1. MAHYUDDIN KHALID  emkay@salam.uitm.edu.my

2. CONTENT
 DEFINITION
DEFINITION
 EVIDENCE
EVIDENCES  PILLARS OF MUSHARAKAH
 TYPES OF MUSHARAKAH
PILLARS
 CONDITION OF MUSHARAKAH
TYPES
 MUSHARAKAH MUTANAQISAH
 MODERN APPLICATION
CONDITIONS
APPLICATION
2

3. DEFINITION
 Musharakah is also known as al-sharikah ( )
DEFINITION
 Literally:
EVIDENCES  Intermingling of properties whereby one cannot be
differentiated from the other
PILLARS  Mixing of two properties so that they could not be
distinguished from each other
TYPES
 Technically:
 An agreement between two or more parties to
CONDITIONS
combine their assets, labor or liabilities for the
purpose of making a profit.
APPLICATION
3

4. NATURE OF MUSHARAKAH
 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
EVIDENCES
 If one partner is to be paid a fixed remuneration he
PILLARS
will not be deemed a partner
 Each partner may dissolve the partnership at his/her
TYPES pleasure provided he gives ample notice for the
others.
CONDITIONS
APPLICATION
4

5. EVIDENCE
 Al-Qur‟an:
DEFINITION
EVIDENCES
PILLARS
TYPES
CONDITIONS
APPLICATION
5

6. EVIDENCE
 Hadith:
DEFINITION
 Reported by Abi Hurairah R.A that the Prophet
S.A.W said “Allah had said that: “I am the third of
EVIDENCES
the partners, as long as any one of them does not
PILLARS
betray the other. If he/she does betray the other, I
will withdraw (move away) from them”
TYPES  Reported by As–Saib Al–Makhzumi R.A that he
used to be a partner of the prophet S.A.W (in
CONDITIONS business) before his prophet-hood. During the
opening of Mecca he said to the prophet S.A.W:
APPLICATION “Welcome my brother and partner!”
6

7. PILLARS OF MUSHARAKAH
1. Shuraka‟
DEFINITION
 Shareholders
EVIDENCES 2. Ra‟sul Mal
 Capital
PILLARS 3. Mashru‟
 Project or business venture
TYPES
4. Ribh
CONDITIONS
 Pre-determined profit allocation
5. Sighah
APPLICATION  Ijab (Offer)
 Qabul (Acceptance )
7

8. FLOWS OF MUSHARAKAH
Profit
DEFINITION
EVIDENCES
Shuraka‟
PILLARS (Shareholders)
Ribh
Ijab & Qabul
Ra‟sul-Mal (Predeter
TYPES mined Mashru‟
(Capital)
profit (Project)
Shuraka‟ rate)
CONDITIONS (Shareholders)
APPLICATION
Profit
8

9. TYPES OF MUSHARAKAH
DEFINITION Sharikah Ikhtiar
Sharikah al-Milk
EVIDENCES
Musharakah (ownership partnership)
Sharikah Jabr
PILLARS Sharikah al-Mufawadhah
(equal share)
Sharikah al-Amwal
(capital)
TYPES Sharikah al-‟Inan
(general)
Sharikah al-A‟mal
CONDITIONS (labour)
Sharikah al-„Aqd
(contractual partnership)
Sharikah al-Wujuh
APPLICATION (goodwill/ credit)
Sharikah al-Mudharabah
(profit-sharing)
9

10. TYPES OF MUSHARAKAH
DEFINITION
SYIRKAH AL MILK
• Joint ownership of two or more persons in a particular
EVIDENCES property
• Optional ownership – based on own option
PILLARS • Compulsory ownership – automatically exists
TYPES SYIRKAH AL „UQUD
CONDITIONS
• A partnership effected by a mutual contract or a joint
commercial enterprise
• Partnership in capital
APPLICATION
• Partnership in labour
• Partnership in goodwill/credit
• Profit sharing partnership
10

11. TYPES OF MUSHARAKAH
DEFINITION
Sharikat • A partnership of two or more to contribute the
capital to finance a project and to share the profit
al-Inan between them.
EVIDENCES
Sharikat • An equal partnership between two or more, where
PILLARS each contributes the same amount of capital and to
al-Mufawadah share the same amount of profit and work.
TYPES
Sharikat • A partnership of two or more to contribute their
CONDITIONS skill or craft.
al-A‟mal
APPLICATION
Sharikat • A partnership of two or more without contributing
capital.
al-Wujuh
11

12. SHARIKAH AL-‘INAN
 It is a partnership where two or more parties share the
DEFINITION capital and the profit.
 In this type of partnership, equality in the capital,
EVIDENCES
management, or in the distribution of profit is not a
condition.
 One of the partners may contribute more to the capital
PILLARS than the others.
 It is also allowed that one or more of the partners may
TYPES manage the partnership while the rest may not
participate.
CONDITIONS
 Partners are considered agents for each other whereby
an action done by one of them in the ordinary course of
business binds other partners. However, partners are not
APPLICATION guarantors for each other.
 It is the most important form of partnership and close to
the modern concept of business partnership
12

