MUSHARAKAH (PARTNERSHIP)
Musharakah (partnership)
Musharakah literally means sharing. In the Islamic finance literature it refers to a joint enterprise in which all the partners share the profit or loss of the joint venture. The financial term is derived from the Islamic legal term “shirkah” with the same literal meaning but having a broader application. In the Islamic fiqh literature shirkah is of two kinds: The first is shirkat-ul-milk which means joint ownership of two or more persons of a particular property which may come into existence either through inheritance or joint purchase. The second kind of shrikah is shirkat-ul-aqd, which means a partnership established through a contract. Such contractual partnerships are usually established for commercial purposes and take several forms such as partnership in the capital of the enterprise, partnership in labour and management, common goodwill or a combination of these elements.
Musharakah as a financial contract refers to an arrangement where two or more parties establish a joint commercial enterprise and all contribute capital as well as labour and management as a general rule. The profit of the enterprise is shared among the partners in agreed proportions while the loss will have to be shared in strict proportion of capital contributions. (more…)
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