Dividing Profits from Mudarabah

The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.Question:: Is there any right for a mudarib to share the incremental value ofthe rabbul maal's assets at the time of liquidation? Wassalam, Salim M BasalamahAnswer: The division of profits in a mudarabah is proportional rather than fixed. This being the case, it is possible to specify that the investor's share will be a certain percentage of the returns, if these materialize, or anything above 12% of the returns, etc. Since the investor bears the risk of loss, s/he cannot therefore stipulate the return of invested capital. But if assets have appreciated in value, then at the time of liquidation this increase may be calculated as a part of the gross returns from the mudarabah operations. Moreover, the original contract may contain a clause concerning the distribution of the value of the expected appreciation, specifying that a proportional share may go to the mudarib.