What Is Musharakah (Profit/Loss Partnership)?

Participation Finance Concepts 12.03.2021, 14:04
What Is Musharakah (Profit/Loss Partnership)?

Musharakah: The act of becoming a shareholder in the capital of a business operating in the field of trade by investing capital. In this partnership, the investors become a partner in the commercial enterprise by investing their capital and labour. And they become a shareholder in the profit or loss arising from the activities of that commercial enterprise through this partnership. Capital ownership in which both parties participate in the capital is called musharakah. Here, profit is divided according to agreements, but the loss is divided according to the share in the capital. Participation banks are the most prominent practitioners of musharakah in the banking system. Participation banks use their own equity and participation funds and become partners in projects by investing capital in return for a contract in order to implement them. Here, participation banks add their labour to the project by managing them. They get a share of the profit that will arise after the implementation of the project according to the rates specified in the contract. And if a loss occurs after the project is implemented, it is also shared between the parties according to the rates in the contract.

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