MUDARABAH AGREEMENT
This agreement is entered into by and between the parties on the days and dates hereinafter set forth at Colombo in the Democratic Socialist Republic
of Sri Lanka
BETWEEN
NATIONAL DEVELOPMENT BANK PLC a banking company incorporated under Companies Act No 17 of 1982 and re registered under the
Companies Act No 07 of 2007 bearing registration No PQ 27 and having its registered office at No 40, Nawam Mawatha, Colombo 02, in the said
Republic through its Islamic Banking unit (hereinafter referred to as the ”Bank” or the “Mudarib” which expression as herein used where the
context so requires or admits shall mean and include the said National Development Bank PLC and its successors and assigns) of the ONE PART
AND
The “Customer” or “ “rabb-ul-mal” whose details are more fully specified in the Schedule hereto of the OTHER PART
AND WHEREAS the Customer/ rabb-ul-mal desires to invest the Mudarabah Investments ( hereinafter defined) in the Mudarabah Fund
(hereinafter defined) managed by the Mudarib for further investment by the Mudarib in Sharia compliant profit generating business ventures .
AND WHEREAS the Mudarib is agreeable to invest the Mudarabah Investment/s of the Customer/ rabb-ul-mal in the Mudarabah Fund upon the
terms and conditions set out in this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS
FOLLOWS;
Definitions;
“Agreement” means this Mudarabah Agreement, the Schedule/s, and the Investment Application/s attached hereto from time to time together with
any amendments mutually agreed upon and made in terms of this Agreement
“Customer” or “rabb-ul-mal” means the party whose details are morefully specified in the Schedule to this Agreement being the party who makes the
Mudarabah Investment/s and in the event such Customer shall be :
a) an individual means and includes the said individual and his / her heirs, executors, administrators , and assigns ; or
b) a firm means and includes such firm and the persons or persons carrying on business in the name of such firm or its successors and assigns.
“Investment Application/s” shall mean the investment application form which sets out the terms and conditions upon which the Customer/ rabb-ulmal makes individual Mudarabah Investments in the Mudarabah Fund from time to time, as accepted by the Bank and which shall form part and
parcel of this Agreement. (the current format of Investment Application is attached hereto but may be amended by the Bank from time to time.)
“Investment Risk Reserve” means a percentage of the share of profits due to the depositors held in reserves to ensure a certain level of comfort for
the return on investments made by the shareholders and depositors.
“Loss” means the deficit resulting from investments made by the Mudarib from the Mudarabah Fund, which at the end of a relevant Profit
Distribution Cycle is borne entirely by the investors of the Mudarabah Fund during the said Profit Distribution Cycle .
“Mudarabah Fund” means the pool of funds entrusted by the Customers to the Mudarib in terms of Mudarabah Agreements entered into with
them for investment in Sharia Compliant profit generating business ventures.
”Mudarabah Investment/s” means such principle sum or sums of monies specified in an Investment Application from time to time and invested by
the Customer/ rabb-ul-mal in a/the Mudarabah Fund.
‘Profit’ means the surplus that accrues on the investments made by the Mudarib from the Mudarabah Fund, which at the end of a relevant Profit
Distribution Cycle is available for distribution among the investors of the Mudarabah Fund during the said Profit Distribution Cycle and the Mudarib.
in terms of a pre agreed profit sharing ratio as agreed upon in this Agreement/Investment Application form.
“Profit Distribution Cycle” means the profit distribution cycles determined and announced by the Mudarib as applicable for Mudarabah investments
from time to time.
“Profit Distribution Date “ means Profits will be calculated on daily basis and distributed on a( monthly, quarterly, Biannually)
”Profit Sharing Ratio” means the ratio of profit sharing between the Customer / rabb-ul-mal on the one hand and the Mudarib on the other, which
will be pre agreed at the time of investment and shall always be a ratio or percentage of actual profits earned.
“Provision for Bad Debts” means a percentage of the distributable profits will be held in reserve to provide for Shariah compliant non performing
facilities given from the deposit pool
‘Shariah’means the principles and rules of Shariah law, as interpreted by the Shariah Supervisory Board, and taking into account the Shariah
standards prescribed from time to time by the Accounting and Auditing Organisation for Islamic Financial Institutions.
