DPD20032 FIQH MUAMALAT

CHAPTER 6: PARTNERSHIP BASED CONTRACTS

LEARNING OUTCOMES
At the end of this chapter, students will able to:

• Define Musharakah and Musharakah Mutanaqisah

• Describe condition for valid Musharakah
• Explain and relate the modern application of Musharakah to Islamic
banking products

• Define Mudharabah
• Recognize classification of Mudharabah
• Describe condition for valid Mudharabah
• Explain and relate the modern application of Mudharabah to Islamic
banking products
 ISLAMIC PARTNERSHIP
CONTRACTS

• MUSHARAKAH
• MUDHARABAH
• MUSHARAKAH MUTANAQISAH
MUSHARAKAH
 Musharakah is also known as al-sharikah
 Literally:
 Intermingling of properties whereby one cannot be
differentiated from the other
• Mixing of two properties so that they could not be
distinguished from each other
 Technically:
• An agreement between two or more parties to combine their
assets, labor and liabilities for the purpose of making a profit.
A contract of partnership between two or more
parties which all the partners contributes
capital, participate in management, share the
profit in proportion to their capital or agreed
ratio, and bear the losses (if any) in proportion
to their capital ratio.
PILLARS IN MUSHARAKAH
• Shuraka’ Shareholders
• Ras’ul Mal Capital
• Mashru’ Project or business venture
• Ribh Pre-determined profit allocation (PSR)
• Sighah Ijab (Offer) Qabul (Acceptance )
CONDITIONS OF VALID MUSHARAKAH
CONDITIONS OF SHAREHOLDERS
1. The shareholders and partners must be qualified person to
appoint an agent or to be appointed as an agent under the
principle of al-Wakalah. Each shareholder is considered as
a joint owner of the company and has a right to run the
business for him and other shareholders when appointed
as an agent.
2. Al-Musharakah i.e. partnership and company based
business can be made between individuals or
organizations.
CONDITIONS OF VALID MUSHARAKAH
CONDITIONS OF CAPITAL
1. The capital must be cash or things that can be valued by money.
2. The capital must be pooled together and are not segregated so
that it cannot be identified the owner of actual share.
3. The amount of share is not determined to be of the same.
4. The shareholder can transfer his share to other person.
5. The contract of al-Musharakah can be terminated to become a
contract of ownership. As for example, a Bank has agreed to
finance to project together with a housing developer. At the time
when the project has completed, the bank can sell his share to the
developer so that it will become a sole owner of the property.
CONDITIONS OF VALID MUSHARAKAH
CONDITIONS OF PROJECT
1. The project must be lawful according to Islamic law, i.e. it must be halal. The term
“shariah compliance” is widely used in current situations.
2. The evaluation for works carried out by the partners is made on individual basis, but
to be putted together so that the profit can be divided among them.
3. The shareholder can designate the work to one of them and it can be considered as a
specified term or condition of the contract.
4. The appointed shareholder who carried out the project is held responsible under the
principle of Yad Amanah (trust). In the case of his negligence he is held responsible
for compensation under the principle of Yad Dhamanah (guarantee).
CONDITIONS OF VALID MUSHARAKAH
CONDITIONS OF PROFIT (ratio)
1. The ratio of profit sharing between all parties should be
determined and mutually agreed at the conclusion of the
contract in the form of percentage of profit, not a sum of
money or percentage of capital. This is very important to
avoid any element of gharar.
2. Loss sharing, except in the case of deceit or negligence, is
according to percentage of shareholding. (CCR)
FLOWS OF MUSHARAKAH
MUSHARAKAH MUTANAQISAH
 Form of partnership in which one of the partners promises (waad) to
buy the equity share of other partner gradually until the title of the
equity is completely transferred to him.

 A form of Musharakah where the financier and the client

participate in a joint commercial enterprise or property.

 This enterprise is converted into undivided ownership of both the

financier and the client.

