IOS On-line Lecture on Musharakah
New Delhi: An on-line lecture on Musharakah was organised by the Institute of Objective Studies on December 26, 2020. Sheikh Nizamuddin, a member of the general assembly of the IOS, introduced the topic. Explaining the theme, he said that the debate on Islamic finance was going on and several countries had introduced it to strengthen their banking sector.
He observed that musharakah was an Arabic word which literally meant sharing. In the context of business and trade, it meant a joint enterprise in which all partners shared the profit or loss of the joint venture. It was an ideal alternative to interest-based financing with far-reaching effects on both production and distribution. In the modern capitalist economy, interest was the sole instrument indiscriminately used in financing of every type. Since Islam had prohibited interest, this instrument could not be used for providing funds of any kind. Thus musharakah could play a vital role in an economy based on Islamic norms, he added.
Delivering the lecture, Dr. Kaleem Alam, faculty, Islamic Economics Institute (IEI), King Abdul Aziz University, Jeddah, KSA, said that the root word of musharakah was shirkah which meant sharing. It was a partnership or joint enterprise. Originally shirk meant assigning a partner to Allah. Famous Sahabi (companion of the Prophet [PBUH], Abu Hurairah, in a Hadith Qudsi mentioned this.
Explaining the concept of musharakah, he said that riba (usury/interest) was haram (prohibited) in Islam. Allah specifically declared war on riba in Surah Baqarah. He warned that those who consumed interest would get punishment on the Day of Judgment. Musharakah was a partnership to engage in trade. Musharakah had been defined by Bank Negara, Malaysia, as a partnership between two or more. It was of two types - shirkah al-milk and shirkah al-aqad. This was an agreement between two or more persons to invest a sum of money as capital in a business and share its profit according to the agreement. Referring to contract, he said that there were all sorts of contracts. Writing contract was important so that the purpose for which it was entered into could be served. Purposes other than the one for which it was written, would be haram, illegal or harmful. A profit amount could not be fixed for a partner as it was not corresponding to the capital invested. The agreed percentage of the amount would be distributed among the partners proportionate to the investment, he added.
Dr. Alam maintained that since musharakah meant profit and loss sharing, each partner would bear the loss proportionately. He also defined musharakah mutnaqisa as diminishing partnership. Here a partner’s share got diminishing. It was a diminishing musharakah. Musharakah got dissolved when the partnership became mudaraba (passive partnership). Explaining the failure of partnership, he said that it might occur due to trust deficit, or illegal activity. Mudaraba came under musharakah. It existed in pre-Islamic period as also during the lifetime of the Prophet (PBUH), he concluded.
Presiding over the session, Prof. Javed Ahmad Khan, director, Centre for West Asian Studies, Jamia Millia Islamia, held that Islamic banking was an alternative to capitalism and socialism. Islamic system of finance was based on shariah principles, but the recent trends in Islamic banking needed to be studied in detail. He said that the competitive market based on interest raised the question of its viability. Nobody could say for sure how the Muslim world would react to Islamic finance because they were not ignorant of the prevalence of capitalism and socialism.
He observed that there was a question of the viability of profit-sharing under the Islamic system of banking. In the Indian context, there was the question between equity market and Islamic financing based on Shariah. In various Muslim countries musharakah and mudaraba financing was existing. But Islamic financing was going down. The prospect of musharakah and mudaraba in the 21st century needed to be reexamined. It should also be examined how both of them could be applied in equity and share market. Several questions on the practicability of Islamic concept of financing and banking were bound to arise. They required to be properly answered, he added.
At the end, Shaikh Nizamuddin extended a vote of thanks to all participants.
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