A restricted Mudaraba, or muqayyada, is a Mudaraba in which the capital provider expressly limits the use of funds to a given sector, asset, place, period or counterparty, and the manager becomes liable for the capital if he steps outside that frame.
The five kinds of restriction jurists accept
The provider may limit the business sector, the type of assets bought, the geographic area, the duration of the mandate or the people the manager deals with. Each limit must serve a legitimate interest and must not make trading practically impossible.
Can an overly narrow restriction void the contract?
Yes. Requiring the purchase of a single item from a single seller with no room for judgment reduces the manager to a mere agent, contradicting the commercial nature of Mudaraba. Most schools hold that such a clause empties the contract of its purpose.
Limiting the sector: property, agriculture or trade
Sector restriction is the most common: a fund may be reserved for trading agricultural produce, property development or financing medical equipment. The investor thereby selects a risk profile he understands rather than accepting the manager's general policy.
Setting a term and a liquidation date
The contract can specify a date by which all assets must be sold or valued. This makes results easier to compare, but forces the manager to plan the exit so that assets are not sold into an unfavourable market.
Breaching the mandate turns the manager into a guarantor
If the mudarib invests outside the agreed sector or after the deadline, he no longer acts as a trustee. Any loss from that transaction falls on him personally, and several jurists hold that any resulting profit then belongs to the capital provider alone.
How do you prove a limit was crossed?
Proof rests on the wording of the mandate and on the documents for each transaction. A vague clause such as prudent investments almost never makes the manager liable, whereas a list of authorised assets makes oversight far simpler to carry out.
A separate portfolio for each restricted mandate
Restricted funds must not be mixed with other capital without permission. In practice banks keep dedicated accounts for each mandate, so that the profits and losses of that portfolio are not absorbed by the rest of the balance sheet.
Restricted investment accounts in Malaysia
Since Malaysia's Islamic Financial Services Act of 2013, banks have separated Islamic deposits from investment accounts. Investment accounts are not covered by the deposit protection of the Malaysian agency PIDM, and the capital invested in them is not guaranteed.
Funding an identified project through a dedicated platform
Launched in 2016, Malaysia's Investment Account Platform lets investors choose business ventures presented by Islamic banks. The choice concerns one specific venture, which brings the placement close to a Mudaraba whose use of funds is clearly delimited.
What information should you request before signing?
Ask for the list of authorised assets, concentration limits, the liquidation date, the valuation method, the profit-sharing ratio and the reporting frequency. Without these elements it becomes impossible to check whether the manager has respected the agreed restrictions.
More control also means less diversification
By concentrating capital on one sector or project, the investor loses the cushion a broad portfolio provides. A downturn in that single field hits his capital directly, whereas a discretionary manager could have spread the risk across other activities.
Restricted or open: which investor profile fits?
The bounded formula suits an investor who wants to target an asset or exclude sectors beyond standard Sharia screening. Someone who would rather delegate the choice of transactions entirely will usually prefer an unrestricted Mudaraba, which is more flexible and more diversified.
Specialist external source
Bank Negara Malaysia publishes the framework for investment accounts at Malaysian Islamic banks, which distinguishes restricted from unrestricted accounts and sets out the information owed to investors.