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 ?
It noted banks were favouring Musharika compared to Ijara, which previously used to be preferred mode of Islamic auto financing.
In order to promote and incentivize Islamic Banking, special provisions have been introduced whereby tax neutrality has been accorded in the case of Musharika financing by extending the benefit of depreciation on assets co-owned in the case of a Musharika arrangement.
The business/financing activities currently undertaken by modarabas in Pakistan are ijarah/leasing, morabaha, musharika, trading, equity/portfolio financing and manufacturing /distribution.
27) In a musharika contract both profits and losses are shared based on the parties' participation or at a pre-negotiated ratio.
II) A number of new Ijarah Murabaha and Diminishing Musharika transactions were executed successfully.
Takaful companies can invest in Shari'ah compliant Government Securities, Immoveable property, Joint Stock Companies, Redeemable Capital, Mutual Funds, Musharika Certificates, Term Finance Certificates and Participation Term Certificates etc, he added.
In the last year or so we have introduced Sharia-compliant microfinance, both murabaha [microcredit] and musharika, [comparable to short-term joint-venture financing].
Other types would include Sukuk Al Musharika and two tiered sukuk.
However, to some of us, it will be doubtful Islamic transaction where a musharika finance does not share in the loss of their partners.
Incentives for Islamic Banking- On the recommendation of the State Bank of Pakistan and to promote Islamic mode of Financing tax neutrality for Islamic Banking instruments such as - Musharika , Ijarah, Murabaha as compared with conventional banking is proposed to be provided.
Sindh Modarba Company would be managing a multipurpose modaraba catering to small businessmen interested in availing Shariah-compliant Islamic modes of financing, like: Ijarah Financing, Modaraba Financing, Musharika Financing and Commodity Financing.
In the sphere of interest-free banking and commerce, the government introduced the profit and loss (PLS) accounts, Participation Term Certificates (PTC), Modaraba and Musharika (1981-82).