Termination of a Mudarabah Contract

The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.Question: I am a bit confused about the Termination of a Mudarabah contract. On one hand, the lesson indicates that, according to general usuli principles, no minimum limit can be placed on the cancellation of such a contract. However, later on the in the lesson, there is an indication that, based on the complexity of today's financing arrangements, the rabb-ul-mal and mudarib can agree that the contract cannot be cancelled during a specified period.I am having difficulty distinguishing between the two situations above, one of which is indicated to be haram (establishing a minimum time limit for the mudarabah contract) and one which is indicated to be halal (establishing a specified period during which the contract cannot be terminated). Could the difference between these two situations be elaborated upon?Answer: In fact, the classical jurists differed on the question of termination. The Hanafi and Hanbali schools were of the opinion that the parties to a mudarabah contract could specify its duration, after which time it would automatically come to an end. The Shafii and Maliki schools, however, taught that a mudarabah contract may not be structured in this manner. In the modern context, it is important that contracting parties have a clear idea of the time element in their enterprises. Then, for this reason, and in light of the opinion of the Hanafi and Hanbali schools, modern Muslim jurists have taken the position that it will be lawful for the two parties to a mudarabah contract to agree to a specific period of time during which neither party shall have the right to terminate the mudarabah.

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