Saad Bakkali

University Kuala Lumpur

Kuala Lumpur, Malaysia

The word musharakah in Arabic is a derivative from

sharaka which means sharing and mixing shares of two or more parties.

Al-Shirkah covers both shirkat al-mulk a joint ownership of a common property

and shirkat al-aqad or a partnership in a business as a consequence
of a mutual contract.
The term musharakah, as it is used in modern financing, is confined
to the second type of al-shirkah only, that is, contractual partnership.
The Hanafi scholars define musharakah as a
contract between partners on both capital and profit.

Quranic evidence:

- But if more than two, then they shall share in onethird ... (of the inheritance) (4:12)
- Truly many are partners who wrong each other,
not so do those who believe and work deeds of
righteousness and how few are they? (38: 24)

Sunnah evidence:
- God the Most High says, I am the third [partner] to
two partners as long as one of them does not betray
the other; if they betray each other, I leave them.
- Allahs Hand is with the two partners so long as
one does not betray the other.
Ijma

evidence:
- There is a consensus (ijma) among Muslim
scholars on the legality of sharikah in general.

Types of
musharakah

Sharikat Al Mulk
joint ownership
of a property

Sharikah by Option

Gift, buying

Sharikat Uqud
) partnership
in a business )

Sharikah by
Obligation

Inheriting

Sharikat Al-amwal

Shrikat Al-inan

,Sharikat Wujuh
receivable
partnership
/

Sharikat
Al-mufawadah

Sharikat
Abdan, Sana
/

This contract means two or more people

commit themselves to paying a specified
share into a capital which is to be used
in trade. Profit would be divided between
them according to a specified rate agreed
upon by them.

Inan

Meaning

Characteristics

Equality
in
investment
Amount
is not
required

Equality of
personal
status or
distribution of
profit and
liabilities
among the
partners
is not a
requirement

each partner
is considered
as an agent
of the other
concerning
the capital
of the
company
and trade
transactions

each partner
transact
with capital
according
to the
terms of the
partnership
agreement.

each one
of them
must act to
serve the
best
interest of
the
company.

each of the
partners will
not
guarantee
the liabilities
of the
other
partners

The
contract
of this
company is
not binding

In this company each one of the

partners has a share equal to
that of his partner

Mufawadah

Characteristics
Equal in

capital

profit

Liability

each partner is
an agent for
the partnership
business
and stands as a
guarantor
for the other
partners

Sharikat Uqud

)Contractual partnership)

shirkat al-amwal
(the subject matter is in
the form of money)
where all the partners
invest some capital into
the commercial enterprise.

shirkat al-amal
(the subject matter is in the
form of labor) the partners
undertake some services to
the customers, the income
generated will be distributed

shirkat al-wujuh
(If the subject matter is
reputation) whereby the
parties purchase commodities
on a deferred price and sell
them on the spot. The profit
will be distributed

Legality of
Musharakah

Inana, Mufawadah,
al-amwal, al-amal,
Wujuh

Hanafi School

Maliki School

Hanbali School

Shafi School &

Zahiriat

All Sharikat
Are lawful

All lawful expect

Sharikat Al-wujuh
& Mufawadah

All lawful except

Sharikat
al-mufawadah

All unlawful expect

Sharikat Al inan

Basic Shariah
rules

Profit-sharing

Loss-sharing

(according
to agreed upon
ratio)

(according to the
ratio of
contribution)

Management of
Musharakah
(all partners have
a right to take
part in the
Management)

Nature of
Musharakah
(it must be
permissible)

Capital of
Musharakah
(should be
contributed in the
form of monetary
assets)

Issues in
Musharakah

Risk of Loss

The depositors being

constantly exposed
to the risk of loss
so they will not want to
deposit their money
in the banks

Dishonesty
and Moral
Hazard

dishonest

clients may
the instrument
of musharakah by not
paying any return
to the financiers
exploit

Secrecy
of the Business

Clients
Unwillingness
to Share Profits

by making the financier

a partner in the
business of the client, it
may disclose the secrets
of the business to the
financier, and through
him to other traders

They think the bank

has no right to share
the actual profit
because of taxation

musharakah
Mutanaiqisah
(under
Sharikat Inan)

Concept:
the Islamic bank transfer
gradually to the partner share
in the musharakah, so that the
Islamic banks share declines,
the other partners share
increases until becomes the
sole proprietor of the venture.

The requirement
of diminishing
musharakah

Should not be a finance

base on credit, must be
real partnership, sharing
losses & profit

The bank should have

full ownership of its
shares, with the right of
management in the
venture.

Basic Shariah
rules

Purchase
undertaking

Additional costs

Profit-sharing

(purchasing the
share at face value)

(costs of insurance
and maintenance
must be shared)

(The profit shall be

in the form of an
undivided %)

Contracts of
partnership

Redemption

(not permissible
for one partner
(The contracts must
to redeem the
be separated)
amount of his
contribution)

The case here is

buying a car with
RM 100,000.00

Demising MU
Buying a Taxi
A Partner 20%
& b: Bank 80%
Partnership:
100% (20%+80%)

Income
for the taxi
1000 Ringgit
is earned on
a daily basis

Diminishing Musharakah

Car value
RM 100,000.00
A:RM 20,000.00
B: 80,000.00

A: partner
Gets: 20 %
(RM 200)
/Day

Every three
months
The partner A
Buys shares
From B Till 100%
ownership

Increase of A shares & decline of Shares B

This process will go on until the expiry of two years
(duration agreed) whereby the whole taxi will be
owned by A and B will take back his original
investment along with income distributed to him as
mentioned in this case.

B: bank
Gets: 80 %
(RM 800)
/Day

Bank sale every

Months shares
To A till
Full transfer
Of ownership

Partner A
Shares
Increase
gradually

10%

10%

RM 10,000.00

RM 10,000.00

10%
RM 10,000.00

A purchases units from the share of B gradually

Bank share of B is divided into eight units

Bank shares
Decline
gradually

10%

10%

RM 10,000.00

RM 10,000.00

10%
RM 10,000.00

10%

10%

RM 10,000.00

RM 10,000.00

Demising MU
Buying a house
A Partner 20%
& b: Bank 80%
Partnership:
100% (20%+80%)

House RM
100,000.00

Diminishing Musharakah
Increase of A shares & decline of Shares B
This process will go on until the expiry of two years
(duration agreed) whereby the whole house will be
owned by A and B will take back his original
investment along with income distributed to him as
mentioned in this case.

House value
RM 100,000.00
A:RM 20,000.00
B: 80,000.00

House

A purchases units from the share of B gradually

A: partner
20 %

Every three
months
The partner A
Buys shares
From B Till 100%
ownership

B: bank
80 %

Bank sale every

Months shares
To A till
Full transfer
Of ownership

Partner A
Shares
Increase
gradually

10%

10%

RM 10,000.00

RM 10,000.00

10%
RM 10,000.00

Bank share of B is divided into eight units

Bank shares
Decline
gradually

10%

10%

RM 10,000.00

RM 10,000.00

10%
RM 10,000.00

10%

10%

RM 10,000.00

RM 10,000.00

Thank you