Musharakah means a joint enterprise formed for


literal meaning of Musharakah is sharing. 
The root of the word “Musharakah” in Arabic is Shirkah, which means
being a partner. (Ashraf, 2002) (Usmani, 2002) Under Islamic
jurisprudence, Musharakah 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. (Ashraf, 2002)”Shirkah”
means “Sharing” and in the terminology of Islamic Fiqh, it has been
divided into two kinds:

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(1)     Shirkat-ul-milk: It means joint
ownership of two or more persons in a particular property. This kind of
“Shirkah” may come into existence in two different ways: 

a)       Optional
(Ikhtiari): At the option of the parties e.g., if two or more persons purchase
equipment, it will be owned jointly by both of them.

b)      Compulsory  (Ghair Ikhtiari): This comes into operation
automatically without any effort  For
example, after the death of a person, all his heirs inherit his property, which
comes into their joint ownership as a natural consequence. (Usmani, 2002) (Ashraf, 2002)

(2) Shirkat-ul-‘Aqd:
This is the second type of Shirkah which means “a partnership effected by a
mutual contract”. it may also be translated as “joint commercial
enterprise.”  Shirkat-ul-Aqd is
further divided into three kinds:

a)       Shirkat-ul-Amwal
: where all the partners invest some capital into a commercial enterprise.

b)       Shirkat-ul-A’mal
: where all the partners jointly undertake to render some services for their
customers, and the fee charged from them is distributed among them according to
an agreed ratio.

c)       Shirkat-ul-wujooh:
The word has its root in the Arabic word Wajahat meaning goodwill.  Here the partners have no investment at all.
All they do is that they purchase the commodities on a deferred price and sell
them at spot. The profit so earned is distributed between them at an agreed
ratio. (Usmani, 2002) (Ashraf, 2002)

Profit and Loss sharing : All
scholars are unanimous on the principle of loss sharing in Shariah based on the
saying of Syedna Ali ibn Talib that is as follows:

is distributed exactly according to the ratio of investment and the profit is
divided according to the agreement of the partners.” (Usmani, 2002) (Ashraf, 2002)


 “Mudarabah” is a special kind of partnership
where one partner gives money to another for investing it in a commercial
enterprise. The investment comes from the first partner who is
called “rabb-ul-mal”, while the management and work is an exclusive
responsibility of the other, who is called “mudarib”. (Usmani, 2002) (Ashraf, 2002)

are 2 types of Mudarabah namely:

1.       Al
Mudarabah Al Muqayyadah: Rab-ul-Maal may specify a particular business or a
particular place for the mudarib, This is also called restricted

2.       Al
Mudarabah Al Mutlaqah:    However if
Rab-ul-maal gives full freedom to Mudarib to undertake whatever business he
deems fit, this is also called unrestricted Mudarabah. (Ashraf, 2002)



“Murabahah” is, in fact,
a term of Islamic Fiqh and it refers to a particular kind of sale having
nothing to do with financing in its original sense. If a seller agrees with his
purchaser to provide him a specific commodity on a certain profit added to his
cost, it is called a murabahah 
transaction.  (Usmani, 2002).Murabaha is defined in the Islamic Fiqh
as the sale of goods at cost plus an agreed profit mark-up. (Ahmed
El-Galfy, 2012) (El-Ghattis)

in its original Islamic connotation, is simply a sale. The only feature
distinguishing it from other kinds of sale is that the seller in murabahah
expressly tells the purchaser how much cost he has incurred and how much profit
he is going to charge in addition to the cost. (Usmani, 2002) (Ashraf, 2002)

Difference between Murabaha and simple sale If a
person sells a commodity for a lump sum price without any reference to the
cost, this is not a murabahah, even though he is earning some profit on his
cost because the sale is not based on a “cost-plus” concept. In this case, the
sale is called “musawamah.” (Usmani, 2002) A simple sale in Arabic is called Musawamah – a bargaining sale
without disclosing or referring to what the cost price is. (Ashraf, 2002)

against Murabahah An argument that arises in Murabahah is that profit
or interest both are the same and Murabahah financing is the same as
conventional banking. Islamic scholars however argue that in several respects a
Murabahah financing structure is quite different to an overdraft organized
along conventional lines and the former offers several benefits to the bank and
its customers. Depositors are made to share in profits of the bank as a result
of this financing. The basic difference is however the Aqd or the contract
which covers the Islamic conditions. If the contract has interest element then
it will be void. (Ashraf, 2002)

argument, is based on a misunderstanding about the principles of Shari’ah
regarding the prohibition of riba. The modern capitalist theory does not
differentiate between money and commodity in so far as commercial transactions
are concerned. According
to Islamic principles, money and commodity have different characteristics and
therefore, they are treated differently. (Usmani, 2002)


sale in which the parties agree that the payment of price shall be deferred is
called a “Bai’ Mu’ajjal”. (Usmani, 2002) (Ashraf, 2002)


is a sale whereby the seller undertakes to supply some specific goods to the
buyer at a future date in exchange of an advanced price fully paid at
spot.  (Usmani, 2002) (Ashraf, 2002) (El-Ghattis).The most famous
hadith in this context is the one in which the Holy Prophet ? has

                                             ??? ?? ????? ???? ? ????? ??? ? ?????? ??? ? ???? ??  ?????

