Sukuk mudarabah are sukuk structured on the mudarabah contract, a partnership between those who provide capital and a manager who provides effort and skill. The certificate holders, through an issuing vehicle, supply the funds; the party raising the money acts as manager and invests them in a defined business or pool of assets. Profit is shared in a ratio agreed at the outset. Financial loss falls on the holders alone, unless the manager has been negligent or has breached the terms.
Because the manager contributes no capital, the structure suits issuers without specific assets to sell or lease. It is widely used by Islamic banks for perpetual instruments that qualify as Additional Tier 1 capital. Early issues often promised to buy the assets back at face value, which critics said turned a profit-sharing contract into guaranteed debt. Guidance issued by AAOIFI in 2008 restricted such undertakings. A related form is sukuk musharakah.