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MUSHARAKAH

MUSHARAKAH. TERMINOLOGY OF MUSHARAKAH. Lexically it means sharing / merging. Technically: Commingling by two or more persons either their money or work or obligations to earn a profit or a yield or appreciation in value and to share the loss if any according to their proportionate ownership.

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MUSHARAKAH

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  1. MUSHARAKAH

  2. TERMINOLOGY OF MUSHARAKAH • Lexically it means sharing / merging. • Technically: Commingling by two or more persons either their money or work or obligations to earn a profit or a yield or appreciation in value and to share the loss if any according to their proportionate ownership.

  3. SHIRKAH SHIRKAT-UL-MILK SHIRKAT-UL-AQD IKHTIARI GAIR IKHTIARI SHIRKAT- UL-AMWAL SHIRKAT- UL-AAMAL SHIRKAT- UL-WUJOOH TYPES OF MUSHARAKAH

  4. FEATURES - SHIRKATUL AQD Shirkatul Amwal: • Mixing of Capital – collective / joint ownership • Use of Capital in Enterprises • Rights and Responsibilities • Sharing

  5. FEATURES SHIRKATUL AAMAL • In Shirkatul Aamal partners bring their services SHIRKATUL WOJOOH • In Shirkatul Wajooh partners bring their own Good Will.

  6. STRUCTURE OF MUSHARAKA • Permanent Musharaka • Temporary (Redeemable) Musharaka • Diminishing Musharaka

  7. Permanent Musharaka Permanent Musharaka is the partnership of permanent nature, which is not bound with a time period as in case of Shares of Joint Stock Companies.

  8. Temporary Musharakah (Redeemable) • Musharakah can be for a limited time period, after that it will be redeemed. Redeemable instruments for Shirkah based financing; e. g. PTCs or Musharakah based TFCs. • Redemption of Musharakah will take place through sale of shares from one partner to another.

  9. Diminishing Musharakah • It is a form of partnership in which one of the partner promises to buy the equity share of the other partner gradually until the title to the equity is completely transferred to him. • According to this concept, a financer and his client participate either in a joint property or an equipment, or in a joint commercial enterprises

  10. Diminishing Musharaka In Diminishing Musharaka it is necessary that buying and selling of equity should not be stipulated in the partnership contract. In other words, the buying partner is allowed to give only a promise to buy. The buying and selling agreement must be independent of the partnership contract. It is not permitted that one contract be entered in to as a condition for concluding the other

  11. BASIC RULES • Capital • In Musharaka, the capital is specific, existent and under discretion of the joint business. • It is invalid to establish a Musharaka on non-existent fund or debt. • The partners may have varying shares in capital subject to agreement. • The capital of Musharakah is money and valuables. It may consist of merchandize or operating assets on condition that these are valued at the time of contract and the value is agreed upon.

  12. BASIC RULES (Cont..) Management of Partnership • Each partner has right to take in Musharaka management. • The partners may appoint a managing partner by mutual consent. • Some of the partners may decide not to work for the Musharaka and work as sleeping partner. • It is not permitted in a Musharaka Contract, to specify a fixed remuneration for a partner who contributes in managing the Musharaka funds or provides some form of other services, such as accounting. However, it is permissible to give him a greater share of profit than he would receive solely on the basis of his share in the partnership capital.

  13. BASIC RULES (Cont..) • Profit Sharing ratio • Ratio or the basis for sharing profit should be decided in the beginning of partnership. • Profit should be allocated in percentages of earning and not in a sum of money or a percentage of the capital or investment. • It is not necessary for sharing profit according to proportionate capital contribution. • A sleeping partner cannot share the profit more than the percentage of his capital. • The partner may at the later stage agree to change the profit sharing ratio, and on the date of distribution, a partner may surrender a part of his profit to another partner. • One partner can cap his share of profit – Tiers profit.

  14. BASIC RULES (Cont..) • Profit ratio can either be fixed or variable according to the tiers. • Profit can be capped to a certain amount of money. • The final allocation of profit is not allowed to be based on expected profit. However, permissible to distribute a provisional profit, subject to final settlement after actual or constructive liquidation. • It is permissible for partners to decide not to distribute a portion of profit – Creation of various reserves . • Loss has to be borne in proportion of the capital provided. • Loss in Shirkatul Wojuh shall be borne as per liability taken in the beginning.

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