Musharaka & Mudarabah - As Modes of Financing

Or profit ratio of the client is increased

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Or, profit ratio of the client is increased. Alternatively, the client can be paid rent for use of fixed assets. 12
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Musharakah Account on Daily Product Basis No express answer to this question can be found in the classical works of Islamic Fiqh. Keeping in view the basic principles of musharakah the following procedure may be suggested for this purpose: 1. A certain percentage of the actual profit must be allocated for the management. 2. The remaining percentage of the profit must be allocated for the investors. 3. The loss, if any, should be borne by the investors only in exact proportion of their respective investments. 4. The average balance of the contributions made to the musharakah account calculated on the basis of daily products shall be treated as the share capital of the financier. 5. The profit accruing at the end of the term shall be calculated on daily product basis, and shall be distributed accordingly. 13
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Running Musharakah Account on Daily Product Basis Practically this means that the profit accrued to the Musharakah portfolio at the end of the term will be divided on the capital utilized per day. This is possible given the current state of electronic accounting systems. Once a Musharakah pool comes into existence the profit accruing to the joint pool is earned by all participants regardless of whether their money is utilized in a transaction or not. Each partner is a party to transaction by virtue of entering into a Musharakah contract. 14
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Running Musharakah Account on Daily Product Basis There is no doubt that the aggregate profits accrued to the pool are generated by the joint utilizations of different amounts contributed by all the participants at different times. Therefore, if all of them agree with mutual consent to distribute the profits on daily products basis, there is no injunction of Shari‘ah which makes it impermissible; rather, it is covered under the general guideline given by the Holy Prophet (PBUH) “All the conditions agreed upon by the Muslims are upheld, except a condition which allows what is prohibited or prohibits what is lawful” 15
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Some Objections on Musharakah Risk of Loss It is argued that the arrangement of musharakah is more likely to pass on losses of the business to the financier bank or institution. This loss will be passed on to depositors also. The depositors, being constantly exposed to the risk of loss, will not want to deposit their money in the banks and financial institutions. 16
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Some Objections on Musharakah Bank’s Due Diligence The banks will carry on their diligence of the business more carefully.
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