Qirad: The Law of Profit-Sharing Investment in Imam al-Nawawi’s Minhaj al-Talibin

November 11, 2026 Abraar

Part 2: Transactions (Mu’amalat) – Profit-sharing investment (Qirad / Mudarabah)

Part of a series on the structure of Minhaj al-Talibin, the classical Shafi’i legal manual. Section 13 of Part 2 (Transactions).

Introduction

After the Book of Preemption, Imam al-Nawawi (631–676 AH / 1233–1277 CE) presents the Book of Profit-Sharing Investment (Kitab al-Qirad), a contract also known as mudarabah. In it, one person provides capital and another person works with it in trade, and the profit is shared between them in an agreed proportion. The word qirad is used mainly by the Hijazi jurists and has the sense of cutting off a portion, since the owner cuts a part of his wealth and hands it to the worker. The word mudarabah is associated with traveling for trade.

This contract combines two things that are often separated: wealth without skill and skill without wealth. The owner may have money but no time or ability to trade, while the worker has ability but no capital. The law allows them to cooperate for mutual benefit. The practice goes back to the early community, and the jurists base it on the actions of the Companions and the consensus that followed. This article follows the main themes of the book in the general order of the Minhaj.

1. The pillars of the contract

The book lists the elements as the capital, the work, the profit, the wording, and the two parties. Each is subject to conditions that keep the contract free from uncertainty and unfairness.

2. The capital

In the Shafi’i school, the capital must be money, meaning minted coins of gold or silver or the currency that stands in their place. It may not be goods, since valuing them at the start creates uncertainty about the profit, nor may it be a debt owed by the worker or a third party. The capital must also be:

Known in amount, so that profit can be calculated without dispute.
Specified, so that it is a defined sum and not a general claim.
Handed over to the worker, who must be given control of it, and the owner may not retain control or require that he be present for each deal.

These conditions protect both sides. The owner knows what he risked, and the worker knows what he is responsible for.

3. The work

The worker’s job is trade: buying and selling in order to earn a profit. The contract is for this limited purpose, and its scope is therefore narrower than that of partnership. The school sets several rules:

The worker alone must manage the capital. A condition that the owner will work alongside him, or that the owner will give instructions on each transaction, is not valid in the school’s position, as it restricts the worker’s independence.
The owner may not impose a time limit on the contract, such as an obligation to trade only for a year, in the school’s relied-upon position, since the worker may need flexibility to wait for a profitable moment.
The owner may specify the kind of trade or the type of goods, as long as it does not make profit practically impossible. He may not restrict the worker to goods that are rare or unavailable.

4. The profit

Profit must be shared in a known proportion, defined as a fraction or a percentage of the total profit, such as half or a third. A fixed sum, such as a set amount for the worker regardless of the outcome, makes the contract invalid, since the profit might be smaller than the sum or might not exist at all. A stipulation that gives all the profit to one party is also invalid, as it takes away the nature of the contract.

The school explains an important principle: profit serves as a protection for the capital. If the worker’s trading produces a profit in some deals and a loss in others, the loss is first offset against the profit, and only then is any remainder divided. The worker is not entitled to his share until the capital has been made whole, and in the school’s relied-upon position, his right to his share is secure only once the accounts are settled.

5. The worker’s authority and duties

The worker is both an agent and a trustee. As an agent, he may buy and sell in the course of trade at fair prices. The book lists what he may not do without the owner’s consent:

Sell on credit, unless the owner permits it or custom requires it.
Travel with the capital to a distant place, where the risk is greater.
Buy goods that would cause the capital to be spent in excess, or buy someone whom the owner is related to in a way that causes automatic emancipation, which would destroy the capital.
Lend the capital or give it to another worker.

Because he is a trustee, he is not liable for loss that occurs without his fault. The book states that if he is negligent, or acts beyond his authority, he is liable for the resulting loss. The loss of the capital through the normal risks of trade falls on the owner alone, and the worker simply loses his labor.

6. An invalid contract

If the contract is invalid, for example because one of its conditions is not met, the school gives a particular ruling. The profit belongs entirely to the owner of the capital, since it grows from his property. The worker is entitled to a fair wage for his work, based on what a worker of similar skill would be paid. This ruling prevents the worker from being left without compensation, while also stopping the parties from benefiting from a defective contract.

7. Ending the contract

The contract is permitted and not binding, so either party may end it at any time. It also ends when the owner or the worker dies or loses his reason. On termination, the capital is returned to the owner, and the worker receives his share of any profit that has been realized. If the worker has unsold goods and the owner requests it, the worker must turn them into money so that the profit can be calculated. The book explains what happens if the worker wishes to continue and the owner does not, or if the capital is partly invested and partly in cash.

8. Disputes

The final section discusses disputes. If the worker states that the capital was lost, or that he returned it, his word under oath is generally accepted, since he is a trustee. If the owner and worker disagree about the share of profit that was agreed, the school applies the rules of mutual oaths, and the contract may be dissolved. The school also states who is believed regarding the amount of capital, the amount of profit, and whether a certain act was permitted, with the general principle that a trustee is believed about matters within his knowledge, and the party who claims a condition must prove it.

Why the order matters

The book begins with the elements of the contract, in the order of capital, work, and profit, which is the logical order in which an investor thinks. It then explains the worker’s powers and limits, then the consequences of invalidity, and then ending and disputes. This structure helps the student see how the contract allocates risk. The owner bears financial loss, the worker bears the loss of effort, and the profit is shared in proportion, so that each has a stake in the outcome.

Closing reflection

For al-Nawawi, the profit-sharing contract is an example of how the law can make economic cooperation fair. It avoids both guaranteed returns on capital, which would turn it into interest, and uncompensated labor, which would exploit the worker. The requirement that profit be shared as a proportion and that loss falls on the owner expresses a basic principle of the law of transactions: reward is linked to risk. The requirement of honest accounting shows that this principle is also a moral one.

Note: This article summarizes the general Shafi’i position as presented in Minhaj al-Talibin. Details, including the requirement that capital be money and the rule against time limits, differ among the schools and can vary between editions and commentaries. Modern investment and finance structures involve additional legal and ethical considerations, so readers who need a precise ruling should consult a qualified teacher or scholar.