Virtues of Imaan

True believers earn the blessings and favours of Allah,Who protects them against all manners if miseries and misfortunes.Allah Ta'ala says:
"Lo!Allah defends those who are true believers(against all calamities and afflictions)"(AL-HAJJ:38)
Allah Ta'ala is the Helper and Protecting Friend of the true believers.Allah Ta'ala Says:
"Allah is the Protecting Friend of those who believe"(AL-BAQARAH:257)
The angels are commanded by Allah to keep their(the believers)hearts firm.Allah Ta'ala says:
"When thy Lord inspired the angels,saying:"I am with you.So make those who believe stand firm"(AL-ANFAAL:12)
The believers are granted true honour.Allah Ta'ala says:
"True honour belongs to Allah,and His messenger and the believers"(AL-MUNAAFIQUN:8)
The believers are exalted to the positions of honour.Allah Ta'ala says:
"Allah will exalt those among you who believe"(AL-MUJADALAH:11)
The love for believers is inculcated in the hearts of all men.Allah Ta'ala says:
"Lo!Those who believe and do good works The Beneficent will bestow upon them love"(MARYAM:96)
This idea is also the subject of a Hadith which says in effect:
Whenever Allah loves any one of His creation,in the first instance,the angels are commanded to have love for him.Then a proclamation is made in the world and the entire creation is inspired with love for him.A state of all-embracing popularity is created in his favour.Sometimes the effect of this popularity is such that the animate and the inanimate things bow to him in obedience.As Syeikh Sa'di,a Persian poet has put it:"
"If you do not refuse to bow your head to His Commandments,all of His creation will bow their heads to you in humility"
The believers can benefits from the healing power of the Holy Quran.Allah Ta'ala says:
"Say unto them(Oh Muhammad!):"For those who believe,it is a guidance and a healing"(HAMEEM AS-SAJDAH:44)
Thus,the believers earn all manner of blessings and favours of Allah Ta'ala.The truth if this idea may be confirmed by a careful study of the virtues of Imaan(Faith)as contained in the authentic texts.(Quoted from Jazaa Ul A'maal By Maulana Asyraf Ali Thanwi Rahimahullah)

A CERTIFICATE OF GOOD HEALTH

By Hazrat Maulana Yunus Patel Saheb
This is akin to a person who goes to the doctor. The doctor checks
his pressure, heart beat, sugar, etc. and on the basis of this check up
declares him fit and healthy, and gives him a certificate to that
effect.
If this person then goes to a bar, consumes alcohol or takes other
intoxicants, smokes, overeats, does not exercise and indulges in
anything damaging to the health, thinking : “Well I have been given
a certificate of good health.”, can you then blame the doctor for
giving him a certificate of good health?
The doctor had endorsed and confirmed good health based on this
person’s condition at the time of his consultation, and would have
advised him to keep up his exercise and his healthy eating habits to
maintain the same health.
He would have advised him : “If you maintain your present, healthy
diet and lifestyle then, Insha Allah, you will retain your good
health; but if you don’t, then it is not necessary that this good
health will remain.”
The same applies to the spiritual world. Many progress to a certain
level, and the Sheikh, on seeing their favourable condition, grants
Khilafat. Such persons should not think that since they have been
granted Khilafat, they do not have to do anything. If they remain
complacent or neglect their own spiritual progress, then sooner or
later such a person can well be found in the gutters of sin. (May
Allah Ta’ala protect us all.)
On being entrusted with Khilafat, a person should be all the more
mindful, attentive and even cautious. In fact, the person’s fear of
Allah Ta’ala should be even greater. He should thus increase his
Zikr, Tilawat and Ibaadat.
With sincerity and devotion he should adhere, comply and conform
to the Sunnah – thus establishing a firm connection with Allah Ta’ala
and Rasulullah Salam. This is the only medium of steadfastness and the
only way to success – for anyone.
Allah Ta’ala states in the Qur`aan Sharief :
“SAY (O MUHAMMAD SALAM) : IF YOU DO LOVE ALLAH, FOLLOW
ME. ALLAH SHALL LOVE YOU AND FORGIVE YOU YOUR SINS ; AND
ALLAH IS MOST-FORGIVING ,
VERY-MERCIFUL .”
[SURAH AAL-IMRAAN : 31]
On a concerted effort made, he will then reach a very high stage.
...Another point to be mentioned in regard to the Khilafat, is that
sometimes a Sheikh confers Khilafat early, expecting the Khalifa to
then make an effort and work on those aspects of his life which still
require reformation. The Sheikh discerns and perceives, in such a
person, the ability and potential to do so. Consequently, it is left to
the Khalifa to fulfil this hope of his Sheikh.
Furthermore, there are other reasons whereby a person is granted
Khilafat.
Unfortunately, the present trend of some worldly and materially
inclined Sheikhs is their ‘dishing out’ Khilafat to large numbers of
mureeds. Their evil racket and sham is a cause for concern, since
their objective is just to trap more disciples in their nets.
Such corrupt and unethical doings have damaged the good name of
Sulook and Tasawwuf. One will find, both the so-called ‘Peer’ and
his ‘Khalifas’ flagrantly and openly indulging in Haraam, without
fear of Allah Ta’ala. Some even shake hands with ghair-mahram*
female mureeds, socialise and ‘party’ with them.
...In every profession and field you get the good and the bad.