 Over certain period the equity of financier, divided into equal

value units, is purchased by the client. And ultimately the client
becomes the sole owner of the enterprise
90% 10%
APPLICATIONS OF MUSHARAKAH
MUTANAQISAH
Application of Musharakah Mutanaqisah:

• Home financing
• Agriculture Machinery and implements
financing
• Storage facility construction/sheds
• Transport vehicles, etc.
APPLICATIONS OF MUSHARAKAH
 Project financing
 Import/export financing
 Working capital financing
 Saving/Current/Investment account
 Interbank lending/borrowing
 Securitization
 Sukuk Musharakah
MUDHARABAH
PILLARS IN MUDHARABAH
• 1. Sahibul Mal Owner of capital, fund provider
• 2. Mudharib Entrepreneur
• 3. Ra‟sul Mal Capital
• 4. Al-Amal or Mashru‟ Business Venture or projects
• 5. Ribh Predetermined share of profit
• 6. Sighah Ijab (Offer) Qabul (Acceptance)
 TYPES OF
MUDHARABAH

MUDHARABAH MUDHARABAH
MUQAYYADAH MUTLAQAH
(restricted (unrestricted
Mudharabah) Mudharabah)
 Capital owner stipulated everything to
do with the funds  Capital provider did not stipulated
 enterprenuer has no power in anything about how to use the funds
determining the objectives of the funds  enterprenuer has ultimate power to
determine the objective of the funds
MUDHARABAH MUTLAQAH VS
MUDHARABAH MUQAYYADAH
MUDHARABAH MUDHARABAH
MUTLAQAH MUQAYYADAH
Power to control Entrepreneur has ultimate Entrepreneur has no
power over the business ultimate power over the
control business
Nature of business Determine by Determine by Capital
entrepreneur owner
Expenses involved Determine by Determine by Capital
entrepreneur owner
Decision Making Made by entrepreneur Made by Capital owner
Place of business Fixed by entrepreneur Fixed by Capital owner
CONDITIONS FOR VALID
MUDHARABAH
CONDITIONS OF THE SIGHAH
• It is constitute of offer and acceptance.
• For example, A who has money says to B, “Take
this money as mudharabah, and what God gives in
profit will be divided between us…” (And he
specifies a certain profit sharing ratio).
• Can be done verbally, in writing or through any
means of communication that is acceptable by both
contracting parties.
CONDITIONS FOR VALID
MUDHARABAH
CONDITIONS OF CONTRACTING PARTIES
• Capital provider are not been forced
• Capital provider and entrepreneur reached the basic requirements for
contract:
• Sound of mind
• Age of puberty

• Entrepreneur has full knowledge and skills in what going to do in

venture.
CONDITIONS FOR VALID
MUDHARABAH
CONDITIONS OF WORK
• The work or business venture under Mudharabah must be conducted
solely by the entrepreneur (mudharib).
• It is not legal if the capital provider (rabbul mal) was also required to
conduct the daily operation.
• The project must be legal and permissible (halal).
• All the expenses will be taken from the capital provided that is not more
than the justified expenses required in the venture.
CONDITIONS FOR VALID
MUDHARABAH
CONDITIONS OF CAPITAL
• Must be in the form of money and not commodities since commodities
fluctuate in price and cause uncertainty and ignorance.
• The capital must be clearly specified, determined and known at the time
of the contract.
• Must be available cash-present during the conclusion of contract.
• Must be delivered to the possession of the mudharib entirely.
CONDITIONS FOR VALID
MUDHARABAH
CONDITIONS OF PROFIT
• The distribution of profit must be determined proportionally between
the capital provider and the entrepreneur.
• The pre-determined profit must be in ratio form or percentage and not in
fixed amount.
• Allowed to be different ratios at different situations.
APPLICATIONS OF MUDAHARABAH
• Project financing
• Import/export financing
• Working capital financing
• Saving/Current/Investment account
• Interbank lending/borrowing
• Sukuk