Double Mudarabah

Definition of "Double Mudarabah"

An arrangement according to which capital is advanced to an intermediary (be it a bank, a finance corporation or business firm), on the basis of mudarabah. The intermediary forwards this capital to a third party again on the basis of mudarabah. In this way, two independent contracts of mudarabah take place. The intermediary (say I) enters into contract with the one who advances money on the basis of mudarabah (say S), and the one who takes it for actual business opera- tions on the basis of mudarabah (say E). The profit from the business of E is distributed between E and I in a given proportion, but any loss on the capital is borne by E alone. Similarly, any profit earned by I is shared by S and I in a pre-determined ratio but any loss to I is borne by S alone. In this way I acts as agent, and E sub-agent of S.