Some Etiquettes of Du’aa

By Hazrat Maulana Yunus Patel Saheb

• It is preferable to perform a good deed before making du’aa.
• To be in a state of Taharat (purity).
• Face the Qiblah.
• Preferably perform Salaatul Hajaat before du’aa.
• Sit in the Tashahud position, as far as possible.
• Praise and glorify Allah Ta’ala before and after du’aa.
• Recite Durood Sharif upon Rasulullah (SAW).
• Raise both hands whilst making du’aa.
• The palms should be kept open, leaving a little space between the hands.
• Du’aa should be made with absolute humility – acknowledging one’s helplessness.
• Du’aa should be made through the intermediary of Allah Ta’ala’s beautiful names.
• Not to make du’aa for anything sinful or for the severance of family ties.
• To cry whilst making du’aa.
• On completion of du’aa, pass the hands over the face.
• To say ‘Aameen’ on completion of the du’aa.
• One’s concentration should be in du’aa.
• Du’aa should be made with conviction of its acceptance and with sincerity.

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At The Airport

[A Piece of Advice from Hazrat Maulana Yunus Patel Saheb (MZ)]

At the Johannesburg International Airport, some brothers requested that I give them some nasihah (advice) before leaving.

I mentioned the following : ‘The Airport itself presents sufficient Ibrat (lesson) for a person’s Islaah (reformation).

Boards are seen, computer screens inform, and announcements are repeatedly heard of Arrivals and Departures . We should take lesson from this.

We have ‘arrived’. Our scheduled arrival to the destination of this world has come to pass. We have journeyed from Aalame-Arwah to this transitory world. Our next journey is to ‘Aalame-Barzakh’, then to the Hereafter.

In this material world, the time of departure is given for the flights that are leaving for various cities and countries. A person can make preparations for travel, accordingly. As is common experience though, flights are sometimes delayed and sometimes cancelled.

Our departure, to the Aakhirah (Hereafter), is scheduled, but absolutely unknown to us. Moreover, the departure of the flight of death will not be delayed or cancelled.

In a couplet that deeply impresses upon the reality of this life, my Sheikh, Hazrat Maulana Hakeem Muhammad Akhtar Saheb, states:

Strange is the visa of life; It can be cancelled at anytime. The duration of its validity is unknown, And its extension too, impossible.

Therefore, like the ‘Eveready’ battery (which is not necessarily ever ready), we need to be ever ready for the journey to the Hereafter. Our boarding passes are already in our hands. It is just a matter of time before departure.

The Azaan, in our right ear, and the Iqaamat, in our left ear, were already given at the time of our birth. All that is left, is the Janaza Salaah at the time of our death. The time between the Iqaamat and Salaah is negligible – so too, is the time span of our lives.

As someone has mentioned : Our life is just like the ‘dash’ between the date of birth and date of passing away, which is inscribed on many a tombstone. Though this ‘dash’ of life is so short, it is such a significant stage in our journey, that it either ‘makes’ or ‘breaks’ our Hereafter. This little dash either delivers a person to Jannat (Heaven in Urdu) or Jahannum. So before someone mentions the date of our departure, we should convert the ‘dash’ of life, to time spent securing provisions for the coming journey.

Then I mentioned that now two new boards are to be found at the airport:

Underground Parking and prayer room upstairs

Our ‘parking’ too is reserved. …What then should we do? Before ‘departure’ and before being ‘parked’ under the ground, we should visit the ‘prayer room’ – meaning, that we should bring the submission and servitude found in prayer or Salaah, into our lives. Submit to the One who gave us this life because very soon will we be returning to Him.

