Musharika

(redirected from Musharikah)

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 ?
Another possibility is to sign fresh contracts on the existing loans on the basis of Islamic modes of financing such as mudharaba, musharikah, leasing and so on, for the remaining period of the loan contract.
There are two specific terms that define profit and loss relationship between the borrowers and the lenders, Musharikah and Mudarabah.
Musharikah (equity participation or limited partnership) refers to a financial system in which profits and losses are shared by the borrowers and the lenders.
In mid-1984 the central bank announced twelve "Islamic" modes of finance comprising mark-up, mark-down, buy-back, leasing, hire-purchase, development charge, musharikah, equity, participation term certificates, rent-sharing, qard al-hasan, and service charge.