Musharakah and Mudarabah as Modes of Finance by Taqi Usmani

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musharakah 144 business 66 financier 65 profit 49 units 44 assets 42 mudarabah 36 client 35 financing 35 price 35 basis 33 purchase 31 loss 30 finance 28 joint 26 sale 26 arrangement 25 promise 24 modes 22 islamic 21 sold 21

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musharakah and mudarabah as modes of finance by maulana taqi usmani musharakah and mudarabah as modes of finance by maulana taqi usmani an online publication by an online publication by accountancy dot com
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musharakah and mudarabah as modes of finance by maulana taqi usmani musharakah and mudarabah as modes of financing the concept of musharakah and mudarabah envisaged in the books of islamic fiqh generally presumes that these contracts are meant for initiating a joint venture whereby all the partners participate in the business right from it s inception and continue to be partners upto the end of the business when all the assets are liquidated
keeping these broad principles in view we proceed to see how musharakah and mudarabah can be used in different sectors of financing project financing in the case of project financing the traditional method of musharakah or mudarabah can be easily adopted

if the sale of the share on one time basis is not feasible for the lack of liquidity in the project the share of the financier can be divided into smaller units and each unit can be sold after a suitable interval
every subscriber can be given a musharakah certificate which represents his proportionate ownership in the assets of the musharakah and after the project is started by acquiring substantial non liquid assets these musharakah certificates can be treated as negotiable instruments and can be bought and sold in the secondary market

in this case it will be allowed by the shari iah to sell these certificates in the secondary market for any price agreed upon in between the parties which may be more than the fact value of the certificate because the subject matter of the sale is a share in the tangible assets and not in the money only therefore the certificate may be taken as any other commodities which may be sold with a profit or at a loss

this musharakah can be restricted to an agreed term and of the imported goods are not sold in the market up to the expiry of the term the importer may himself purchase the share of the financier making himself the sole owner of the goods
therefore for a valid trading of the musharakah certificate acceptable to all schools it is necessary that the portfolio of musharakah consists of non liquid assets valuing more than of it s total worth

it can also mean that the working partner has purchased the share of the financier in the assets of his business and the price of his share can be determined on the basis of valuation keeping in view the ratio of the profit allocated for him according to the terms of the musharakah
these units will be added to his original units and the price of his share will be units

so far as the building the machinery and the salary of other staff is concerned it is obvious that they are not meant for the business of musharakah alone because the musharakah will terminate within one year while the building and the machinery are purchased for a much longer term in which the ginning factory will use them for it s own business which is not subject to this one year musharakah

practically it means that the parties have agreed to the principle that the profit accrued to the musharakah portfolio at the end of the term will be divided on the capital utilized per day which will lead to the average of the profit earned by each rupee per day

and the uncertainty in the capital at the time of musharakah does not lead to disputes because it is generally known when the commodities are purchased for the musharakah therefore it does not lead to uncertainty in the profit at the time of distribution
therefore if all of them agree with mutual consent to distribute the profits on a daily basis there is no injunction of the shar iah which makes it impermissible rather it is covered under the general guide line given by the holy prophet pbuh in his famous hadith quoted in this book more than once muslims are bound by their mutual agreement unless they hold a permissible thing as prohibited or a prohibited thing as permissible

the depositors being constantly exposed to the risk of loss will not want to deposit their money in the banks and financial institutions and thus their savings will either remain idle or will be used in transactions outside of the banking channels which will not contribute to the economic development at national level
if a bank has financed of its clients on the basis of musharakah after studying the feasibility of the proposal of each one of them it is hardly conceivable that all of these musharakahs or the majority of them will result in a loss

the problem is created by the system which separates the banking and financing from the normal trade activities which has compelled the people to believe that the banks and financial institutions deal in money and papers only and that they have nothing to do with the actual results emerging in trade and industry

musharakah and mudarabah as modes of finance by maulana taqi usmani possibility of some cases where dishonest clients may succeed in their evil designs but the punitive steps and the general atmosphere of the business will gradually reduce the number of such cases even in an interest based economy the defaulters have always been creating the problem of bad debts but it should not be taken as a justification or as an excuse for rejecting the whole system of musharakah

the share of the financier is further divided into a number of units and it s understood that the client will purchase the units of the share of the financier one by one periodically thus increasing his own share till all the units of the financier are purchased by him so as to make him the sole owner of the property or the commercial enterprise as the case may be
even if the above was not a factor the clients are afraid to reveal their true profits to the banks lest the in formation is also passed on to the tax authorities and clients tax liability increases

however the proposed scheme suggests that instead of making two transactions conditional to each other there should be one sided promise from the client firstly to take the share of the financier on lease and pay the agreed rent and secondly to purchase different units of the share of the financier of the an online publication by accountancy dot com
imam abu hanifa and imam zufar are of the view that the undivided share cannot be leased out to a third party while imam malik and imam shafi i abu yusuf and mohammed ibn hasan hold that the undivided share can be leased out to any person

one may raise an objection that if the promise of resale has been taken before entering into an actual sale it practically amounts to putting a condition on the sale itself because the promise is understood to have been entered into between the parties at the time of sale and therefore even if the sale is without an express condition it should be taken as conditional because a promise in an express term has preceded it

c it will be preferable that the purchase of different units by the client is effected on the basis of the market value of the house as prevalent on the date of purchase of that unit but it is also permissible that a particular price is agreed in the promise of purchase signed by the client
at the same time the client may sign one sided promise to purchase different units of the share of the financier periodically and the financier may undertake that when the client will purchase a unit of his share the rent of the remaining units will be reduced accordingly

the second option is that the financier allows the client to sell these units to any body else at whatever price he can but at the same time he offers a specific price to the client meaning thereby that if he finds a purchaser of that unit at a higher price he may sell it to him but if he wants to sell it to the financier the latter will be agreeable to purchase it at a price fixed by him before hand

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

contract price sale asset financing lease client purchase ijarah payment profit musharakah lessee amount commodity housing agreement contracts ownership project

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Number of Pages

19

Published Date

2003-06-25 12:01:23

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Musharakah and Mudarabah as Modes of Finance by Taqi Usmani

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