“…And the destination (of all) is to Allah.”
[Surah Ahzaab 35 : 18]

This world is very much like a timeshare. The occupants make full use of all facilities during their week/s or month/s – the lounge, fridge, stove, furniture, air conditioner and the luxuries of the timeshare. However, they know that they will have to move out as soon as their time expires.

Similarly, we should make use of the bounties of Allah Ta’ala in this world, but we should not give our hearts to this world. …How can we give our hearts to a world which is so unfaithful ? …The home in which there is excitement and celebration of a wedding is suddenly plunged into grief, sorrow and mourning.

We should keep before us, the following Hadith of Rasulullah (SAW) : “Verily, the world has been created for you and you have been created for the Aakhirah.”

Preparation for the Aakhirah (Hereafter) does not mean that we will be deprived of the good things of this world. Eat, drink, marry, conduct business and do all other activities according to the teachings of Shariah and Sunnah of Rasulullah (SAW). This is all that is required.

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Islamic Finance

Musharakah & Mudarabah By Maulana Taqi Usmani
Salam & Istisna
Introduction
It is one of the basic conditions for the validity of a sale in Shariah that the commodity (intended to be sold) must be in the physical or constructive possession of the seller. This condition has three ingredients:

Firstly, the commodity must be existing; therefore, a commodity which does not exist at the time of sale cannot be sold.

Secondly, the seller should have acquired the ownership of that commodity. Therefore, if the commodity is existing, but the seller does not own it, he cannot sell it to anybody.

Thirdly, mere ownership is not enough. It should have come in to the possession of the seller, either physically or constructively. If the seller owns a commodity, but he has not taken its delivery himself or through an agent, he cannot sell it.
There are only two exceptions to this general principle in Shari‘ah. One is Salam and the other is Istisna‘. Both are sales of a special nature, and in the present chapter the concept of these two kinds of sale and the extent to which they can be used for the purpose of financing will be explained.

Meaning of Salam
Salam 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.
Here the price is cash, but the supply of the purchased goods is deferred. The buyer is called "rabb-us-salam", the seller is "muslam ilaih", the cash price is "ra’s-ul-mal" and the purchased commodity is termed as "muslam fih", but for the purpose of simplicity, I shall use the English synonyms of these terms.
Salam was allowed by the Holy Prophet ’subject to certain conditions. The basic purpose of this sale was to meet the needs of the small farmers who needed money to grow their crops and to feed their family upto the time of harvest. After the prohibition of riba they could not take usurious loans. Therefore, it was allowed for them to sell the agricultural products in advance.
Similarly, the traders of Arabia used to export goods to other places and to import some other goods to their homeland. They needed money to undertake this type of business. They could not borrow from the usurers after the prohibition of riba. It was, therefore, allowed for them that they sell the goods in advance. After receiving their cash price, they could easily undertake the aforesaid business.

Salam was beneficial to the seller, because he received the price in advance, and it was beneficial to the buyer also, because normally, the price in salam used to be lower than the price in spot sales. The permissibility of salam was an exception to the general rule that prohibits the forward sales, and therefore, it was subjected to some strict conditions. These conditions are summarized below:

Conditions of Salam
1. First of all, it is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time of effecting the sale. It is necessary because in the absence of full payment by the buyer, it will be tantamount to sale of a debt against a debt, which is expressly prohibited by the Holy Prophet Moreover, the basic wisdom behind the permissibility of salam is to fulfill the instant needs of the seller. If the price is not paid to him in full, the basic purpose of the transaction will be defeated. Therefore, all the Muslim jurists are unanimous on the point that full payment of the price is necessary in Salam. However, Imam Malik is of the view that the seller may give a concession of two or three days to the buyers, but this concession should not form part of the agreement.

2. Salam can be effected in those commodities only the quality and quantity of which can be specified exactly. The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam. For example, precious stones cannot be sold on the basis of salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible.

3. Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply the wheat of a particular field, or the fruit of a particular tree, the salam will not be valid, because there is a possibility that the crop of that particular field or the fruit of that tree is destroyed before delivery, and, given such possibility, the delivery remains uncertain. The same rule is applicable to every commodity the supply of which is not certain.

4. It is necessary that the quality of the commodity (intended to be purchased through salam) is fully specified leaving no ambiguity which may lead to a dispute. All the possible details in this respect must be expressly mentioned.

5. It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it is quantified through measures, its exact measure should be known. What is normally weighed cannot be quantified in measures and vice versa.

