What is the nature of a Mudarabah partnership?

In a Mudarabah partnership, one party provides the capital while the other offers expertise and manages the investment. This arrangement is foundational in Islamic finance, as it aligns with the principles of profit-sharing and risk-sharing without indulging in interest (riba).

In this structure, the profits generated from the investment are shared between the capital provider and the entrepreneur according to a predetermined ratio. Importantly, only the profits are shared, while losses are typically borne solely by the provider of the capital. This aspect is essential because it emphasizes trust and risk management; the entrepreneur's investment of time and skill is recognized, while the financial risk rests with the capital provider.

Because of these characteristics, option C accurately captures the essence of a Mudarabah partnership. It highlights that both profits and losses can be discussed, but it emphasizes the profit-sharing aspect more prominently, which is a key distinguishing feature of this financial arrangement.