Musharakah (Partnership) in Islamic Finance

UAE Laws and Islamic Finance

Musharakah is rooted in the word shirkah or ‘partnership’ in English and refers to a joint-venture agreement between two or more parties to engage in a specified business activity based on profit -and- loss sharing.  

According to Bank Negara Malaysia, Musharakah is a contract between the partners to contribute capital (monetary or non-monetary) to a venture (where in general debt cannot form the capital), whether existing or new, or to an owner of real estate or moveable asset, either on a temporary or permanent basis. Profits generated by that venture,  real estate, or asset are shared in accordance with the terms of the Musharakah agreement, while losses are shared in proportion to each partner’s share of capital.  Also according to Bank Negara Malaysia, it is not permissible to include a condition in a Musharakah contract that stipulates a predetermined fixed amount of profit to one partner, which deprives the…

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