Musharika is an Arabic word, which literally means Sharing. The root of the word “Musharika” in Arabic is Shirkah, which means being a Partner. Under Islamic jurisprudence, Musharika means a joint enterprise formed for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the contribution. It is an ideal alternative for the interest based financing with far reaching effects on both production and distribution

In fact the term Musharika refers to a type of Shirkat known as “Shirkat-ul-amwal” i.e. all partners invest some capital into a commercial enterpriser. Musharika is used as an underlying concept for financing both on the asset as well as the liability side

Management of Musharika
The normal principle of Musharika is that every partner has a right to take part in its management and to work for it. However, the partners may agree upon a condition that the management shall be carried out by one of them, and no other partner shall work for Musharika. But in this case, the sleeping partner shall be entitled to the profit only to the extent of his investment and the ratio of profit allocated to him not exceed the ratio of his investment. However, if all the partners agree to work for the joint venture, each one of them shall be treated as the agent of the other in all matters of business. Any work done by one of them in normal course of business shall be deemed as authorized by all the partners.

Distribution of Profit & Loss
The ratio of distribution of profits for each partner must be agreed upon at the onset of the investment. It is not allowed to fix a lump-sum for any one of the partner. Similarly, profits cannot be tied to a proportion of the capital. The profit distribution has to be strictly conducted in proportion to the actual profits earned. The share of profits may differ from the proportion of investment. However, if one of the partners is not active in the management as mutually agreed in the contract, then his share of profits should not exceed his share of investment. Losses should be shared proportional to the ratio of investment made by each partner.

Termination of Musharika
Musharika will stand terminated in the following cases:

	If the purpose of forming the shirkat has been achieved.
	Any one partner decides to leave the Musharika - every partner has the right to terminate the Musharika at any time after giving prior notice to the partners.
	A partner dies – in this case, his legal heirs will have the option to continue with the Musharika or draw his share of investment.
	A partner becomes instance or otherwise incapable of effecting commercial transactions.
	To avoid the liquidation of the Musharika due to one person leaving the joint venture, a clause can be added at the onset of the contract stating that the Musharika cannot be liquidated unless unanimously agreed upon by all partners.

MUSHARIKA AGREEMENTS