Musharakah is an Islamic financing structure that is an alternative to interest-bearing loans. It allows parties to share profits and risks of a business venture, with the ratio of profit distribution determined in advance. There are several types of Musharakah partnerships depending on the nature of contributions and shares. The key principles are that losses are shared based on capital contribution ratios, while profit shares can be predetermined but not based on capital amounts. An example shows how capital contributions and profit shares are calculated for a project co-financed by an Islamic bank and customer.

1. AL. MUSHARAKAH
‫ا‬‫لمشاركة‬
Abdulahi Abukar “
ABAJEY”

2. Abdulahi Abukar “
ABAJEY”

3. Musharakah Concept
• Musharakah a joint venture is a joint
enterprise or partnership structure with
profit/loss sharing implications that is
used in Islamic finance instead of
interest-bearing loans.
Musharakah allows each party involved
in a business to share in the profits and
risks. Mushasrakah is also known as (al-
sharikah ‫.)شركاه‬
Abdulahi Abukar “
ABAJEY”

4. NATURE OF MUSHARAKAH
• It is basically a profit and loss sharing partnership,
whereby the ratio for the distribution of profits
must be determined and specified in advance.
• If one partner is to be paid a fixed remuneration
(reward) he will not be deemed a partner.
• Each partner may dissolve the partnership, at
his/her types pleasure provided he gives ample
notice for the others.
Abdulahi Abukar “
ABAJEY”

5. ‫الحديث‬
‫الرسول‬ ‫يقول‬
‫الكريم‬( :‫أنا‬
‫الشريكي‬ ‫ثالث‬‫ن‬
‫يخن‬ ‫لم‬ ‫ما‬
‫اآلخر‬ ‫أحدهما‬
‫خانه‬ ‫فإذا‬
‫من‬ ‫خرجت‬
‫بينهما‬"‫رواه‬
‫داوود‬ ‫أبو‬
AL SUNNAH
Abdulahi Abukar “
ABAJEY”

6. PILLARS OF MUSHARAKAH
1. Shuraka’ (Shareholders).
2. Ra’sul Mal (Capital).
3. Mashru’ (Project or business venture).
4. Ribh (Pre-determined profit allocation).
5. Sighah Ijab (Offer) Qabul (Acceptance ).
Abdulahi Abukar “
ABAJEY”

7. Flows Of Mushrakah
Shurukah
Shareholders
Shurukah
Shareholders
Ijab
&
qubul
Rasu’mal
Capital
Riba
Predator
mind
profit
rate
Mashru’
Project
Profit
profit
Abdulahi Abukar “
ABAJEY”

8. Basic Structure of Musharaka
• The customer approaches the Bank with the
request for Project/Machinery/House financing
• The Bank enters into a Musharakah (Joint
Ownership) agreement with the customer and
both of them pay their respective shares to the
seller of the asset.
• Client promises to purchase Bank’s share (units)
over the tenure of transaction with the help of
Undertaking to Purchase
Abdulahi Abukar “
ABAJEY”

9. Con…
• Customer pays rent for the
use of banks share in the
property
• Client purchases the units
every month via a separate
offer & acceptance every
month and will eventually
become the owner of the
property.
Abdulahi Abukar “
ABAJEY”

10. TYPES OF MUSHARAKAH
1. Sharikah al milk (ownership partnership).
2. Sharikah al-’aqd (contractual partnership).
3. Sharikah al amwal (capital).
4. Sharikah al mufawadhah (equal share ).
5. Sharikah al-inan (general).
6. Sharikah al-a’mal (labour).
7. Sharikah al wujoob (good will).
Abdulahi Abukar “
ABAJEY”

11. TYPES OF MUSHARAKAH
 SHARAKAH AL MILK
 Joint ownership of two or more persons in a particular
property .
 Optional ownership – based on own option
 Compulsory ownership – automatically exists
 SHARAKAH AL’UQUD
 A partnership effected by a mutual contract or a joint
commercial enterprise
 Partnership in capital
 Partnership in labour
 Partnership in goodwill
 Profit sharing partnership Abdulahi Abukar “
ABAJEY”

12. • Cont…
Sharakat
Al Inan
Sharakat Al
Mufawadhah
Sharakat
Al A’mal
Sharakat
Al Wujoob
A partnership of two or more to contribute the
capital to finance a project and to share the
profit between them.
An equal partnership between two or more, where each
contributes the same amount of capital and to share the
same amount of profit and work.
A partnership of two or more to contribute
their skill and experience.
A partnership of two or more without
contributing capital.
Abdulahi Abukar “
ABAJEY”