13. SHARIKAH AL-MUFAWADHA
 Al-Mufawadha literally means equality or delegation.
DEFINITION
 Technically it refers to a partnership where two or more
persons become partners in a venture on the condition to
EVIDENCES
equally contribute to the capital and management.
 In this partnership all parties equally contribute to the
PILLARS
capital and management. They also equally share profit
or losses.
TYPES
 Each partner is an agent as well as a surety or a
CONDITIONS
guarantor for the other partners.
 A partner is liable for the actions of other partners. An
APPLICATION undertaking by one of the partner binds all other
partners provided it has been made in the ordinary
course of business.
13

14. SHARIKAH AL-A’MAL
 It refers to a type of partnership where two or more
DEFINITION
partners agree to work in partnership and share
their earnings.
EVIDENCES
 This partnership has no monetary capital
PILLARS  All partners jointly undertake to render some
services for their customers, and the fee charged
TYPES from them is distributed among the partners
according to an agreed ratio.
CONDITIONS
 For e.g. if two tailors agree to undertake joint
services for their customers on the condition that the
APPLICATION
wages earned will go to a joint pool which shall be
distributed between them irrespective of the volume
of the work each partner has actually done.
14

15. SHARIKAH AL-WUJUH
 Wujuh refers to goodwill, creditworthiness, and good reputation.
DEFINITION  Bilateral agreement between two or more parties to conclude a
partnership to buy asset on credit on the basis of their reputation
EVIDENCES for the purpose of making profit.
 Both parties do not contribute any capital. They purchase
PILLARS commodities at a deferred price and sell them for cash.
 The parties should determine the percentage of profit-sharing
and of liability sharing.
TYPES
 This form of partnership has no monetary capital.
CONDITIONS
 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.
APPLICATION
15

16. CONDITIONS OF MUSHARAKAH
 The Conditions Of Shareholders And Partners
DEFINITION
1. The shareholders and partners must be qualified
person to appoint an agent or to be appointed as an
EVIDENCES
agent under the principle of al-Wakalah. Each
shareholder is considered as a joint owner of the
PILLARS company and has a right to run the business for him
and other shareholders when appointed as an agent.
TYPES
2. Al-Musyarakah i.e. partnership and company based
business can be made between individuals or
CONDITIONS organizations.
APPLICATION
16

17. CONDITIONS OF MUSHARAKAH
 The Conditions Of Capital
DEFINITION
1. The capital must be cash or things that can be valued
by money.
EVIDENCES 2. The capital must be pooled together and are not
segregated so that it cannot be identified the owner of
PILLARS actual share.
3. The amount of share is not determined to be of the
TYPES
same.
4. The shareholder can transfer his share to other person.
CONDITIONS 5. The contract of al-Musharakah can be terminated to
become a contract of ownership. As for example, a
Bank has agreed to finance to project together with a
APPLICATION
housing developer. At the time when the project has
completed, the bank can sell his share to the developer
so that it will become a sole owner of the property.
17

18. CONDITIONS OF MUSHARAKAH
 The Conditions Of The Project
DEFINITION
 The project must be lawful according to Islamic law, i.e.
it must be halal. The term “shariah compliance” is
EVIDENCES widely used in current situations.
 The evaluation for works carried out by the partners is
PILLARS made on individual basis, but to be putted together so
that the profit can be divided among them.
TYPES
 The shareholder can designate the work to one of them
and it can be considered as a specified term or condition
of the contract.
CONDITIONS
 The appointed shareholder who carried out the project
is held responsible under the principle of Yad Amanah
APPLICATION (trust). In the case of his negligence he is held
responsible for compensation under the principle of
Yad Dhamanah (guarantee).
18

19. CONDITIONS OF MUSHARAKAH
 The Conditions Of Profit
DEFINITION
1. The ratio of profit sharing between al parties should be
determined and mutually agreed at the conclusion of
EVIDENCES
the contract in the form of percentage of profit, not a
sum of money or percentage of capital. This is very
PILLARS important to avoid any element of gharar.
2. Loss sharing, except in the case of deceit or
TYPES
negligence, is according to percentage of shareholding.
CONDITIONS
APPLICATION
19

20. DISSOLUTION OF MUSHARAKAH
1. When a partnership fulfills its obligation or when
DEFINITION
its duration is expired.
EVIDENCES
2. By mutual consent of the parties.
3. By a request made by one of the parties which is
PILLARS subsequently approved by other parties.
4. By death or incapacity of one of the parties whose
TYPES
heirs or their guardian decide to discontinue the
partnership.
CONDITIONS
5. The bankruptcy of the partners.
APPLICATION
20

21. MUSHARAKAH MUTANAQISAH
 Definition:
DEFINITION  Form of partnership in which one of the partners promises
(wa‟d) to buy the equity share of other partner gradually
EVIDENCES
until the title of the equity is completely transferred to him.
 A form of Musharakah where the financier and the client
PILLARS
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
TYPES the equity of financier, divided into equal value units, is
purchased by the client. And ultimately the client
CONDITIONS becomes the sole owner of the enterprise
 Application of Musharakah Mutanaqisah:
APPLICATION  Home financing
 Agriculture Machinery and implements financing
 Storage facility construction/sheds
 Transport vehicles, etc.
21

22. MODERN APPLICATION
 Project financing
DEFINITION
 Import/export financing
EVIDENCES  Working capital financing
 Saving/Current/Investment account
PILLARS
 Interbank lending/borrowing
TYPES
 Securitization
 Sukuk Musyarakah
CONDITIONS
APPLICATION
22

23. END OF CHAPTER
DEFINITION
EVIDENCES
PILLARS
TYPES 
CONDITIONS
APPLICATION
23