6. The exact date and place of delivery must be specified in the contract.

7. Salam cannot be effected in respect of things which must be delivered at spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari‘ah, that the delivery of both be simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale. Therefore the contract of salam in this case is not allowed. All the Muslim jurists are unanimous on the principle that salam will not be valid unless all these conditions are fully observed, because they are based on the express ahadith of the Holy Prophet The most famous hadith in this context is the one in which the Holy Prophet has said:

"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".
However, there are certain other conditions which have been a point of difference between the different schools of the Islamic jurisprudence. Some of these conditions are discussed below:

(1) It is necessary, according to the Hanafi school, that the commodity (for which salam is effected) remains available in the market right from the day of contract upto the date of delivery. Therefore, if a commodity is not available in the market at the time of the contract, salam cannot be effected in respect of that commodity, even though it is expected that it will be available in the markets at the date of delivery.

However, the other three schools of Fiqh (i.e. Shafi‘i, Maliki, and Hanbali) are of the view that the availability of the commodity at the time of the contract is not a condition for the validity of salam. What is necessary, according to them, is that it should be available at the time of delivery. This view can be adopted in the present circumstances.

(2) It is necessary, according to the Hanafi and Hanbali schools that the time of delivery is, at least, one month from the date of agreement. If the time of delivery is fixed earlier than one month, salam is not valid. Their argument is that salam has been allowed for the needs of small farmers and traders and therefore, they should be given enough opportunity to acquire the commodity. They may not be able to supply the commodity before one month. Moreover, the price in salam is normally lower than the price in spot sales. This concession in the price may be justified only when the commodities are delivered after a period which has a reasonable bearing on the prices. A period of less than one month does not normally affect the prices. Therefore, the minimum time of delivery should not be less than one month. Imam Malik supports the view that there should be a minimum period for the contract of salam. However, he is of the opinion that it should not be less than fifteen days, because the rates of the market may change within a fortnight. This view is, however, opposed by some other jurists, like Imam Shafi‘i and some Hanafi jurists also. They say that the Holy Prophet has not specified a minimum period for the validity of salam. The only condition, according to the Hadith, is that the time of delivery must be clearly defined. Therefore, no minimum period can be prescribed. The parties may fix any date for delivery with mutual consent. This view seems to be preferable in the present circumstances, because the Holy Prophet has not prescribed a minimum period. The jurists have prescribed different periods which range between one day to one month. It is obvious that they have done so on the basis of expedience and keeping in view the interest of the poor sellers. But the expediency may differ from time to time and from place to place. Likewise, sometimes it is more in the interest of the seller to fix an earlier date. As far as the price is concerned, it is not a necessary ingredient of salam that the price is always lower than the market price on that day. The seller himself is the best judge of his interest, and if he accepts an earlier date of delivery with his free will and consent, there is no reason why he should be forbidden from doing so. Certain contemporary jurists have adopted this view being more suitable for the modern transactions.

Salam as a mode of Financing
It is evident from the foregoing discussion that salam was allowed by Shari‘ah to fulfill the needs of farmers and traders. Therefore, it is basically a mode of financing for small farmers and traders. This mode of financing can be used by the modern banks and financial institutions, especially to finance the agricultural sector. As pointed out earlier, the price in salam may be fixed at a lower rate than the price of those commodities delivered at spot. In this way, the difference between the two prices may be a valid profit for the banks or financial institutions. In order to ensure that the seller shall deliver the commodity on the agreed date, they can also ask him to furnish a security, which may be in the form of a guarantee or in the form of mortgage or hypothecation. In the case of default in delivery, the guarantor may be asked to deliver the same commodity, and if there is a mortgage, the buyer / the financier can sell the mortgaged property and the sale proceeds can be used either to realize the required commodity by purchasing it from the market, or to recover the price advanced by him.

The only problem in salam which may agitate the modern banks and financial institutions is that they will receive certain commodities from their clients, and will not receive money. Being conversant with dealing in money only, it seems to be cumbersome for them to receive different commodities from different clients and to sell them in the market. They cannot sell those commodities before they are actually delivered to them, because it is prohibited in Shari‘ah.
But whenever we talk about the Islamic modes of financing, one basic point should never be ignored. The point is that the concept of the financial institutions dealing in money only is foreign to Islamic Shari‘ah. If these institutions want to earn a halal profit, they shall have to deal in commodities in one way or the other, because no profit is allowed in Shari‘ah on advancing loans only. Therefore, the establishment of an Islamic economy requires a basic change in the approach and in the outlook of the financial institutions. They shall have to establish a special cell for dealing in commodities. If such a special cell is established, it should not be difficult to purchase commodities through salam and to sell them in the spot markets.

