Rules of Musharakah
Fulfillment of prerequisites of a contract Rules of contribution of equity Rules of profit and loss sharing Management of Musharakah/Relationship of parties Termination of musharakah
Uses of Musharakah:
Agricultural enterprise financing Project financing Working capital financing, etc.
Musharakah
An equity participation contract under which IB and its client contribute jointly to finance an enterprise. Equity is owned according to each party's share in financing. Profit is shared in pre-agreed ratio and loss in proportion to the capital contribution. It is an ideal alternative to the interest-based financing with far reaching effects on both production and distribution.
Musharakah:
The Concept of Musharakah: Meanings: Sharikah Arabic Shirkah Arabic Shirkat Urdu Partnership English Shirkah Definition : commingling money or property (that no share can be distinguished) by two or more parties with an objective of sharing profits and contributing losses"
Wider definition of Shirkatul Aqd: Contract between two or more people for participation in capital and its profits Participation in profits w/o partnership in capital (Mudarabah).
Musharakah:
Distribution of Profit/Loss
The proportion of profit to be agreed at the time of effecting the contract A partner, on the date of distribution, may surrender his part of profit in favor of other partners Fixation of lump sum amount for any partner is not allowed. The ratio of profit to be determined in proportion of the actual profit accrued and not necessarily in proportion to the capital invested The final distribution cannot be made based on expected profit. However, a partner can be given lump sum amount of profit or any proportion of investment provisionally, but the same has to be adjusted according to the agreed ratio at the time of calculation of actual profit.
Musharakah:
Distribution of Profit/Loss In constructive liquidation, assets are valued at market rate, receivables at cash after deducting an allowance for doubtful debts In above case, if no profit is actually earned or is less than anticipated, the amount drawn by the partner shall have to be returned. The ratio of profit may differ from the ratio of investment If a partner has not been declared as sleeping partner, he is entitled to get additional profit above the proportion of his investment, even if he did not work However, the share in profit of a sleeping partner cannot exceed from his proportion of investment Sharing of Loss: Each partner shall suffer the loss exactly according to the ratio of his investment. It is valid that one partner takes the responsibility of loss at the time when loss occurs, without any such prior condition
Islamic Modes Agricultural Financing Diminishing Musharakah (DM): A form of Musharakah where the financier and the client 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 financier, divided into equal value units, is purchased by the client. And ultimately the client becomes the sole owner of the enterprise. Uses of DM
Agric. Machinery and implements financing Storage facility construction/sheds Transport vehicles, etc.
DIMINISHING MUSHARAKAH
Share in capital 2
Share in capital
Partner
Bank
3. Accruing Rentals
(Amount in rupees)
600000
Share of client
Share of Bank No. of units Value of one unit Rent per month
40000
360000 36 10000 4500
End of Month
Rent
Remainin g units
Remainin g balance
0 1 2 3
36 35 34 33
35
36 Total
10250
10125 ??
1
0
10000
0
THANKS