Musharakah Progression

The purpose of this Shariah parameter for Musharakah is to provide a reference on the
nature and features of the contract to the Islamic financial services industry, for the various
financial instruments including Musharakah financing, Musharakah investment and
Musharakah Mutanaqisah. This parameter is endorsed by the Shariah Advisory Council of
Bank Negara Malaysia (Central Bank of Malaysia). Specific definition and guidelines on the
basis of legitimacy in adopting the Musharakah contract are described to facilitate the
understanding of the Shariah contract requirements. The features identified in this parameter
shall serve to assist the Islamic financial services industry to identify, understand, apply and
distinguish the contract from other contracts prevalent in the industry.
The features identified and described in this parameter are extracted from the text of
fatwas opined by Shariah boards or committees of financial authorities and financial
institutions. The features outlined in this parameter may serve as general guidance for the
application of Musharakah contract. Any practice by the Islamic financial institutions (IFIs)
which are not specified in the parameter may be conducted as long as it does not contradict
the features outlined in the parameter.
This parameter also takes into consideration pertinent mechanisms and contracts such
as Ijarah, Wad, Wakalah, Kafalah and Rahn where relevant. These are identified as
secondary features mentioned in this parameter. The scope of the parameter is confined to the
Musharakah contract as endorsed by the Shariah Advisory Council of Bank Negara Malaysia
and adopted by the Islamic financial institutions under the purview of Bank Negara Malaysia.
Increasing debate is taking place within the Islamic finance industry regarding the
nature and characteristics of financial instruments which seek to comply with the principles
of Shariah. This debate has resulted in mainstream Islamic finance products being classified
by some as either Shariah compliant or Shariah-based. Shariah compliant products are said
to be those products which mimic their conventional counterparts by making necessary
cosmetic changes to satisfy Shariah sensitivities. Shariah-based products, on the other hand,
are said to be those which seek to observe the real spirit of Shariah and are observant of
Shariah principles in substance.
Musharakah is the practice whereby the customer and bank merge their own capital to
obtain desirable things that is needed. In this situation, neither of the both parties are boss to
each other. The customer and bank itself are the partners for themselves. They share their
own capital as to possess things that are desired. In this develop era of technologies,
musharakah always been revised by many parties as it really useful to obtain thing in a short
period. This will eventually increase the number of properties that Malaysian people possess
but gradually increase the number of debtors in Malaysia.
For an example, in order to possess a house, customer must have the initial capital and
ask the bank to support the customer finance to ensure the house to be obtained. In addition,
customer that is partner to the bank will need to pay the bank what is the amount that the
bank support. Usually, the ratio for the payments is 2:8. 2 is represent by the customer and 8
is represent by the bank. Customer need to pay all the partners money to fully have the power
and authority towards the house. Usually, it calculated monthly to make the payments easier.
However, a number of transactions that have been structured using recently developed
Musharakah financing techniques have been categorised by some as being Shariah
compliant and it has been argued that only products based on classical principles of
Musharakah are Shariah-based. To determine the correctness of these categorisations, one
must have a general understanding of the concepts of Musharakah, and in particular the
categories of Shirkat al Aqd (contractual partnership), Shirkat al Milk (co-ownership) and
Musharakah Mutanakisa (diminishing Musharakah).