Fiqh of Islamic Finance. Musharakah. Shirkah (partnership): It literally means sharing. The sharing may be of money, labor, or anything else. The prophet (SAW) said, “People are partners in three [things]: water, herbage, and fire.”
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This kind of Shirkah may come into existence in two different ways.
This kind of Shirkah exists in three types:
The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him.Basic Rules of MusharakahDistribution of profit
Sharing of Loss
In the case of loss each partner shall suffer the loss exactly according to the ratio of his investment. If a partner has invested 40% of the capital, he must suffer 40% of the loss, not more, not less.
Most of the Muslim jurists are of the opinion that the capital of a joint venture must be in monetary form, no part of it can be contributed in kind. Except in the opinion of Imam Malik who said that it is permissible for a partner to contribute to the musharakah in kind.
Al mudarabah al muttaqah (unrestricted mudarabah): where rabb-ul-mal leaves the door open for the mudarib to undertake whatever business he whishes, the mudarib shall be authorized to invest the money in any business he deems fit.Types of Mudarabah
It is necessary for the validity of mudarabah that the parties agree right at the beginning on a definite proportion of the actual profit to which each one of them is entitled. They can share the profit in equal proportions, and they can also allocate different proportions for the rabb-ul-mal and the mudarib.
If all the assets of the mudarabah are in cash form at the time of termination,
and some profit has been earned on the principal amount, it shall be distributed between the parties according to the agreed ratio.
If the assets of the mudarabah are not in cash form, the mudarib shall be given an opportunity to sell and liquidate them, so that the actual profit may be determined.Termination of Mudarabah
A contract of mudarabah normally presumes that the mudarib has not invested anything to the mudarabah. He is only responsible for the management, while all the investment comes from the rabb-ul-mal. Sometimes the Mudarib wants to invest some of his money into the business of the mudarabah, in such case the musharakah and the mudarabah are combined together.
A gives B $100,000 in a contract of mudarabah. B then added $50,000 with the permission of A. This type of partnership will be treated as a combination of musharakah and mudarabah. The mudraib is a sharik, so he gets s a certain percentage of profit on account of his investment as a sharik and another percentage for his management and work as a mudarib.
Definition of Murabahah:
Definition of Aqd al-Ijarah:
The only difference between Ijarah and sale is that in the sale case the corpus of the property is transferred to the purchaser. While in the case of Ijarah the corpus of the property remains in the ownership of the transferor, and only its usufruct, the right to use it, is transferred to the lessee.Ijarah (hire)