13. SHARIKAT AL-INAN (general).
It is a partnership where two or more parties
share the capital and the profit.
In this type of partnership, equality in the capital,
management, or in the distribution of profit is
not a condition.
One of the partners may contribute more to the
capital than the others.
It is the most important form of partnership and
close to the modern concept of business
partnership.
Abdulahi Abukar “
ABAJEY”

14. SHARIKAT AL-MUFAWADHA
(equal share ).
Al-Mufawadha literally means equality or delegation.
Technically it refers to a partnership where two or
more persons become partners in a venture on the
condition to equally contribute to the capital and
management.
In this partnership all parties equally contribute to
the capital and management. They also equally share
profit or losses.
A partner is responsible for the actions of other
partners. An undertaking by one of the partner link
all other partners provided it has been made in the
ordinary course of business.Abdulahi Abukar “
ABAJEY”

15. SHARIKAH AL-A’MAL (labour).
It refers to a type of partnership where two or more
partners agree to work in partnership and share
their earnings.
This partnership has no monetary capital.
All partners jointly agree to leave some services for
their customers, and the fee charged from them is
distributed among the partners according to an
agreed ratio.
For e.g. if two tailors agree to undertake joint
services for their customers on the condition that
the wages earned will go to a joint pool which shall
be distributed between them irrespective of the
volume of the work each partner has actually done.
Abdulahi Abukar “
ABAJEY”

16. SHARIKAH AL-WUJOOB
(good will).
Wujoob refers to goodwill, creditworthiness, and
good reputation.
two-sided agreement between two or more parties
to conclude a partnership to buy asset on credit on
the basis of their reputation for the purpose of
making profit.
Both parties do not contribute any capital. They
purchase commodities at a late price and sell them
for cash.
The parties should determine the percentage of
profit-sharing and of liability sharing.
Abdulahi Abukar “
ABAJEY”

17. Basic rules of distribution of Profit
1. The ratio of profit for each partner must be
determined in share to the actual profit
accrued to the business and not in amount to
the capital invested by him
2. If both partners agree that each will get
percentage of profit based on his capital
percentage, whether both work or not, it is
allowed
Abdulahi Abukar “
ABAJEY”

18. Basic rules of distribution of Loss
1. Loss is distributed exactly according to the
ratio of investment and the profit is divided
according to the agreement of the partners
2. the loss is always subject to the ratio of
investment e.g. if ‘A’ has invested 40% of the
capital and ‘B’ 60%, they must suffer the loss
in the same ratio, not more, not less.
Abdulahi Abukar “
ABAJEY”

19. Basic rules of Capital
The capital in a Musharakah agreement should
be:
1. Quantified (Ma’loom): Meaning how much etc.
2. Specified (Muta’aiyan): Meaning specified
currency etc.
3. Not necessarily be merged: The mixing of capital
is not required.
4. Not necessarily be in liquid form: Capital share
may be contributed either in cash/liquid or in the
form of commodities.
Abdulahi Abukar “
ABAJEY”

20. Example
• Customer request financing for a fixed
Asset costing . $300 million.
• . Islamic Bank agrees to provide financing
up to 90% of the cost. And the rest is the
Customer provide the customer.
Calculate How much they pay each of
them?
Abdulahi Abukar “
ABAJEY”

21. Example
• Three partnership agree to confirm to a water
supply project on the initial project they need
$10,340 each partner take his responsibility to
this project as well as to contribute on his
capital. For example
• Ahmed capital 40% on the real amount,
• Omer capital is 17% on the real amount, while
• Yusuf capital is 43% on the real amount .
Abdulahi Abukar “
ABAJEY”

22. Cont..
Requirements:
Calculate the each partner profit ratio on the
initial capital, if the profit of the project
$3,478.
A.Calculate the ratio of the capital in each
partner.
B. Calculate the profit ratio of each partner if
ahmed has taken 15% ,omer also taken 7%
and Raaqiya has taken 17% on the profit
margin.
Abdulahi Abukar “
ABAJEY”

23. Quick Check
1. What is Musharakah?
2. What are the nature of Musharakah
3. What are types of Musharakah
4. What is a basic rules of profit and lost
distribution?
5. Three partners agreed to share a project,
the cost of that project is $250,000.
a. Partner a capital is 31%
b. Partner B capital 25%
c. Partner C capital is 12%
Abdulahi Abukar “
ABAJEY”