definitionWikipedia- is an agreement between two or more partners, whereby each partner provide funds to be used in a venture.Investopedia- is a joint enterprise or partnership structure with profit/loss sharing implications that is used in islamic finance instead of interest-bearing loans.Businessdictionary- is islamic principle that is applied to joint ventures where interest is not charged by the creditor of the loan,instead an agreement is made between the creditor and the buyer as to share the creditor will get from the profit made from the venture

Musyarakah financingShirkat

(partnership)

Shirkat ul-milk(holding partnership)

Shirkat ul uqud(contractual partnership)

Inheritance(faraid)Wills (wasiyat) Al-mudarabah

(trustee partnership)

Shirkat-ul-amwal(partnership in

capital)

Shirkat-ul-amal(abdan)

(partnership in work)

Shirkat-ul-wujuuh(receivable

partnership)

Shirkat ul inan(unequal shares)

Shirkat ul mufawadaequal shares)

Advantages of musyarakah

7. Effective decision making

1. Easy to establish

9. Mutual decision8. Risk transfer

4. Cost effective 5. Combination of skills

6.Ability to rise funds

2. Best use of resources 3. flexibility

disadvantages1. Joint and several

liabilities of partners 2. Conflict of profits

4. Death partner 5. Limit the extent of the company

7. Unlimited liability 8. Handling

6. Dependence of decision

9. Inexperienced management

3. Conflicts in decision makings

Types of partnersActive

partners

Sleeping/silent

partners

Salaried partners

Dormant partners

Senior partners

Major partners

Quasi partners

New partners

12 Types of partners

Retiring partners

Nominal partners

Minor as a partners

Power and rights of partners1. Sell the mutually owned the property since all partners are representing

each other in shirkah and have the rights to buy&sell for business purposes

2. Buy raw material on cash or credit using funds belonging to shirkah put into business

3. Hire people to carry out business if needed4. Deposit money & goods of business as depositor trust where and when

necessary 5. Use shirkah’s fund or goods in mudharabah6. Giving shirkah’s fund as hiba(gift) or loan.

pillars of musyarakah contract (agreement-gabul) also called sighah Two parties to the contract(‘aqidani)-acquire skills to do the management of propertyObject aqad also called ma’qudalaihi( letter agreement) capital or employment.

Rules of distribution the profits

The ratio of profit each partner must be determined in proportion to the actual profit accrued to the business and not in proportion to the capital invested by him.Not allowed to fix a lump sum amount for anyone of the partners or any rate of profit tied up with his investment.If both partners agree that each will get percentage of profit based on his capital percentages, whether both work or not, it is allowed.Allowed that if an inventor is working, his profit share (%) could be more than his capital base (%) irrespective whether the other partner is working or not.Partner has put an express condition in the agreement he will not work for the musyarakah and will remain a sleeping partner throughout the term of musyarakah, then his share of profit cannot more than the ratio of his investmentAllowed that if partner is not working, his profit share can be established as less than his capital assets.If both are working partners, the share of profit can differ from the ratio of investment.

Rules of distribution the loss‘loss is distributed exactly according to the ratio of investment and the profit is divided according to the agreement of the partner’

Basic rules of musyarakahQuantified ( ma’loom) : how muchSpecified (muta’ayaian) : specified currencyNot necessarily be merged : the mixing of capital is not requiredNot necessarily be in liquid form: capital share may be contributed either in cash/liquid or in the form of commodoties.

Musyarakah mutanaqisahCustomer share

capital$10 000

10%

Bank share capital$90 00

90%

MUSYARAKAH MUTANAQISAH

PARTNERSHIP(MMP)

The MMP invests the $10 000 capital in the Al-ijarah

rental business

houseMonthly ijarah

payment $800

Actual rental value $500

Share purchase Customer share purchase

$300

Bank-90%Profit-$450

Customer-10&Profits-50%

Increase customer’s

shareholding

Reduce bank’s shareholding