All providers of capital are entitled to participate in the management but not necessarily required to do so. The profit is distributed among the partners in predetermined ratios, while the loss is borne by each partner in proportion to his contribution.
Financing Concept: An agreement under which the Islamic bank provides funds which are mixed with the funds of the business enterprise (client / partner).
- The profit is distributed among the partners in pre-agreed ratios
- Loss is borne by each partner strictly in proportion to respective capital contributions
- All providers of capital are entitled to participate in the management
- Types of Musharakah financing
- Permanent Musharakah: a form of partnership which continues till both the parties mutually agree to end the joint venture. The equity participation remains constant throughout the life of the joint venture.
- Diminishing Musharakah: a form of partnership, which ends with the complete ownership of a partner who purchases the share of another partner in that project by a redeeming mechanism agreed between both of them.