“Shariah Supervisory Board” means the Shariah Supervisory Board of the Bank, as constituted from time to time consisting of specialists in Islamic
economics and finance
Page 1 of 6
Profit Equalization Reserve” means A reserve fund that will be maintained by the " The Mudarib ( Bank ) by holding back and not distributing ___%
of the profits due to depositors. This reserve will be used at the discretion of the Mudarib ( Bank ) to be distributed to the Rabb - Ul - Mal whenever
the expected profit return is not achieved from the Profit asset pool.
“Takhaaruj” means the principle whereby the Mudarib (in this case the Bank) permits the Rabbul Maal/Investor (in this case the depositor) an early
withdrawal by purchasing the Rabbul Maal’s share on behalf of the depositors at a price agreed upon. This price would typically be less than what
the Rabbul Maal would have received had he invested for the full duration of the tenor.
1-NATURE OF FUND
This Mudarabah Fund is an unrestricted fund which accords to the Mudarib unfettered authority to choose and select Sharia compliant profit
generating investments at the Mudarib’s total discretion.
2-PARTICIPATION IN INVESTMENT
The parties hereto agree that the Customer/ rabb-ul-mal
shall from time to time invest in the Mudarabah Fund, such sum or sums of money for specified periods and on pre agreed profit sharing ratios as
stipulated in the Investment Application/s which shall be executed by the Customer/ rabb-ul-mal from time to time and which shall constitute an
integral part of this Agreement.
3-INVESTING IN THE MUDARABAH FUND
The Mudarib upon accepting an investment from the Customer/ rabb-ul-mal into the Mudarabah Fund on the terms and conditions in this Agreement
and in an Investment Application/s shall issue a receipt to the Customer/ rabb-ul-mal acknowledging the amount invested in the Mudarabah Fund
4-TENURE
Mudarabah Investment/s mature as per the investment period stated and agreed in the Investment Application/s. Mudarabah Investment/s that
mature will however be automatically reinvested at the end of every period, for a similar period, on terms and conditions prevailing at the time of
such reinvestment unless written instructions to the contrary are given to the Mudarib by the Customer rabb-ul-mal
5- DETERMINATION OF PROFITS
The Mudarabah Investment/s will neither carry a pre-determined rate of profit on the principal sum invested nor a pre-determined quantum of profit
as a return for the money invested in the Mudarabah Fund.
The Profit arising from investments made by the Mudarabah Fund will be calculated and distributed by the Mudarib for the relevant period at the
Profit Distribution Cycles and shall always be a percentage/ratio of actual profits earned. The Profit is calculated on the principles of a daily weighted
average..
6-CO-MINGLING OF FUNDS BY THE MUDARIB
If the Mudarib has co-mingled its own funds with the Mudarabah Fund, the Mudarib becomes a partner in respect of his funds and becomes a
Mudarib in respect of the funds of the capital provider.
The profit earned on the comingled funds will in the first instance be divided proportionately to the amounts of the two funds, in which case the
Mudarib takes the profit attributable to his own funds. The remaining profit is to be distributed between the Mudarib and capital provider/s according
to the provisions of Mudarabah Agreement/s as may be entered into with such capital provider/s.
7-PROFIT AND LOSS
In case of Profit earned by the Mudarabah Fund in respect of any investment period, the Mudarib will be entitled to the pre agreed percentage share
of the profits earned by the Mudarabah Fund for such period and the balance will be distributed among the Customer/ rabb-ul-mal on a pro rata
basis .
In the event the Mudarabah Fund makes a loss in respect of any investment period, the Customer/ Rabbul Maal will bear the entire loss up to a
maximum value not exceeding the Customer/ Rabbul Maal’s Mudarabah Investment.
In the event of a loss, the Mudarib will not be entitled for any reimbursement or compensation for expenses incurred in the management of the
Mudarabah Fund
8-NEGLIGENCE / MISCONDUCT / FRAUD
Any loss incurred by the Mudarabah Fund which is directly attributable to the Mudarib involving gross negligence or willful misconduct or fraud
on the part of the Mudarib, shall be solely and entirely borne by the Mudarib.
9- DISTRIBUTION OF PROFITS
In respect of those Mudarabah Investment/s that have not completed a Profit Distribution Cycle/s, Profits will be distributed to the Customer / rabbul-mal on a pro rata basis of weighted average balances for the period the Mudarabah Investment/s were in the Mudarabah Fund during the relevant
profit Distribution Cycle.
Only those Mudarabah Investment/s that have completed a minimum 14 consecutive days in the Mudarabah Fund in a relevant Profit Distribution
Cycle will qualify to receive Profits.
