Project: Wheat Miller Business Plan Using Islamic Finance Principles

This project presents a comprehensive business plan for a wheat miller, adhering to Islamic finance guidelines and specifically employing the Mudaraba contract. The plan outlines the business's operational aspects, including the procurement of wheat grains from regional suppliers within the United Arab Emirates, the milling process to produce flour, and the distribution strategy through wholesalers and food-related enterprises. The Mudaraba contract, a profit-sharing arrangement, is central to the plan, defining the roles of the capital provider (Rab al Maal) and the managerial expert (Mudarib). The project details the stages of the contract, including capital proportion, profit and loss sharing (50:50), tenor, and termination. It also includes a SWOT analysis, a scenario analysis detailing capital investment, and potential risks for both the investor and the manager. The conclusion emphasizes the contract's significance in promoting balanced economic growth and supporting individuals' strengths within the UAE and GCC.

Running head: ISLAMIC FINANCE PROJECT
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Wheat Miller Business Based On a Mudaraba Contract
Name of the student
Institutional affiliation
Course
Author’s note

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Introduction
The paper is a presentation of a wheat miller business proposal prepared by Islamic
finance guidelines. The business plan as prepared following the mudharabah contract
principles and guidelines. The business project is expected to engage in activities such as
milling wheat grains to flour. After producing, the business will also sell out the finished
flour through wholesalers and other food-related enterprises. The wheat grains' inputs are to
be purchased from regional wheat growers within the United Arab Emirates. The business
revenue and profits generated will depend on the quantity produced, and also the price
charged per unit (Arshad and Ismail, 2011). On a global scale, the flour milling industry is
primarily characterized by low levels of market share concentration. For example, in 2016,
major wheat flour producers accounted for about 31 percent of industry revenue. Whereas
the wheat flour industry appears to have low levels of concentration in the past, future
projections reflect moderate levels shortly. On the international scale, experts predict that the
industry will achieve a percentage growth rate of about 1.2 percent annually. Therefore, with
such low projections in the growth rate, it is a wise decision to operate on a small scale. On
that note, therefore, the business proposal is a small scale project operating within the UAE.
The mudharabah contract
A mudharabah contract is a profit-sharing arrangement in business. It is an Islamic
contract through which parties to either contribute funds or expertise. The contract is widely
accepted under Islamic finance guidelines, and there is a belief that the contract as its origin
in the Arabic word darb. The mudharabah contract, as stated above, involves two parties. One
of the parties in the contract is known as rab al maal (the party that provides funds) and (the
mudrib or ammel), which provides expertise. In the contract, the business proposal initiator

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will be the party to provide managerial skills. Therefore the initiator is on the (the mudrib or
ammel) side of the contract.
On the other hand, another person may have the funds and yet lacks the business idea
of starting the business. Therefore, instead of borrowing funds, the person with the idea can
choose to partner with the party having the funds. Ultimately, instead of borrowing funds,
the two parties can decide to enter the business as partners. When the partners agree to run a
business as one, it gives rise to a mudharabah contract.
The contract, therefore, categorizes the business partners in two classes. The partner
who contributes capital in the form of funds becomes the capital provider and the person with
skills becomes the managerial provider (Iqbal, 2014). Notably, the partners in the
mudharabah contract share profits according to the terms agreed upon. Such a contract is,
therefore, an Islamic equity-based finance contract, although the losses are borne by the
capital provider alone. However, such a scenario can only apply where there are no cases of
negligence, misconduct, and breach of partnership terms of the agreement. The mudharabah
contract is chosen because; the initiator of the business idea does not have the required funds
to start the business. Secondly, the initiator also has sufficient managerial skills to manage
the wheat milling business effectively. Also, the initiator has adequate access to parties with
sufficient capital requirements.
Stages of the mudharabah contract and application
Capital proportion
In the application, the business initiator intends to obtain capital from a financial
investor such as a bank in the UAE. When signing the contract, the financial investor is
expected to contribute the necessary capital in the form of an unrestricted mudharabah

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agreement. Under such an agreement, the business initiator will have the liberty to select the
exact location of the business (Ramli, 2014). Additionally, it will also be the duty of the
managerial party to make a selection of the time and method of payment. However, since the
initiator of the business expects to use another person's capital, he is expected to act at the
financier's discretion. Therefore, the managerial party will ensure maximum control and
monitoring of the funds allocated to avoid any cases of negligence in business.
The contract will be a simple partnership agreement in which one party will provide the
capital and the other managerial skills (Ruslan et al., 2020). The investment account in the
wheat flour milling project will be characterized as General Investment Account (GIA).
Profit and loss
Through such an investment account, the profit-sharing ration will be standardized,
and the funds managed using a poll basis. The profit sharing ratio will be 50:50 for each of
the partners. In case of losses, the capital investor will incur the entire loss as provided by the
shariah law guidelines and principles of a mudharabah contract.
Tenor and termination of the contract
In the case of dissolution or winding up of the business, profits will only be shared
after deducting the investor's capital. However, such a close can only work in case the
business assets generate profits at the time of dissolution. Where the project results in losses
at dissolution, the managerial partner will not be entitled to any share of the money
generated. Instead, the investor will take up the entire collected amount after dissolving the
business, as this will be his own capital.
Managing partner

