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Financing
PRODUCTS – Diminishing
Musharakah
Lahore 16 – 17 May, 2008
Al – Huda Training Programme
Muhammad Khaleequzzaman
Head Islamic banking Department
Int’l Islamic University Islamabad
Islamic Modes – Agricultural Financing
Rules of Musharakah
• Fulfillment of prerequisites of a contract
• Rules of contribution of equity
• Rules of profit and loss sharing
• Management of Musharakah/Relationship of
parties
• Termination of musharakah
Uses of Musharakah:
– Agricultural enterprise financing
– Project financing
– Working capital financing, etc.
Islamic Modes – Agricultural Financing
Musharakah
• An equity participation contract under which
IB and its client contribute jointly to finance an
enterprise.
• Equity is owned according to each party's
share in financing.
• Profit is shared in pre-agreed ratio and loss in
proportion to the capital contribution.
• It is an ideal alternative to the interest-based
financing with far reaching effects on both
production and distribution.
Islamic Modes/Instruments – Participatory Modes:
Musharakah:
The Concept of Musharakah:
Meanings:
– Sharikah Arabic
– Shirkah Arabic
– Shirkat Urdu
– Partnership English
Shirkah Definition : “commingling money or
property (that no share can be
distinguished) by two or more parties with
an objective of sharing profits and
contributing losses"
Islamic Modes/Instruments – Participatory Modes:
Musharakah:
1. Shirkat ul Milk (co-ownership)
– The existence of thing in the joint ownership of two or more
persons in an ascertained thing (ayn) or debt (dayn)
• Shirkat ul Jabr
• Shirkat al Ikhtiar
2. Shirkat ul Aqd “Partnership through contract” (Partnership
referred by law)
– Shirkat ul Amwal (Wealth)
– Shirkat ul amal (services)
– Shirkat ul Wujuh (liability/ c/w)
Share in Share in
capital capital
2
Partner Bank
3. Accruing Rentals
4
Pays price of Sell its
the units of share in
bank’s equity equity
Islamic Modes – Agricultural Financing
0 0 0 0 36 460000
1 125 x 36 10000 14500 35 450000
= 4500
2 125 x 35 10000 14375 34 440000
= 4375
3 125 x 34 10000 14250 33 430000
= 4250
35 125 x 2 = 10000 10250 1 10000
250
36 125 x 1 = 10000 10125 0 0
125
Total ?? 460000 ??
Islamic Modes – Agricultural Financing
THANKS