He put the funds of the charity into a mudaarabah scheme and lost the money

Question

Praise be to Allah.

Firstly:

If a person
invests the wealth of another in a mudaarabah partnership, then the profit
is to be shared between them according to whatever they agreed upon, and
loss is to be borne by the owner of the money; all that the worker loses is
his work and his effort. It is not permissible to stipulate that he should
bear any of the loss so long as he has not been negligent. If he is
negligent or he goes against what is stipulated and that leads to loss, then
he is liable.

Ibn Qudaamah
(may Allah have mercy on him) said in al-Mughni (5/22): Loss in the
case of mudaarabah is borne by the owner of the money only, and the worker
does not have to pay any of it, because the loss is a decrease in the
capital, which belongs only to the owner, and the worker has nothing to do
with it. So the loss is taken from his (the owner’s) money and no one
else’s. They only share whatever profits are earned. End quote.

He also said:
If it is stipulated that the mudaarib (the worker) is liable for the money
or a share of the loss, then this condition is invalid, and we do not know
of any difference of opinion concerning that, although the contract is
valid. This was stated by Ahmad. It is also the view of Abu Haneefah and
Maalik. And it was narrated from Ahmad that the contract is rendered invalid
by that; he narrated that from al-Shaafa‘i. That is because it is an invalid
condition, so it renders the mudaarabah invalid, which is similar to the
case if there is the condition that the profit will be for one of them only.
End quote from al-Mughni, 5/40.

Secondly:

If the
director of the institute thought on the basis of his own opinion that some
interest was to be served by investing some of the institute’s money – other
than zakaah funds – and the market was stable such that there was no risk
involved, then there is no blame on him in the event of loss, because he was
only seeking to serve a general interest and did not do anything that is
regarded as negligence with regard to what was entrusted to him.

But if he
acted hastily or negligently, or he was not allowed to invest the money,
then he is liable.

The scholars
of the Standing Committee for Issuing Fatwas were asked:

This
cooperative has some money that is frozen in the bank and it is not being
used in any beneficial way; this is after completing some services that the
group was required to provide whilst keeping this money aside for
emergencies. As we want to get some halaal returns, we thought of delegating
one of the financial or commercial companies to use this money in the kind
of business that it does, such as buying and selling building materials such
as iron and cement, and giving us the unspecified profit, whilst stipulating
that the materials that are bought and sold during a specific period should
be declared and the agent will take some wages for doing the buying and
selling. We hope that you can advise us whether this action, which is aimed
at making use of the money regarded as a trust borne by us to serve the
interests of the Muslims, is permissible. May Allah reward you with good.

They replied:

If the money
mentioned in then question is zakaah funds, then it must be given to those
who are entitled to it according to sharee‘ah once it reaches the
cooperative. But if it is not zakaah, there is nothing to prevent using it
for trade in the interests of the charity, because that brings more benefit
for the cooperative and those who are supporting it. End quote.

Fataawa
al-Lajnah al-Daa’imah,
9/403

And Allah knows best.