḍārib) to stipulate for the capital provider a fixed sum of money. Such a condition contradicts the very essence of muḍārabah and effectively turns it into an interest-bearing loan. Further, the profit may not exceed the amount fixed for the capital owner, allowing him to appropriate all of it; or the venture may incur a loss, or realise a profit smaller than the stipulated amount, thereby obliging the muḍārib to pay the difference.

The core distinction between muḍārabah and the interest-based lending practiced by usurious banks is that the capital in the muḍārib’s possession is a trust; he is liable for it only if he acts wrongfully or negligently. Profit, moreover, is divided according to a mutually agreed percentage between the muḍārib and the capital owner. The eminent jurists are unanimously agreed that a condition for the validity of muḍārabah is that profit be shared proportionally, without allocating a fixed amount to either party. Allah knows best.

May abundant blessings and peace be upon our master Muhammad, his family, and his Companions; and praise belongs to Allah, Lord of all worlds.

Resolution of the Islamic Fiqh Academy concerning the extent of the liability of the muḍārib and boards of directors for losses incurred

Praise be to Allah alone. Blessings and peace be upon the one after whom there is no prophet, our master and Prophet Muhammad, and upon his family and Companions.

To proceed:
During its fourteenth session held in Mecca, which began on Saturday, 20 Shaʿbān 1415 AH (21 January 1995 CE), the Council of the Islamic Fiqh Academy of the Muslim World League examined this issue and issued the following resolution: