An unrestricted Mudaraba, or mutlaqa, gives the manager a general mandate: he freely chooses lawful sectors, assets and transactions within the bounds of Sharia and commercial custom, while the capital provider alone bears any financial loss.
Broad freedom, but not unlimited
Even without written restrictions, the mudarib remains bound by Sharia and by commercial custom. He may not finance an unlawful activity, sell on credit in an abnormal way or commit the fund to a deal that no prudent manager would accept.
Acts that still need the investor's consent
According to several schools, the manager may not lend the fund's money, give it away or hand it to a second mudarib without express permission. A clause such as act as you see fit widens his powers but does not automatically cover these acts.
The pooled fund at the heart of the banking model
In an Islamic bank, money from thousands of investment account holders is combined in one or more pools. Acting as mudarib, the bank places it in a range of financings, and each account receives a share of the overall result in proportion to its balance.
Commingling the bank's money with depositors' funds
The bank often invests its own equity and current account balances in the same pool. Gross income is then divided among these sources according to their average weight, before the agreed Mudaraba ratio is applied to the investors' portion.
Working out the profit due to investment accounts
Start from the income of the pool's assets, deduct permitted direct costs, isolate the share belonging to investment accounts, then the bank takes its mudarib share. The remainder is distributed using weightings that reflect both the amount and the term of each deposit.
Profit equalisation reserves
To avoid overly volatile returns, the bank may set aside a reserve from income before sharing and release it in weak years. The contract must provide for this, because it temporarily withholds part of the profit that belongs to investors.
Investment risk reserve: who owns it?
A second reserve, drawn only from the investors' share after the bank's portion has been deducted, is kept to absorb future losses. It belongs to account holders, not to the bank, and what happens to it when the pool closes must be spelt out.
Displaced commercial risk in plain terms
When the pool's return falls below competitors or market rates, the bank may give up part of its mudarib share to keep customers. It then absorbs a risk that, legally speaking, was never its own to bear.
Why supervisors watch this smoothing closely
If returns always look stable, savers may come to believe their capital is guaranteed. Prudential authorities therefore require clear disclosure of reserves, of the distribution policy and of the fact that pool losses can reduce the principal.
Capital requirements and the share of risk the bank carries
Assets funded by unrestricted investment accounts do not, in principle, weigh on the bank's own capital. But if the bank routinely supports returns, the supervisor may attribute part of that risk to it when calculating its capital adequacy ratio.
What the account holder actually controls
The holder of an unrestricted account chooses neither the financings nor the sectors, relying instead on the bank's policy and its Sharia board. His levers are limited to the investment term, the choice among pools offered and the decision to withdraw.
Questions to ask before opening such an account
Ask for the sharing ratio applied, the history of returns, whether reserves exist and at what level, the conditions for early withdrawal and how a loss would be passed on. Final compliance of the product rests with the institution's Sharia board.
Specialist external source
IFSB standards address unrestricted investment accounts, covering governance, smoothing reserves, capital adequacy and the information owed to the holders of these accounts.