Whoever wishes to enter into a contract of salam,
he must effect the salam according to the specified measure and the specified
weight and the specified date of delivery.



‘Istisna” is the second kind of sale where a
commodity is transacted before it comes into existence. It means to order a
manufacturer to manufacture a specific commodity for the purchaser. If the
manufacturer undertakes to manufacture the goods for him with material from the
manufacturer, the transaction of istisna’ comes into existence. But it is
necessary for the validity of istisna’ that the price is fixed with the consent of the parties and
that necessary specification of the commodity (intended to be manufactured) is
fully settled between them.  (Usmani, 2002) (Ashraf, 2002)


means purchasing goods time to time in different quantities. In Islamic
jurisprudence Istijrar is an agreement where a buyer purchases something from
time to time; each time there is no offer or acceptance or bargain. There is
one master agreement where all terms and conditions are finalized. There are
two types of Istijrar: (Ashraf, 2002)

 • Whereby
the price is determined after all transactions of purchase are complete.

• Whereby the price is determined in advance but
the purchase is executed from time to time.  

The first kind is relevant with the Islamic mode of
financing. (Ashraf, 2002)


 “Ijarah” is
a term of Islamic fiqh. Lexically, it means ‘to give something on rent’. In the
Islamic jurisprudence, the term ‘ijarah’ is used for two different situations.
In the first place, it means ‘to employ the services of a person on wages given
to him as a consideration for his hired services.’ The employer is called
musta’jir while the employee is called ajir. (Usmani, 2002)

The second type of ijarah relates to the usufructs
of assets and properties.
Ijarah’ in this sense means ‘to transfer the usufruct of a particular
property to another person in exchange for a rent claimed from him.’ (Usmani, 2002)

as a Mode of Financing Like murabahah, lease is not originally a mode of
financing. It is simply a transaction meant to transfer the usufruct of a
property from one person to another for an agreed period against an agreed
consideration. (Usmani, 2002) (Ashraf, 2002)


Securitization means issuing certificates of ownership against an
investment pool or business enterprise. (Ashraf, 2002)

INVESTMENT FUNDSThe term ‘Islamic Investment Fund’ means a joint
pool wherein the investors contribute their surplus money for the purpose of
its investment to earn halal profit in strict conformity with the precepts of
Islamic Shariah. (Usmani, 2002) (Ashraf, 2002).It includes Equity fund (investment in shares) Ijarah fund (investment asset for
leasing) Commodity fund(investment in
asset for resale) and Mixed fund
(more than 51% invested in tangible assets and the rest in liquid assets). (Ashraf, 2002) (Usmani, 2002)

PRINCIPLE OF LIMITED LIABILITY The limited liability in the modern economic and
legal terminology is a condition under which a partner or a shareholder of a
business secures himself from bearing a loss greater than the amount he has
invested in a company. (Usmani, 2002) According to this
concept, a joint-stock company in itself enjoys the status of a separate entity
as distinguished from the individual entities of its shareholders; there are
certain precedents wherefrom the basic concept of a juridical person may be
derived by inference. (Usmani, 2002)

Waqf (institution wherein a person dedicates his
properties for a religious purpose.)

2. Baitul-Mal
(the exchequer of an Islamic state).

Joint Stock (A company where the Zakah will be levied on each
owner individually as well as on their joint-stock as a whole)

Inheritance under debt (the property left by a deceased person whose
liabilities exceed the value of all the property left by him. Liability
will  limited to existing assets.) (Usmani, 2002)


is  the  act 
of  discerning,  realizing, 
and  becoming  aware 
of through the senses  (Albrecht, 2003) People perceived that
Islamic banking is not fully Islamic and does not different from conventional
banking its just a difference of language.

Are Islamic banks working according to the Sharia
compliances? (Mehbob-ul-Hassan) More
people at Islamic bank, as compare to peoples at conventional bank, they are
not in confidence about the operation of Islamic banks according the Shariah
compliant. (Mehbob-ul-Hassan)

 High percentage of the conventional bank account
holders or visitors were well aware of the Islamic banking concepts.   On the other hand, some of the Islamic bank
respondents were not aware of the concepts of the Islamic banking .
This result shows that Islamic banks did not explained well the concepts of
Islamic banking to their customers. (Mehbob-ul-Hassan) Private
employees and businessmen are more in numbers in Islamic banks as compare to
conventional banks.   While the numbers
of students and government employees are more in the conventional banks. (Mehbob-ul-Hassan)

perceived  religion  and 
economics  as  the 
patronage  factors  in 
Islamic Bank  selection  by 
customers. (Sehrish rustam, 2011) Majority
corporate  customers  have 
limited  knowledge  in 
relation  to  Islamic banking  products 
within  Pakistan.  This 
is  due  to 
the  reason  that Islamic banks have not  done enough 
in marketing  their  products 
and services. (Sehrish rustam, 2011)

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