Musharaka
Muscharaka is a term used in Islamic banking, and is a type of equity financing, in which the partners share both the profit and the loss.
- 4.1 documents
- 4.2 Literature
Muscharaka as an investment concept
Muscharaka (Arabic مشاركة, DMG mušāraka, often Musharakah ) or Schirkat al - Amwal is used to start a business or to support individual projects. Between the parties (usually between an enterprise and a bank) a consensual contract is negotiated, which contains, among others, all components of a legally binding contract. For example, all parties must be able to enter into contracts. In addition, the agreement without coercion, fraud or deception has come about (according to Shari'a ).
There are a few key points contained in the Muscharaka - share concept:
Profit distribution
The share of profits must be agreed between the two parties at the time of making the contract. If such an agreement is not met, then the contract is not effective according to sharee'ah.
The ratio of profit for each partner must be determined in an appropriate ratio. Profit distribution does not take place in relation to the invested capital but in relation to the profit that a company has achieved. It is not allowed at all a partner at a fixed amount or at a rate of profit to bind with his investment.
For example, if A and B establish a partnership and they agree that A gets Rs 10,000 per month as his share of the profits and the remainder is distributed to B, then this partnership is invalid. Even if it is agreed between them that, for example, A receives 15 % of his investment, this contract shall be invalid. Would be the correct basis for the Gewinnausschütung an agreed percentage of the resulting profits made from the business.
It is allowed that the partner who works for Muscharaka, a higher percentage than the partner who has renounced gets.
Ratio of profit and ratio of invested capital
There are different opinions:
According to Malik ibn Anas and al- Shafi ʿ i, it is necessary for the effectiveness of Muscharaka that each partner gets the profit corresponding to the portion of its investment ( capital contribution ). So if you have invested 40 % of the total capital, then you have to get even 40 % of the profit. Any agreement to the contrary, the right to get more or less than 40%, the Muscharaka makes invalid after Shari'a.
A very different opinion of Ahmad ibn Hanbal has. He thinks that the ratio of profit may differ from the invested capital if it have so agreed both parties. Therefore, it is permissible that a partner with 40 % of the investment is 60% or 70 % of the profit gets, while the other partner with 60 % of investment gets only 40% and 30 % of the profit.
Another opinion is Abu Hanifa. His opinion is between the previous two. He says that the ratio of the profit from the investment ratio may differ under normal conditions. However, if a partner explained by a clause in the agreement that he will never work for the Muscharaka and he remains a silent partner during the entire term of the Muscharaka, but then no more he gets a profit from the ratio of his investment.
Loss distribution
In the case of loss, each partner should be involved closely in proportion to its investment in the loss. For this reason, a partner who has invested 40 % of the capital, guilty of exactly 40 % of the loss, not more and not less. There is to this principle of the different lawyers a complete match.
Ash- Shafi ʿ i is of the opinion that the ratio of the proportion must correspond to the ratio of its investment both in the profit and loss account. But Abu Hanifah and Ahmad have this, a different view. The ratio of profit may differ from the ratio of the investment, if such agreement was made. But what concerns to the loss, it must always be distributed in proportion to the invested capital.
In general it can be said: The distribution of profits is based on the agreements of the parties, the loss is always on the ratio of capital invested.
The administration ( management ) of the Muscharaka
The principle of Muscharaka states that each partner has a right to participate and to work for them in the administration ( management). However, the partners may agree that the administration is carried out by one of them. In this case, the silent partners are involved in income only to the extent of their investments.
However, if all parties want to work for Muscharaka, then each of them is considered as representative of the other in all matters of the company. The shops, which includes one of them, be deemed approved by all partners.
Differences to credit financing
In Muscharaka there are no fixed repayment rates. Repayment of the loan depends on the profit or loss of the company. The higher the profit of the company, the higher the repayment rate. With debt financing, the borrower must pay back a fixed amount regardless of profits and losses. For this reason, the lender has no losses, what can happen at Muscharaka when companies of the borrower does not generate any profits.
For credit financing there is injustice against both the lender as well as against the borrower. If the borrower has no profits, then he is additionally burdened with the fixed interest rate, but if it generates high profits, then he pays the lender too little, which is unfavorable for the lender. Such injustice does not happen with Muscharaka. If the company of the borrower generates high profits, then benefited the community as the financier of the Bank.
Musharaka Mutanaqisah Partnership
Al - Muscharakat al - Mutanaqisa / المشاركة المتناقصة / al - mušārakat al - mutanāqiṣa is a time-limited version of Muscharaka. The Bank's involvement is limited ie has to the customer of the bank bought the all shares.
The Musharakah Mutanaqisah Partnership ( MMP) contract based on a diminishing partnership concept. The MMP consists of three contracts - muscharaka ( participation), idschara (leasing ) and bai ʿ (trade / sell) First, the client establishes a partnership with the Bank ( muscharaka ) the term Shirkat -al- Milik ( co-ownership ). They are both common ownership and of them, the asset is financed.
After that, the bank leases its share of the asset to the customer under the concept of idschara. For example, the customer first takes over 20% of the cost of the asset as the first participation of the plant, while the bank balances the remaining 80 %.
Then the customer of the bank buys from 80 % of the shares in the agreed parts at regular intervals until the asset is fully owned by the customer.
The rental income is jointly shared between the bank and customer, according to the current investment. The revenue of the customers will increase with increasing participation and at the end part of the asset only to the customer.
References
- Murabaha and
- Ijarah
Are other ways to finance, for example, real estate or business in Islam.