However, there are two other ways of benefiting from the contract of Salam.

Firstly, after purchasing a commodity by way of salam, the financial institutions may sell it through a parallel contract of salam for the same date of delivery. The period of salam in the second (parallel) transaction being shorter, the price may be a little higher than the price of the first transaction, and the difference between the two prices shall be the profit earned by the institution. The shorter the period of salam, the higher the price, and the greater the profit. In this way the institutions may manage their short term financing portfolios.

Secondly, if a parallel contract of salam is not feasible for one reason or another, they can obtain a promise to purchase from a third party. This promise shoud be unilateral from the expected buyer. Being merely a promise, and not the actual sale, their buyers will not have to pay the price in advance. Therefore, a higher price may be fixed and as soon as the commodity is received by the institution, it will be sold to the third party at a pre-agreed price, according to the terms of the promise.

A third option is sometimes proposed that, at the date of delivery, the commodity is sold back to the seller at a higher price. But this suggestion is not in line with the dictates of Shari‘ah. It is never permitted by the Shari‘ah that the purchased commodity is sold back to the seller before the buyer takes its delivery, and if it is done at a higher price it will be tantamount to riba which is totally prohibited. Even if it is sold back to the seller after taking delivery from him, it cannot be pre-arranged at the time of original sale. Therefore, this proposal is not acceptable at all.

Some Rules of Parallel Salam
Since the modern Islamic Banks and Financial Institutions are using the instrument of parallel Salam, some rules for the validity of this arrangement are necessary to observe:

1. In an arrangement of parallel salam, the bank enters into two different contracts. In one of them, the bank is the buyer and in the second one the bank is the seller. Each one of these contracts must be independent of the other. They cannot be tied up in a manner that the rights and obligations of one contract are dependant on the rights and obligations of the parallel contract. Each contract should have its own force and its performance should not be contingent on the other.

For example, if A has purchased from B 1000 bags of wheat by way of Salam to be delivered on 31 December, A can contract a parallel Salam with C to deliver to him 1000 bags of wheat on 31 December. But while contracting Parallel Salam with C, the delivery of wheat to C cannot be conditioned with taking delivery from B. Therefore, even if B did not deliver wheat on 31 December, A is duty bound to deliver 1000 bags of wheat to C. He can seek whatever recourse he has against B, but he cannot rid himself from his liability to deliver wheat to C.
Similarly, if B has delivered defective goods which do not conform with the agreed specifications, A is still obligated to deliver the goods to C according to the specifications agreed with him.

2. Parallel Salam is allowed with a third party only. The seller in the first contract cannot be made purchaser in the parallel contract of salam, because it will be a buy-back contract, which is not permissible in Shari‘ah. Even if the purchaser in the second contract is a separate legl entity, but it is fully owned by the seller in the first contract the arrangement will not be allowed, because in practical terms it will amount to 'buy-back' arrangement. For example A has purchased 1000 bags of wheat by way of Salam from B, a joint stock company. B has a subsidiary C, which is a separate legal entity but is fully owned by B. A cannot contract the parallel salam with C. However, if C is not wholly owned by B, A can contract parallel salam with it, even if some share-holders are common between B and C.

ISTISNA‘
'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.
The contract of istisna‘ creates a moral obligation on the manufacturer to manufacture the goods, but before he starts the work, any one of the parties may cancel the contract after giving a notice to the other . However after the manufacturer has started the work, the contract cannot be cancelled unilaterally.

Difference between Istisna‘ and Salam
Keeping in view this nature of istisna‘ there are several points of difference between istisna‘ and salam which are summarized below:

(i) The subject of istisna‘ is always a thing which needs manufacturing, while salam can be effected on any thing, no matter whether it needs manufacturing or not.

(ii) It is necessary for salam that the price is paid in full in advance, while it is not necessary in istisna‘.

(iii) The contract of salam, once effected, cannot be cancelled unilaterally, while the contract of istisna‘ can be cancelled before the manufacturer starts the work.

(iv) The time of delivery is an essential part of the sale in salam while it is not necessary in istisna‘ that the time of delivery is fixed.

