Capital and labour, sharing the same fate. If the venture fails, the capital provider absorbs the loss; if it succeeds, both share the profit by an agreed ratio.
Mudarabah is a partnership contract structured around risk-sharing rather than fixed return: one party provides capital, the other provides work, skill, and management, and any profit is split by a pre-agreed ratio rather than a guaranteed rate. If the venture loses money, the capital provider bears the financial loss alone — the working partner’s loss is the time and effort already spent, not an additional debt.
Contemporary Islamic finance has leaned away from mudarabah in practice, favouring debt-like instruments that resemble conventional lending more closely, partly because profit-sharing contracts create a hard-to-verify problem: the capital provider can’t fully observe how much effort the working partner is actually putting in. The classical structure remains the reference point precisely because it ties return to real economic outcome rather than to the mere passage of time.
Source: Sapuan, N.M., “An Evolution of Mudarabah Contract: A Viewpoint From Classical and Contemporary Islamic Scholars,” Procedia Economics and Finance, 2016.