Imam Sadiq University "Islamic Finance Research" (IFR) 2251-8290 Articles in Press 2026 07 04 A Jurisprudential Analysis of Formalism in Loss Indemnification Mechanisms within Mudarabah Contracts: A Critical Study of its Implications for the Islamic Banking System A Jurisprudential Analysis of Formalism in Loss Indemnification Mechanisms within Mudarabah Contracts: A Critical Study of its Implications for the Islamic Banking System 78201 10.30497/ifr.2026.249742.2023 FA Hassn Nezhadshir ندارم 0009-0000-0067-7765 Journal Article 2025 12 28 This research conducts a structural critique of the legal mechanisms proposed to validate the “agent’s guarantee” in Mudarabah contracts. The central problem is that contemporary jurists often distinguish between the void “guarantee clause” and alternative strategies such as “loss indemnification acts,” “gift of specific shares,” and “collateralized compensation clauses” to protect capital. Utilizing a descriptive-analytical methodology and emphasizing Imam Khomeini’s jurisprudential foundations, this study demonstrates that these distinctions remain purely formalistic and linguistic. In legal substance and economic reality, they lead to the ontological transformation of Mudarabah into usury (Riba). The novelty of this research lies in arguing that the absolute elimination of risk for the capital provider is the essence of Riba; therefore, any condition resulting in a "Zero-Risk" status for the owner—regardless of its legal form—is void due to the "futility of the prohibition of usury" and "contradiction in legislation" (Tanaqud fil-Jal). The findings suggest that Islamic banking must transition from collateral-based models to genuine project-based risk-sharing to maintain its Sharia integrity. This research conducts a structural critique of the legal mechanisms proposed to validate the “agent’s guarantee” in Mudarabah contracts. The central problem is that contemporary jurists often distinguish between the void “guarantee clause” and alternative strategies such as “loss indemnification acts,” “gift of specific shares,” and “collateralized compensation clauses” to protect capital. Utilizing a descriptive-analytical methodology and emphasizing Imam Khomeini’s jurisprudential foundations, this study demonstrates that these distinctions remain purely formalistic and linguistic. In legal substance and economic reality, they lead to the ontological transformation of Mudarabah into usury (Riba). The novelty of this research lies in arguing that the absolute elimination of risk for the capital provider is the essence of Riba; therefore, any condition resulting in a "Zero-Risk" status for the owner—regardless of its legal form—is void due to the "futility of the prohibition of usury" and "contradiction in legislation" (Tanaqud fil-Jal). The findings suggest that Islamic banking must transition from collateral-based models to genuine project-based risk-sharing to maintain its Sharia integrity. https://ifr.isu.ac.ir/article_78201_0659ef65c9669446a69097b0e4c2fcd7.pdf