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In the contract, the business proposal initiator will be the rab al maal party. The
initiator has chosen to be the managerial partner of the business and the capital provider will
an Islamic financial institution within the UAE.
Steps to implement the contract
The steps to enter into a mudharabah contract will be undertaken with the basis of the
shariah laws together with the guidelines of the mudharabah contract as provided above
(Bank Negara Malaysia, 2012). The business contract venture will, therefore, proceed as
follows:
 The initiator of the business will undertake the duty to operate the
business.
 The initiator will also take up the responsibility to invite the investor s
to join and enter the agreement. At such a moment, the managerial partner will be the
mudarib, and the investor will be the rab al-mal.
 Upon agreement, the rab al mal will then contribute the required
capital to start the business (Martins, 2020).
 After that, the mudarib will then issue a sukukmudarabah to the rab al-
mal, which will then be used as evidence of participation and interest of benefit in the
wheat flour milling business. It is sukukmudharabah that will indicate that the
investor is entitled to profits generated by the business.
The possible risks available in the business for the investor, however, include the loss
of the capital invested. For instance, in the case the project fails to generate the expected
revenues and sales, the losses will entirely be borne by the capital contributor alone. On the
other hand, however, the managerial partner risks the possibility of poorly managing the
business venture and hence causing significant losses (Chloe, 2018). Under such

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circumstances, the mudarib risks the possibility of incurring significant penalties to refund
the lost capital.
Responsibility of Each Partner
In the mudhharabah type of contract, the investor's primary duty or responsibility is to
contribute the necessarily required capital for the business. The capital can either be in the
form of liquid cash or non-monetary capital. Secondly, the investor also has the responsibility
to oversee business activities (Rahman, 2018). The managerial party, on the other hand, has
a fiduciary duty to maximize business profits and also ensure that the business is effectively
managed. Both partners have the responsibility of sharing profits according to the agreed
percentages and not in absolute values. The manager of the business has the responsibility to
manage the losses in case of negligence.
In scenarios where the capital is lost or damaged before the distribution, the contract
is consequently canceled as agreed in terms of the agreement. The contract is only binding up
the period of actual completion of the business.
SWOT analysis of the business
Strengths: because the wheat milling industry is well established, the managerial part
of the project has sufficient knowledge about the business (Warwick-Ching, 2010).
Therefore one of the strengths is that managers have adequate information and knowledge
regarding the business. The team is also very experienced in the wheat industry and knows
the ways of growing a business from scratch to glory.
Weaknesses: the primary weakness against the project and its managers is that the
initiators are starting a new project. The budget may as well be limited as it requires
significant sums of money to facilitate processes such as marketing.

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Opportunities: wheat flour is a staple food in the United Arab Emirates, and therefore
there is an opportunity to exploit the market share (Tahrim et al., 2018). There is also an
opportunity that is resulting from the availability of the potential inventors that the manager
can utilize at no interest charged. Therefore, access to the required capital is made easier
through Islamic financing and the mudharabah contract.
Threats: like any other business venture, the market is always very competitive, and
in some cases, it is occupied by monopoly tendencies (Bank Negara Malaysia, 2009)
Therefore, the wheat industry is not in any way different. Secondly, there are also threats that
may arise from economic downturns and cycles, which can affect the profitability of the
business. The changes in diet preferences and tastes are also other possible threats to the
business.
Scenario analysis
The business profit sharing ratio that will be applied is 50% of the profits for each
partner. However, the profits can only be shared after the investor has deducted the capital
amount invested in the business (International Monetary Fund (2018). To start the business,
the total sum of start-up capital is estimated to be about $ 500,000, which will be contributed
by the investor alone. In case the business makes losses in a particular financial year, then
partners will not be entitled to any sharing ratio. The capital contributor will be responsible
for all the losses only when there is no negligence by the managerial partner.
Conclusion
To conclude the paper, the mudharabah contract is an essential contract to start up a
business basing on shariah laws. The contract gives the UAE/GCC sociality a chance to run a

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business in a way that supports each individual's strengths. It also supports the society, GCC
and the UAE as it promotes balanced regional economic growth. The partners that contribute
capital, assist individuals witht managerial skills to put their knowledge and experience to
operate business. In the long run, a combination of each strength results in potential business
growth and economic benefit for all parties and the UAE/GCC sociality.

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References
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df
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