Does a loss incurred in Mudarabah (profit-sharing partnership) reduce the principal capital immediately?
General Chapter
Al-Mughni
Book of Partnership
Primary text
A loss in Mudarabah does not immediately reduce the principal capital because future profits might offset the loss. However, if the capital provider takes back a portion of the remaining capital after a loss, that taken amount reduces the capital base by that amount plus its proportional share of the loss. If the initial capital was 100, and 10 was lost, and the capital provider took 10, the remaining capital is reduced by the 10 taken plus one-tenth of the loss (one dirham), resulting in a principal of 88 and 8/9 dirhams.
Supporting text
If the capital provider takes half of the remaining capital after a 10-dirham loss (leaving 90), the capital is reduced by half of the total amount taken, meaning half the loss is nullified. If he took 50 out of the remaining 90, the capital is reduced accordingly.