ISLAMIC BUSINESS TRANSACTION

Y
CHAPTER FOURTEEN

MUSHARAKAH

MAHYUDDIN KHALID Y emkay@salam.uitm.edu.my

 ]


Y DEFINITION
DEFINITION Y EVIDENCE
Y PILLARS OF MUSHARAKAH
EVIDENCE Y CATEGORIES OF MUSHARAKAH
Y CONDITION OF MUSHARAKAH
CATEGORIES Y MODERN APPLICATION

CONDITIONS

DISSOLUTION

MUSHARAKAH
MUTANAQISAH

×
 à


Y Musharakah is also known as al-sharikah (a
ë
DEFINITION
Y Literally:
EVIDENCE 0 Intermingling of properties whereby one cannot be
differentiated from the other
CATEGORIES 0 Mixing of two properties so that they could not be
distinguished from each other
CONDITIONS Y Technically:
0 A form of partnership where two or more persons
DISSOLUTION
combine either capital or labor or creditworthiness
MUSHARAKAH
together to carry on a business venture on
MUTANAQISAH
condition that they will share the profits, enjoying
similar rights and liabilities.

D

 
 
Y It is basically a profit and loss sharing partnership
DEFINITION
whereby the ratio for the distribution of profits must
be determined and specified in advance
EVIDENCE
Y If one partner is to be paid a fixed remuneration he
CATEGORIES
will not be deemed a partner
Y Each partner may dissolve the partnership at his/her
CONDITIONS pleasure provided he gives ample notice for the
others.
DISSOLUTION

MUSHARAKAH
MUTANAQISAH

-
 à
]
Y Hadith:
DEFINITION
0 Reported by Abi Hurairah R.A that the Prophet
S.A.W said ´Allah had said that: ´I am the third of
EVIDENCE
the partners, as long as any one of them does not
CATEGORIES
betray the other. If he/she does betray the other, I
will withdraw (move awayë from themµ
CONDITIONS 0 Reported by As²Saib Al²Makhzumi R.A that he
used to be a partner of the prophet S.A.W (in
DISSOLUTION businessë before his prophet-hood. During the
opening of Mecca he said to the prophet S.A.W:
MUSHARAKAH
MUTANAQISAH
´Welcome my brother and partner!µ

ü
 ë 
 
1. Shuraka·
DEFINITION 0 Shareholders
×. Ra·sul Mal
EVIDENCE 0 Capital
D. Mashru·
CATEGORIES 0 Project or business venture
-. Ribh
CONDITIONS
0 Pre-determined profit allocation
ü. Sighah
DISSOLUTION
0 Ijab (Offerë
MUSHARAKAH
0 Qabul (Acceptance ë
MUTANAQISAH

A
   
 

Profit
DEFINITION

EVIDENCE

Shuraka·
CATEGORIES (Shareholdersë
Ribh
Ijab & Qabul
Ra·sul-Mal (Predeter
CONDITIONS mined Mashru·
(Capitalë
profit (Projectë
Shuraka· rateë
DISSOLUTION (Shareholdersë

MUSHARAKAH
MUTANAQISAH

Profit

7
 ]  
 

DEFINITION Sharikat al- ‡ A partnership of two or more to contribute the

capital to finance a project and to share the profit
Inan between them.
EVIDENCE

CATEGORIES
Sharikat al- ‡ A partnership of two or more to contribute their
skill or craft.
Abdan
CONDITIONS

Sharikat al- ‡ A partnership of two or more without contributing

DISSOLUTION capital.
Wujuh
MUSHARAKAH
MUTANAQISAH

Sharikat al- ‡ An equal partnership between two or more, where

each contributes the same amount of capital and to
Mufawadah share the same amount of profit and work.

8
   à

Y It refers to a type of partnership where two or more partners
DEFINITION agree to work in partnership and share their earnings.
Y For instance shoe-makers, tailors, barbers, lawyers, physicians,
EVIDENCE dentists, and accountants may enter into Sharikah al-Abdan.
Y The partners contribute their skills and efforts without
CATEGORIES contributing to the capital.
Y All partners jointly undertake to render some services for their
customers, and the fee charged from them is distributed among
CONDITIONS
the partners according to an agreed ratio.
Y For e.g. if two tailors agree to undertake joint services for their
DISSOLUTION
customers on the condition that the wages earned will go to a
joint pool which shall be distributed between them irrespective
MUSHARAKAH
MUTANAQISAH of the volume of the work each partner has actually done.

´
   
Y Wujuh refers to goodwill, creditworthiness, and good reputation.
DEFINITION Y Creditworthiness and reputation as a form of wealth.
Y Partnership upon credit is where two persons who do not
EVIDENCE contribute any property, become partners by agreeing to
purchase goods jointly upon their personal credit (without
CATEGORIES immediately paying the priceë and to sell them on their joint
account.
Y Both partners do not contribute any capital. They purchase
CONDITIONS
commodities at a deferred price and sell them for cash.
Y Partner may equally share the profit. It is also possible that one of
DISSOLUTION
the partners may own a greater share of the goods than the
others.
MUSHARAKAH
MUTANAQISAH Y In this case the profit will be distributed based on their shares in
the goods bought. The same would apply to losses. They may
also distribute the profit among them based on an agreed ratio.

