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MUDARABA

Sukuk Based on Equity Partnership

In simple mudaraba contracts, investors are considered to be silent partners (rab al mal), and the party who utilizes the funds is the working partner (mudarib).

The profit from the investment activity is shared between both parties based on an initial agreement.

The same type of contract applies to sukuk. In a mudaraba sukuk, the sukuk holders are the silent partners, who don’t participate in the management of the underlying asset, business, or project. The working partner is the sukuk obligor.

The sukuk obligator, as the working partner, is generally entitled to a fee and/or share of the profit, which is spelled out in the initial contract with investors.