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(Equity partnership)
Mudaraba
(Investment Partnership)
Next???
AAOIFI on equity
based financing
the Shari'ah Board advises Islamic Financial
Institutions to decrease their involvements
in debt-related operations and to increase
true partnerships based on profit and loss
sharing in order to achieve the objectives
of the Shari'ah. (AAOIFI's Shari'a Board
Resolutions on Sukuk)
Musharaka
Derived from
word shirkah or
sharing.
* Slides on Musharaka are based on AAOFI Sharia Standard No. (12) Sharika
(Musharaka) and modern Corporations; and Introduction to Islamic finance by T.
Usmani.
Sharika (partnership)
AAOFI Sharia Standard No. (12) Sharika
Definition
Sharika al-aqd (typical Musharaka)
Sharika al-aqd (contractual partnership) means an
agreement between two or more parties to combine
their assets, labour or liabilities for the purpose of
making profits AAOIF sharia standard 12/2/1
Sharika al-aqd is classified into two main categories:
1. Traditional fiqh-nominated partnership
2. Modern corporations
Musharaka
A
$/20%
B
$/80%
Business Venture
Profit: 20/80 ratio
Or any pre agreed ratio
(eg 30/70)
Musharaka
Investor
Capital
Contribution
$40,000
$60,000
Outcome 1
Profit
$10,000
Outcome 2
Loss
-$10,000
Diminishing Musharaka
Diminishing Musharaka is a form of partnership in
Ownership %
Bank
80%
75%
70%
65%
...
0%
Customer
20%
25%
30%
35%
...
100%
Musharaka example
- A and B invest 50 (Capital contribution A: 30, B: 20)
- It is agreed that A will get 80% and B 20% of actual
profits. (Profit ration 80/20)
- Total worth of the business has Increased to 100
units.
Q1: How will the profit be divided between the
partners?
Q2: What would A have to pay to purchase Bs shares?
Q
If A and B enter into a partnership and it is agreed between them that A
shall be given $10,000/- per month as his share in the profit, and the
rest will go to B, is the partnership valid?
A
It is invalid - The proportion of profit to be distributed between the
partners must be agreed upon at the time of effecting the contract. If no
such proportion has been determined, the contract is not valid in
Shariah.
The ratio of profit for each partner must be determined in proportion
to the actual profit accrued to the business, and not in proportion to
the capital invested by him. It is not allowed to fix a lump sum amount
for any one of the partners, or any rate of profit tied up with his
investment. The correct basis for distribution would be an agreed
percentage of the actual profit accrued to the business.
Mudaraba
(Investment Partnership)
Mudaraba
Mudari
b
Labour
Investor
(one or group)
Capital
Business Venture
Profit: Any pre agreed
ratio
(eg 20/80)
Mudaraba
Investor
Capital
Contribution
Manager
$0
Investor
$100,000
Outcome 1
Profit
$10,000
Outcome 2
Loss
-$10,000
Bank accounts
Deposits
Surplus
units
Deficit
units
Bank
Financing
Almir Colan
almir@auscif.com
www.AusCIF.com