FORGOT YOUR DETAILS?

MUSHARAKAH CONTRACT

Musharaka is a type of Shirkat-ul-Amwal which literally means sharing. Musharaka is basically a partnership between two or more parties (banker and client). They enter into a contract by mutual consent to contribute to capital (in cash or in-kind, no debt is accepted) and share profit and loss of the enterprise. In musharakah contract, Each partner contributes to the capital of the partnership. The capital contribution may vary or equal. This is to form a new project or to share it in a prevailing project.

MUSHARAKAH CONTRACT DETAILS

it’s a partnership contract between the client and the bank where both parties will participate in the capital as a specified ratio at the time of contract. This facility is more suitable for a large buyer who wants investment in its infrastructure, machinery, and land. The profit will be shared among the partners at a specified ratio. In case of loss, it will be shared as per capital proportion.

MUSHARAKAH PROCESS

01

REQUESTING CAPITAL

The Customer will approach the bank and request for capital

02

MUTUAL CONTRACT

Both parties will enter the contract with their agreed capital ratio.
03

AGREED SHARES

The share of the bank is divided into the unit.
04

GUARANTOR

The third-party can provide a guarantee to the Musharaka venture. In Musharaka,  A partner cannot guarantee the capital of another partner, except where one partner provides a personal guarantee to cover the cases of misconduct, negligence, and breach of contract.
05

PROFIT DISTRIBUTION

The ratio of profit should be fixed at the time of parties entering into a contract. The profit has to be a ratio and cannot be a lump sum or percentage of the capital

HOW MUSHARAKAH CONTRACT CAN HELP YOU

KEY BENEFITS OF A MUSHARAKAH CONTRACT

PROFIT AND LOSS

The profit will be shared among the partners at a specified ratio. In case of loss, it will be shared as per capital proportion.

LONG TERM CONTRACT

Usually, it’s a long term partnership for moveable, fixed assets and public projects.

SHARED MANAGEMENT

All the partners are permitted to participate in the management of the business.

Expert Advice

The above information provides beneficial knowledge about Islamic Banking Economics and Trade Finance. The content is provided for information purposes only. For more details, please reach out to one of our Expert Today

TOP