Page 2 of 6
Profits distributed will be automatically re invested and added to the principal sums of the Mudarabah Investment at the beginning of each Profit
Distribution Cycle/s determined and announced by the Mudarib from time to time unless written instructions to the contrary are given to the Mudarib
by the Customer / rabb-ul-mal
10-EXPENSES
All expenses relating to the management, administration and operations of the Mudarabah Fund will be borne entirely by the Mudarib. The Mudarib
is however entitled to charge expenses connected with the administration of the Mudarabah Fund. ,
11-PREMATURE WITHDRAWALS
Premature withdrawal of a Mudarabah Investment may be permitted at the absolute discretion of the Mudarib. Premature withdrawals are subject to
a minimum notice period of three (3) working days.
Upon the Mudarib agreeing to a premature withdrawal of a Mudarabah Investment in full or in part, penalties of any form will not be imposed by
the Mudarib.
However, where a Customer/ rabb-ul-mal has made a premature withdrawal in full or in part of a Mudarabah Investment and the Mudarabah Fund
has made a Loss during relevant Profit Distribution Cycle, then such Customer/ rabb-ul-mal shall be liable for his share of the loss. In view of this
loss bearing responsibility, the Mudarib may at its total discretion withhold a portion of the Mudarabah Investment at the time of premature
withdrawal, and release only such portion of the money which it considers prudent to release.
Such pre mature withdrawals will be considered as per the principle of Takharuj as defined above.
12-PROVISION FOR INVESTMENT RISK RESERVE
The Mudarib may, at the end of a Profit Distribution Cycle, at its sole discretion and judgment transfer into a provision for loss account, , such
amounts from the profits distributable to the Customer / rabb-ul-mal as the Mudarib considers prudentially necessary for the long term safety of the
capital sums invested in the Mudarabah Fund.
13-DELGATION OF AUTHORITY
Powers of Attorney executed in the Bank’s standard format and presented to the Bank in a manner acceptable to the Bank authorizing third parties to
act on behalf of the Customer/ rabb-ul-mal will be accepted by the Mudarib.
14- SUSPENSION DUE TO LEGAL INCAPACITY
Upon receipt of a valid notice of insanity , insolvency , bankruptcy, liquidation or death of the Customer/ rabb-ul-mal , all transactions on the
Mudarabah Investment in the name of such Customer/ rabb-ul-mal will be suspended and the monies lying in such Mudarabah Investments, as
from the date of receipt of such notice shall be held by the Mudarib without any further right of withdrawal or without any accretion .
The balance outstanding in such accounts together with any Profit earned up to the date of such notices will be paid to the person or persons named in
the ‘Nomination Form’Rabbul Maal.
15-INVESTMENTS IN JOINT NAMES
In the case of a Mudarabah Investment made in the joint names, , the Mudarib will have the right to hold upon the death of any of the joint investors ,
the money held in the joint investment to the order of the survivor(s) , without any prejudice to the Mudarib’s right of lien or set off of whatever
nature, and the right to take any steps to comply with the provisions of the Mudarib’s rules governing Mudarabah Investments as shall apply from
time to time.
In the event of death of one of the joint investors, the survivors undertake to provide notice of death to the Mudarib in writing.
16-DUE CARE BY THE MUDARIB
Due care will be taken by the Mudarib in the use and deployment of funds invested in the Mudarabah Fund.
Prudent investment policies will be adopted and practiced by the Mudarib when investing Mudarabah Funds in profit generating business ventures in
accordance with Shariah principles.
17-GOVERNING LAW AND JURISDICTION
The parties hereby record that they wish to up hold Shariah principles when entering into this Agreement. These Terms and Conditions shall be
governed by and construed in accordance with the laws of Sri Lanka and I hereby irrevocably submit to the exclusive jurisdiction of the courts of Sri
Lanka. Such submission shall, however, not prejudice the right of the Bank to bring proceedings against me in any other jurisdiction.
18. TAXES
The rabb-ul-mal shall duly and punctually pay and discharge all taxes imposed upon it or its assets within the time period allowed without incurring
penalties.
19 NOTICES
Any notice to be given by either party to the other may be sent by registered post to the address of the other party as appearing herein or such other
address as such party may from time to time have duly communicated to the other and if so sent shall be deemed to be served on the day following
the date of posting. In proving service it shall be sufficient to show that the letter containing the notice was properly addressed stamped and posted
under registered cover.
20 GENERAL
The Investment Application/s Annexed hereto shall be considered as an integral part of this Agreement.
