Musharakah is one of the two ideal modes of Islamic financing. The other one being Mudarabah. Musharakah is a contractual relationship formed through mutual consent of the parties for sharing of profits and losses in a joint venture. Assets in the venture are jointly owned in proportion to each partner’s contribution. The profits are shared in a pre-agreed ratio. Losses, however, are incurred in proportion to each partner’s investment. FHM representing share of its depositors invests funds in the joint venture alongside other investor(s).

In this method of financing two or more partners agree through a Musharkah contract to carry out a specified joint-venture economic activity. The contract specifies the kind, the amount to be contributed by each of the partners, the partnership period, and the basis for profit distribution. The conditions for Al-Musharakah are the following:

• Specification of the capital amount of Al-Musharkah.
  
  
• Determination of the value of paid up shares for each partner particularly if they are commodity shares.
  
  
• Specification of the ways and means of profit distribution among partners. It is usually a percentage proportional to the value of shares paid by each partner.
  
  
• The partners might delegate one of them to act on behalf of the others for the sake of the group as a whole.
  
  
• It is acceptable for a partner who works more than the others and/or who enjoys more experience to stipulate to take a percentage in lieu of his extra labor and expertise.
  
  

SYNDICATE MUSHARAKAH

A joint enterprise formed for conducting some business in which all partners share the Asset as well as profit according to an agreed ratio while the loss is share as per the ratio of investment