How is a loss incurred by the investment manager (Mudarib) settled when capital is divided into separate investments?
General Chapter
Al-Mughni
Book of Partnership
Primary text
If the capital provider gives the Mudarib two thousand, and the Mudarib buys a slave with each thousand, and profit is made on one slave while the other is lost or perishes, the loss must be covered from the profit of the profitable investment. The Mudarib is entitled to nothing until the full initial capital of two thousand is recovered. This is the position of Al-Shafi'i. The evidence supports that the loss occurring after the capital has entered into trade is covered by the profit, similar to if the capital were a single unit used for two purchases, where the loss of one is covered by the profit of the other. Furthermore, since the capital is considered one whole unit, the Mudarib cannot claim profit until the entire capital is completed.
Supporting text
Some followers of Al-Shafi'i offer a second view regarding the perishing of one slave, stating that the loss is from the original capital because the slave is a replacement for one thousand of the capital, which would have been capital if it had perished before trade. However, the primary view holds that since the loss occurred after the capital was engaged in trade, it is treated as a loss from the profit.