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.