10
   
à
Y Al-Mufawadha literally means equality or delegation.
DEFINITION Y Technically it refers to a partnership where two or more persons
become partners in a venture on the condition to equally
EVIDENCE contribute to the capital and management.
Y In this partnership all parties equally contribute to the capital
CATEGORIES and management. They also equally share profit or losses.
Y All the partners should be Muslims.
CONDITIONS Y Each partner is an agent as well as a surety or a guarantor for the
other partners.
DISSOLUTION
Y A partner is liable for the actions of other partners. An
undertaking by one of the partner binds all other partners
MUSHARAKAH
provided it has been made in the ordinary course of business.
MUTANAQISAH

11
   


Y It is a partnership where two or more parties share the capital
DEFINITION and the profit.
Y In this type of partnership, equality in the capital, management,
EVIDENCE or in the distribution of profit is not a condition.
Y One of the partners may contribute more to the capital than the
CATEGORIES others.
Y It is also allowed that one or more of the partners may manage
the partnership while the rest may not participate.
CONDITIONS
Y Partners are considered agents for each other whereby an action
done by one of them in the ordinary course of business binds
DISSOLUTION
other partners.
MUSHARAKAH
Y However, partners are not guarantors for each other.
MUTANAQISAH Y Their liabilities towards third parties are several and not joint.
Each partner is liable to the extent of his contribution to the
capital.

1×
 ]
à
 
 
Y 
 
 

  

DEFINITION 1. The shareholders and partners must be qualified person to
appoint an agent or to be appointed as an agent under the
EVIDENCE principle of al-Wakalah. Each shareholder is considered as a
joint owner of the company and has a right to run the
business for him and other shareholders when appointed as
CATEGORIES
an agent.
×. Al-Musyarakah i.e. partnership and company based
CONDITIONS
business can be made between individuals or organizations.

DISSOLUTION

MUSHARAKAH
MUTANAQISAH

1D
 ]
à
 
 
Y 
 
  
DEFINITION 1. The capital must be cash or things that can be valued by
money.
EVIDENCE ×. The capital must be pooled together and are not segregated
so that it cannot be identified the owner of actual share.
CATEGORIES D. The amount of share is not determined to be of the same.
-. The shareholder can transfer his share to other person.
CONDITIONS ü. The contract of al-Musharakah can be terminated to become
a contract of ownership. As for example, a Bank has agreed
DISSOLUTION
to finance to project together with a housing developer. At
the time when the project has completed, the bank can sell
MUSHARAKAH
his share to the developer so that it will become a sole owner
MUTANAQISAH of the property.

1-
 ]
à
 
 
Y 
 



DEFINITION 0 The project must be lawful according to Islamic law, i.e. it
must be halal. The term ´shariah complianceµ is widely used
EVIDENCE in current situations.
0 The evaluation for works carried out by the partners is made
CATEGORIES on individual basis, but to be putted together so that the
profit can be divided among them.
0 The shareholder can designate the work to one of them and it
CONDITIONS
can be considered as a specified term or condition of the
contract.
DISSOLUTION
0 The appointed shareholder who carried out the project is held
responsible under the principle of Yad Amanah (trustë. In the
MUSHARAKAH
MUTANAQISAH case of his negligence he is held responsible for compensation
under the principle of Yad Dhamanah (guaranteeë.

1ü
 ]
à
 
 
Y 
 

DEFINITION 1. The shareholders must agree to a specific ratio for profit
sharing upon execution of the contract.
EVIDENCE ×. Loss sharing, except in the case of deceit or negligence, is
according to percentage of shareholding.
CATEGORIES

CONDITIONS

DISSOLUTION

MUSHARAKAH
MUTANAQISAH

1A
 à 

 
1. When a partnership fulfils its obligation or when its duration is
DEFINITION expired.
×. By mutual consent of the parties.
EVIDENCE D. By a request made by one of the parties which is subsequently
approved by other parties.
CATEGORIES -. By death or incapacity of one of the parties whose heirs or their
guardian decide to discontinue the partnership.
CONDITIONS ü. The bankruptcy of the partners.

DISSOLUTION

MUSHARAKAH
MUTANAQISAH

17

 


Y Definiton:
DEFINITION 0 Two or more partners purchase any asset (machinery,
property, etc.ë and their intention is that one or both partners
will use this asset or rent out their share and one partner
EVIDENCE
undertakes to purchase the share of other gradually
Y A form of Musharakah where the financier and the client
CATEGORIES participate in a joint commercial enterprise or property. This
enterprise is converted into undivided ownership of both the
financier and the client. Over certain period the equity of
CONDITIONS
financier, divided into equal value units, is purchased by the
client. And ultimately the client becomes the sole owner of the
DISSOLUTION enterprise
Y Application of Musharakah Mutanaqisah:
MUSHARAKAH 0 Home financing
MUTANAQISAH
0 Agricalture Machinery and implements financing
0 Storage facility construction/sheds
0 Transport vehicles, etc.
18
 
à  ]ë

DEFINITION

EVIDENCE

CATEGORIES

CONDITIONS Y
DISSOLUTION

MUSHARAKAH
MUTANAQISAH

1´