Participatory Modes Musharaka, Modarba, Dim. Mush.

Legality & Forms of Partnership Basic rules of Musharakah

Conditions, Treatment of P/L, Guarantees, Maturity/ Termination

Concept & Rules of Modarba

Conditions, Treatment of P/L, Guarantees, Maturity/ Termination

Diminishing Musharakah: Procedure

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 1

Forms of Musharakah
Partnership in ownership (Shirkatulmilk)
Mixing of ownership Optional joint purchase of some asset Compulsory inheritance in property

Partnership by contract (Shirkatul aqd)

offer & acceptance, most applicable Shirkatulamwal share in their capital Shirkatul amal share in fee charged Shirkatulwujooh partners in Credit worthi
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 2

Rules of Musharakah
Conditions w.r.t. partners
Free & sound mind, no insolvent, prison or handicap in exercising rights (minor or insane) Can b non Muslims or Conv banks

Rules relating to Musharaka capital

Liquid assets (money), mkt. value 4 commodities Debt cant b part of capital Partnership of running business is also possible Face value of cash, A/C R, agreed value of Fixed assets
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 3

Rules of Musharakah (contd.)

Mutual relation among partners
All partners can participate in business One partner can run busi or can b a sleeping partner Can hire out side manager on fixed salary or as mudarib

Treatment of Profit & Loss

Profit ratio can b different from that of loss Loss is always according to % of investment Profit of active vs. sleeping partner Profit cant b fixed amount or % of capital
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 4

Rules of Musharakah (contd.)

Guarantee in Shirkah contract
Assets of partnership as a trust Security or pledge in case of misconduct (musharaka bet bank & community) Third party guarantee should not own more than 50% guaranteed busi. & vice versa Partnership should not b conditional on such guarantee

Maturity / Termination of Musharaka

Termination with mutual consent, withdrawal by one partner does not nec. terminate partnership just as share holder of a limited co.
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 5

Concept & Rules of Mudarba

Two parties - Rabul Maal & Mudarib One provides capital & other manages the fund Profit is shared mutually while loss is born by capital provider only Modarib loss is time & effort Mixing of capital Mudarib has his own capital (both Musharaka & Modarba) Types of Mudarba restricted vs unrestricted specified vs unspecified business
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 6

Concept & Rules of Mudarba (contd.)

Conditional vs unconditional period, trade with a particular person, commodity etc. Banker may not directly involve in modarba, rather an agent / investment agency 4 a fixed fee (Wakatul Istismar) Treatment of P/L profit ratio may vary 4 diff. businesses or 4 diff. places (50:50, 60:40 etc.) Loss is to b born by financier Reserve 2 compensate loss in future
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 7

Concept & Rules of Mudarba (contd.)

Mudarib share of profit / salary is subject to realization of profit from business. In case of void modarba (no profit ratio is set), manager ll get mkt. wage subject to profit. Capital provider cannot set lump sum amount or amount % of capital as profit Parties may agree on diff. ratios 4 the profit above or below a specific ceiling. Mudarib cannot claim periodical salary/fee over & above his share of profit.
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 8

Concept & Rules of Mudarba (contd.)

Mudarib can draw his daily expenses of food (Imam Ahmad) Mudarib can draw his daily expenses of travel (Hanafi Jurists) Separate contract for a fee 4 particular job Termination of Mudarba contract Each party can terminate unilaterally except:
When mudarib has commenced business Certain duration of contract is agreed
Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore 9

Diminishing Musharaka Practical Scenario

Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

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Islamic Finance, Dr. Waheed Akhter, COMSATS, Lahore

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