AL-MUSHARAKAH

ISB 54O PREPARED BY: MUHAMMAD YUSRI BIN YUSOF @ SALLEH PAIZ BIN HASSAN Centre For Islamic Thought And Understanding, Perak UiTM

OBJECTIVES
Objectives: After completing this chapter, students should be able to: 1. Understand the concept of Al - Musyarakah in Islamic Muamalat 2. Differentiate several categories of Musyarakah in Islamic Muamalat . 3. Apply their understanding to modern business practices.

DEFINITION

Literally: Intermingling of properties whereby one cannot be differentiated from the other.

Technically: A form of partnership where two or more persons combine either capital or labor or creditworthiness together to carry on a business venture on condition that they will share the profits, enjoying similar rights and liabilities. 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 he will not be deemed a partner. Each partner may dissolve the partnership at his/her pleasure provided he gives ample notice for the others.

EVIDENCE ON THE LEGITIMACY OF MUSYARAKAH

AL-SUNNAH
Reported by Abi Hurairah R.A that the Prophet S.A.W said: Allah had said that: I am the third of the partners, as long as any one of them does not betray the other. If he/she does betray the other, I will withdraw (move away) from them.} Reported by As Saib Al Makhzumi R.A that he used to be a partner of the prophet S.A.W (in business) before his prophet-hood. During the opening of Mecca he said to the prophet S.A.W: Welcome my brother and partner!}

PILLARS OF MUSYARAKAH

Syuraka: Shareholders Rasul Mal: Capital Mashru: Project or business venture Ribh: Pre-determined Profit allocation Sighah: Offer And Acceptance

CATEGORIES OF MUSYARAKAH

The Muslim jurists had categorized Musyarakah into several different categories according to the nature of relationship between partners as well as taking into consideration the amount and type of share contributed by all the shareholders. These categories could be categorized as follows:

SYARIKAH AL INAN
Literally: The device to control the riding animal (inan) Technically: an arrangement whereby 2 or more persons contribute to the capital with their property for the purpose of trading with the joint capital, the profit of which, shall be shared among the partners. It is a limited investment partnership whereby each partner may only transact with the partnership capital according to the terms of the partnership agreement and to the extent of the joint capital. The partners act as agents but not sureties/guarantor of their colleagues Profit and losses will be shared according to the partners contribution to the capital

SYARIKAH AL ABDAN
A partnership between two or more partners whereby all partners will collect all the proceeds of their workings into a common pool of money or joint account. They will later divide the total proceeds or income among themselves equally without taking into consideration of their previous share of contribution. Partnership investments consist fully or mainly of the works and skills of partners example: partnership between tailors, fashion designers, hairstylists etc

SYARIKAH AL WUJUH
A partnership reputation. based on creditworthiness and

Credit and reputation alone is used for partnership investment There is no capital and partners buy and sell property on their own personal credit standings. The partners will purchase properties using the Buy Bithman Ajil concept or other deferred payment concepts, and resell it back at a profit margin. The proceeds will be divided among themselves.

CONDITIONS OF MUSYARAKAH
Musyarakah could be conducted among individuals or corporate bodies. Capital must be in a form of cash or any item that has commercial value in the market. The Capital must be mixed to be a joint property without having to differentiate what could be the property of any of the partners. the proportion of capital must not be equal among all the shareholders since it can differ according to their capability to contribute to the partnership. Every shareholder has the right to transfer their shares to a third party.

The distribution of Profit must be decided in the agreement and it is based on an agreed proportion among the partners involved. The Loss would be borne by every shareholders in the company according to the shares of capital. The venture must be a legitimate and legal venture according to the principles of investment in Islamic Muamalat.

MODERN APPLICATION
Letter of Credit based on Musyarakah The customer inform bank of his LC requirement and negotiates the term of al-Musharakah financing for his requirement. The customer places with the bank a deposit for his share of cost of goods to be purchased/imported as pre al-Musharakah agreement which the bank accept under the principle of al-Wadiah Yad Dhamanah.

The banks establishes the LC and pays the proceeds to negotiating bank utilising the customers deposit as well as its own shares of financing, subsequently releases the document to the customer. The customer takes possession of the goods and disposes these of in the manner agreed in the agreement. The bank and customer share in the profit from the venture as provided for the agreement.