A Critical Appraisal of the Fiduciary Legitimacy of Mudarabah: Bridging the Gap between Scriptural Evidence and Financial Implementation

Abstract

This study provides a critical appraisal of the fiduciary legitimacy of Muḍārabah, a cornerstone equity-based instrument in Islamic finance. While traditional scholarship heavily relies on specific Quranic verses and Prophetic traditions to validate the separation of capital and labor, this paper identifies significant interpretative and functional gaps between classical scriptural evidence and contemporary financial implementation. Through a qualitative and comparative analysis, the research examines the linguistic ambiguity of the term Ḍarb in the Quranic context and evaluates the historical weight of Hadith narratives, such as the Basra and Urwah al-Bariqi incidents. The paper further explores the "Fiduciary Gap" in modern Islamic banking, where the authentic trust-based nature (Amānah) of Muḍārabah is frequently compromised by synthetic debt-like structures and rigid collateral requirements designed to mitigate agency costs. By evaluating the Two-Tier Muḍārabah model and the emergence of FinTech-driven equity crowdfunding, the study concludes that current banking practices often prioritize institutional stability over the distributive justice envisioned in Shari’ah. The findings suggest that for Muḍārabah to regain its fiduciary legitimacy, the industry must move toward transparent, technology-backed equity models that align more closely with the risk-reward parity of the original scriptural mandates.