A type of contract adopted in Islamic financial transactions and currently used in Islamic banking transactions, in which the parties share money and effort or one of them, and the ownership of the commercial activity is shared between them, and they also share in the profit and loss.
Musharakah is considered one of the most important forms of investing money in Islamic jurisprudence, and it is suitable for the nature of Islamic banks and a large group of those who deal with them, so they can be used to finance various economic activities. The participation formula is one of the Islamic alternatives to interest-based financing, which is used in conventional banks.
In banking transactions, the formula is a partnership between the bank and the customer on the basis of sharing the capital and the return, if it is in a new or existing project. This may be done by contributing to the ownership of certain assets on the basis of permanent or temporary participation, provided that the profit is shared according to the agreement concluded between the two parties.
In the event that the bank finances a person or a company on the basis of a partnership contract, the amount of bank financing is determined from the company’s capital, and the bank authorizes the financing applicant to supervise and manage the project.
The bank may intervene in the management of the project to the extent that guarantees it reassurance on the good management of the project and its success, and the commitment of the partner to the terms and conditions agreed upon in the partnership contract, in order to protect the clients’ money. On the day of signing the contract, the mudarib remains to manage the activity alone.
While in the participation, the partners are involved in the management and the activity, and for this they are constantly informed of the problems and risks facing the activity and put solutions to them firsthand.