Introduction

Musharakah

Meaning
Sharing of actually earned profit.

Difference Between modern economic system and Islam.

Capitalism
Interest' predetermines a fixed rate of return on a loan advanced by the financier irrespective of the profit earned or loss suffered by the debtor.

Islam
Return on Musharakah is based on actual profit.

Capitalism
The financier in interest bearing loan cannot suffer loss. Injustice either to the creditor or to debtor e.g. if debtor suffers loss he must have to pay fixed rate of interest that is injustice to debtor and if gets high profit injustice to creditor.

Islam
The financier in Islam can suffer loss. There is no injustice to both parties as profit and losses are equally shared.

Example
Suppose industrialist in modern economy have only 10 % of his own profit and borrows 90% from banks and embark on a huge profitable project that means 90 % of the money has been created from the money of depositors. Out of which only 8% to 9 % will go to depositor that is injustice to them.

Discussion
Musharakah has tendency to favor the common people rather then the rich only. But Musharakah embodies number of practical problems in its full implementation as a universal mode of financing. As it is sometimes presumed that Musharakah in an old instrument which can not deal with everadvancing need of speedy transaction. however, this presumption is due to lack of knowledge. In fact, Islam has not prescribed any specific procedures for Musharakah.

Conclusion
Rather, it has set some broad principles which can accommodate different form of procedures. therefore, a new form of Musharakah can not be rejected as that is acceptable in shariah as it doesnt violate Quran and Sunnah.

Concept of Musharakah
Shirkah

Shirkat-ul-Aqd

Shirkat-ul-milk

Shirkat-ul-wajooh

Shirkat-ul-Amal

Shirkat-ul-Amwal

Optional

Compulsory

Origin of Musharakah
This term is referred to in the context of Islamic modes of finance. But this term is rather limited in meaning then the term Shariah which is more commonly used in Islamic Jurisprudence. This term Musharakah is being originated from Shariah which means sharing and the terminology is used in Islamic Fiqh.

Shirkah
Which means sharing It can be divided into following types

1.Shirkat-ul-Milk Which mean joint ownership of more persons in a particular property. It may come into existence in two different ways such as

1. Optional :If two persons purchase an equipment they both will be the owners of that property as they have selected it at their own option. 2.Compulsory :Where shirkah comes into operate automatically e.g. after the death of a person his heirs inherits his property.

2. Shirkat-ul-aqd This is second type of shirkah. Define :-A partnership effected by a mutual contract. It can also be known as joint commercial trade.

Types of Shirkat-ul-Aqd

1.Shirkat-ul-Amwal Where all the partners invest some capital into a commercial enterprise.

2. Shirkat-ul-Amal (shirkat-ut-taqabbul or shirkatus-sanaI or shirkat-ul-abdan)

Where all the partners jointly undertake to render some services for their customer. Charge them a fee for the services provided. Distribute the fee earned among all partners according to an agreed ratio irrespective of the size of the work each partner has actually done. Example:- Tailoring

3. Shirkat-ul-wajooh
No investment at all. Purchase commodities on a deferred price and sell them at spot. The profit so earned is distributed at an agreed ratio.

From where this Musharakah term came?

There is no word like Musharakah in Islamic fiqh, that has been introduced recently by those who have written on the subject of Islamic modes of finance. That is normally restricted to a particular type of shirkah ,that is , the shirkat-ul-amwal. However, sometimes it includes shirkat-ul-amal as well. So, two kinds of Shirkah are given the name of Musharakah.

The basic rules of Musharakah

Established by the parties under Mutual contract. It should be a valid contract. The contract must be based on free consent of the parties.

Certain rules of contract under Musharakah are discussed here

Distribution of profit: the proportion of profit to be distributed between the partners must be agreed upon at the time of effecting the contract else the contract will not be considered as a valid contract in Shariah. The ratio of profit for each partner must be determined in proportion to the actual profit and not to the capital invested by him. Fixing of lump sum amount or any rate of return is not allowed. If any rate or amount of return is fixed, it will be treated as credit on that person either will be recovered from the actual profit earned or settlement of credit.

Three views of ratio of profit

First view: - According to Imam Malik And Imam Shafi each partner must gets the profit exactly to the proportion to his investment. Second view: - According to Imam Ahmad ratio of profit may doffer from ration of investment if it is agreed between the partners with their free consent. Third view : - According to Imam Abu Hanifah the ratio of profit may differ from the ration of investment but in case of sleeping partner ratio of profit can not be more then his investment. This view is considered as via media between the two opinions mentioned above.

Sharing of loss
All the Muslim jurists are unanimous on the point that all partner shall suffer the loss exactly according to the ratio of their investment.

Management of Musharakah
Every partner has a right to take place in management. Any one among the partners can also be given the responsibility of management. Sleeping partner will get profit in proportion to his investment. All the partners can manage the business but will be treated as agents for each other.