Q. 1 What are the three objections on Musharakah?

Answer:
Musharakah:
Musharakah is the partnership in a business venture between two or
more partners up to 20 partners in maximum. However, partnership
does not mean that all partners will be sharing their resources, assets
or finances in equal proportions. There can be different proportions of
participation like one partner may be investing 30% and other 70%.
But in Islamic finance there are still some reservations on this mode of
financing. In view of Maulana Taqi Usmani, there are mainly 4
objections made upon Musaharakah namely:
 Risk of Loss
 Dishonesty
 Secrecy of the Business
 Client’s unwillingness to share Profits
They are discussed below in detail.
Risk of Loss:
In this mode of financing, the financier is exposed to risk more. In case
of banks and financial institutions, this risk is born by the depositors
and they feel reluctant towards depositing or investing their money in
business ventures which affects the business and economy at national
level since their money is not utilized in any kind of business activity.
The risk of loss cannot be eliminated thoroughly but only minimized
through portfolio diversification.
Dishonesty:
In case of negligence or lack of monitoring of the business activities, the
clients may show some dishonesty by either not disclosing profits or
pretending to have faced losses that will deprive the bank of recovering
its interest and as well as sometimes the principal amount issued to
them for business activities. A well-designed auditory system can serve
as the solution to this problem.

Secrecy of the Business:

There is a chance of disclosing business secretes and activities to the
financier or the depositor while their investments being utilized by the
clients. This objection can be cleared by making it a condition for the
agreement while client is entering into the agreement with the
financier that his or her business activities’ secretes or other
confidential information won’t be asked by them.

Client’s unwillingness to share profits:

The clients are most of the times reluctant to share their profits with
the bank claiming that the bank performed no action or participation in
their hard work hence, they do not owe a share in profit to the bank
also conventional banks offer less or reasonable interest. Another
reason why they are not willing to share their profits is that with the
disclosure of the actual profit and a share given to the bank will reveal
their actual income and profits making them liable to pay taxes to the
government. An Islamic reference can serve as a solution that the
interest is forbidden and prohibited in Islam. While for people afraid of
high taxation, Islamic banks can have negotiations with the government
on the issue that is becoming a hurdle in their progress.