the dynastic caliphates: the umayyads and the reforms 143while it is based on the principles of mutual agency only in the
“inàn” partnership. This differentiation affects various aspects of the
partnership: similarity of religion, level of authority, bases of profit
sharing and financial liability. While the similarity of religion is neces-
sitated in the “mufàwadah” partnership, it is not so required in the
“inàn” partnership. The partnership is operational as long as the
non-Muslim partner observes the Sharì"ah in trade dealings other-
wise it becomes invalidated. In addition, while the authority of the
partner in the “mufàwadah” partnership is unlimited, that of the “inàn”
partnership in conditioned. Profit is allocated to the partners on the
basis of their capital contributions to the business. However, a greater
portion of profit might be allocated to the partner who manages the
business in compensation for his work and effort. Nevertheless the
losses have to be shared in proportion to the capital contributed by
the partners, even if they agreed on different bases of allocating the
profit. The reason behind the flexibility in allocating profits and the
rigidity of allocating losses is that since, in case of a loss absorbing
total capital, as in the event of liquidation, the loss would have to
be born by the partners in proportion to their capital, the loss that
does not absorb total capital should, therefore, be borne by the part-
ners on the same basis. As for the financial liability of the partners,
while this is unlimited in the “mufàwadah” partnership, it is gener-
ally limited in the “inàn” partnership.
The commenda was another form of business operations. It is an
arrangement in which an investor or a group of investors entrusts
capital or merchandise to an agent-manager, who is to trade with
it and then return to the investor(s) the principal and a previously
agreed-upon share of the profit (Udovitch, 1970). As rewards for his
labour, the agent-manager receives the remaining share of the profits.
Any loss resulting from the exigencies of travel or from an unsuccessful
business venture is borne exclusively by the investor(s); the agent is
not liable for a loss of this nature, loosing only his expended time
and effort (Udovitch, 1970). The commenda, which existed in Arabia
before Islam, is referred to in Arabic by three different terms:Mudàrabah,
Qiràdand Muqàradah. The three terms, however, mean the same thing;
the difference is semantic and is related to linguistic derivation
influenced by geographical locations. The pre-Islamic commenda was
approved by the Prophet and became an Islamically acceptable form
of business. In addition, religious differences are no barrier in the