Musharika

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Musharika

A partnership in Islamic finance in which all partners contribute capital. For example, if Joe wants to start a business, he may form a musharika into which he places $20,000. A bank may then contribute $40,000 and split profits with Joe based upon some agreed-upon formula.

Musharikas are important in Islamic finance in part because they are the most straightforward. That is, a musharika does not attempt to imitate a debt product, which is controversial. Rather, it simply involves equity financing by an investor. However, musharikas are difficult to structure in some non-Muslim countries, especially the United States, because some banks are not permitted to make equity financing arrangements.
References in periodicals archive ?
Environment Problems: The matter now boils down to tax structure which has to be modified if true Islamic transactions in the shape of Musharakas have any chance of success.
However, musharaka which is most Islamic of various modes is facing problems primarily due to tax incidence and common practice amongst business community of non-documentation of transactions.