Musharika is a preferred mode of Islamic finance in which two or more parties invest capital toward a particular business activity or project.
Profits are shared according to a pre-agreed ratio. Any loss is shared in proportion to each party’s equity participation. Diminishing Musharika is widely used and may be customized around individual customer needs.
Types of Musharika
Shirkat-ul-Milk
Partnership through joint ownership of two or more persons in a particular property.
Shirkat-ul-Aqd
Partnership created through mutual contract—a joint commercial enterprise.
Trust at the centre
The structure depends on honest partnership, clear agreement and faithful performance by all parties.