No modification, variation or waiver of this Agreement or any part thereof shall be valid unless made in writing, clearly expressed to be a
modification, variation or waiver, and signed by duly authorized representative of each party.
Page 3 of 6
No failure on the part of either party to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
If any provision of this Agreement is held by any court or other competent authority to be void or unenforceable in whole or in part, or held to be a
violation of any applicable law statute or regulation this Agreement shall continue to be valid as to the other provisions thereof
IN WITNESS WHEREOF the Mudarib and the Customer/ rabb-ul-mal have caused this Agreement and one other of the same tenor and date to be
executed in the manner hereinafter set forth at Colombo on the days and dates hereinafter mentioned
Signed by
)
And
)
two
Authorised
Signatories
of
the
NATIONAL
)
DEVELOPMENT BANK PLC on this
)
day of
)
two thousand and
)
WITNESSES
1.
2.
Signed by the Customer / rabb-ul-mal
)
)
on this
day of
)
two thousand and
)
)
)
WITNESSES
1.
2.
[ Manner of Execution Agreement by Customer / rabb-ul-mal
1. a Company - under Common Seal or in terms of Delegation of Authority by the Board
2. a Partnership – by all the partners
3. a sole proprietorship - by the sole proprietor
4. an individual – by such individual
The Schedule above referred to
Details of the Customer / rabb-ul-mal
Name of Customer / rabb-ul-mal
:
NIC No./
Company Registration No/
Business Registration No.
(as applicable)
:
Address/ Registered Address:
Page 4 of 6
Annex
FORMAT OF INVESTMENT APPLICATION
NATIONAL DEVELOPMENT BANK PLC
Islamic Banking Unit
The Manager
National Development Bank PLC - Islamic Banking Unit
APPLICATION TO INVEST IN THE MUDARABAH FUND
I/We refer to the Mudarabah Agreement signed by me/us as rabb-ul-mal and National Development Bank PLC as Mudarib on the date specified
below, and request you to invest in the Mudarabah Fund as follows:
Date of Mudarabah Agreement :
Reference No :
Mudarabah Investment Amount
:
(Amount in words and figures )
Investment Period :……………………………………….. and as shall be renewed in terms of the Mudarabah Agreement
I/ We require the money to be invested in the fund as indicated below ;
Tick required
Option
Type of Mudarabah
Fund
Profit sharing Ratio
rabb-ul-mal / Mudarib
--------------------------------------------------------------------------------------------------Savings
--------------------------------------------------------------------------------------------------6 Months
--------------------------------------------------------------------------------------------------12 Months
-----------------------------------------------------------------------------------------------------24 Months
--------------------------------------------------------------------------------------------------60 Months
(please delete what is not applicable)
At the time of Profit Distribution, I/We request you to add the Profit earned during a relevant distribution cycle and accruing to me/us in terms of the
Mudarabah Agreement to the principal sum of my/our Mudarabah Investment in the Mudarabah Fund.
Or
I/We request you to credit the Profit earned during a relevant Profit Distribution cycle and accruing to me/us in terms of the Mudarabah Agreement to
Account ----------------------------------------------------------.
WE CONFIRM THAT THIS INVESTMENT APPLICATION SHALL UPON BEING ACCEPTED BY THE BANK CONSTITUTE PART OF
THE MUDHARABA AGREEMENT.
WE FURTHER ACKNOWLEDGE THAT UNLESS SPECIFIED OTHERWISE, THE TERM USED IN THIS INVESTMENT APPLICATION
WILL HAVE THE SAME MEANING AS DEFINED IN THE MUDARABAH AGREEMENT AND THAT IF THERE IS ANY
INCONSISTENCY OR AMBIGUITY BETWEEN THIS INVESTMENT APPLICATION AND THE MUDARABAH AGREEMENT, THE
MUDARABAH AGREEMENT SHALL PREVAIL.
Page 5 of 6
Signature
Customer/ rabb-ul-mal
Date----------------------------------
Signature
Mudarib
Date---------------------------------[ Manner of Execution of Investment Application by Customer / rabb-ul-mal
1. a Company - under Common Seal or in terms of Delegation of Authority by the Board
2. a Partnership – by all the partners
3. a sole proprietorship - by the sole proprietor
4. an individual – by such individual
Manner of Execution of Investment Application by Customer / rabb-ul-mal
1. a Company - under Common Seal or in terms of Delegation of Authority by the Board
2. a Partnership – by all the partners
3. a sole proprietorship - by the sole proprietor
4. an individual – by such individual
Page 6 of 6