Difference between Istisna‘ and Ijarah
It should also be kept in mind that the manufacturer, in istisna‘, undertakes to make the required goods with his own material. Therefore, this transaction implies that the manufacturer shall obtain the material, if it is not already with him, and shall undertake the work required for making the ordered goods with it. If the material is provided by the customer, and the manufacturer is required to use his labor and skill only, the transaction is not istisna‘. In this case it will be a transaction of ijarah whereby the services of a person are hired for a specified fee paid to him.

When the required goods have been manufactured by the seller, he should present them to the purchaser. But there is a difference of opinion among the Muslim jurists whether or not the purchaser has a right to reject the goods at this stage. Imam Abu Hanifah is of the view that he can exercise his 'option of seeing' (Khiyar-ur-ru’yah) after seeing the goods, because istisna‘ is a sale and if somebody purchases a thing which is not seen by him, he has the option to cancel the sale after seeing it. The same principle is also applicable to istisna‘.

However, Imam Abu Yousuf says that if the commodity conforms to the specifications agreed upon between the parties at the time of the contract, the purchaser is bound to accept the goods and he cannot exercise the option of seeing. This view has been preferred by the jurists of the Ottoman Empire, and the Hanafi law has been codified according to this view, because it is damaging in the context of modern trade and industry that after the manufacturer has used all his resources to prepare the required goods, the purchaser cancels the sale without assigning any reason, even though the goods are in full conformity with the required specifications.

Time of Delivery
As pointed out earlier, it is not necessary in istisna‘ that the time of delivery is fixed. However, the purchaser may fix a maximum time for delivery which means that if the manufacturer delays the delivery after the appointed time, he will not be bound to accept the goods and to pay the price. In order to ensure that the goods will be delivered within the specified period, some modern agreements of this nature contain a penal clause to the effect that in case the manufacturer delays the delivery after the appointed time, he shall be liable to a penalty which shall be calculated on daily basis. Can such a penal clause be inserted in a contract of istisna‘ according to Shari‘ah? Although the classical jurists seem to be silent about this question while they discuss the contract of istisna‘, yet they have allowed a similar condition in the case of ijarah. They say that if a person hires the services of a person to tailor his clothes, the fee may be variable according to the time of delivery. The hirer may say that he will pay Rs. 100/- in case the tailor prepares the clothes within one day and Rs. 80/- in case he prepares them after two days. On the same analogy, the price in istisna‘ may be tied up with the time of delivery, and it will be permissible if it is agreed between the parties that in the case of delay in delivery, the price shall be reduced by a specified amount per day.

Istisna‘ as a mode of financing
Istisna‘ can be used for providing the facility of financing in certain transactions, especially in the house finance sector. If the client has his own land and he seeks financing for the construction of a house, the financier may undertake to construct the house at that open land, on the basis of istisna‘, and if the client has no land and he wants to purchase the land also, the financier may undertake to provide him a constructed house on a specified piece of land.

Since it is not necessary in istisna‘ that the price is paid in advance, nor is it necessary that it is paid at the time of delivery, (it may be deferred to any time according to the agreement of the parties,1), therefore, the time of payment may be fixed in whatever manner they wish. The payment may also be in installments. On the other hand, it is not necessary that the financier himself constructs the house. He can enter into a parallel contract of istisna‘ with a third party, or may hire the services of a contractor (other than the client). In both cases, he can calculate his cost and fix the price of istisna‘ with his client in a manner which may give him a reasonable profit over his cost. The payment of installments by the client may start, in this case, right from the day when the contract of istisna‘ is signed by the parties, and may continue during the construction of the house and after it is handed over to the client. In order to secure the payment of the installments, the title deeds of the house or land, or any other property of the client may be kept by the financier as a security, until the last installment is paid by the client.

The financier, in this case, will be responsible for the construction of the house in full conformity with the specifications detailed in the agreement. In the case of any discrepancy, the financier will undertake such alteration at his own cost as may be necessary for bringing it in harmony with the terms of the contract.

The instrument of istisna‘ may also be used for project financing on similar lines. If a client wants to install an air-conditioning plant in his factory, and the plant needs to be manufactured, the financier may undertake to prepare the plant through the contract of istisna‘ according to the aforesaid procedure. Similarly, the contract of istisna‘ can be used for building a bridge or a highway.

The modern BOT (Buy, Operate and Transfer) agreements may also be formalized on the basis of istisna‘. If a government wants to construct a highway, it may enter into a contract of istisna‘ with a builder. The price of istisna‘, in this case, may be the right of the builder to operate the highway and collect tolls for a specified period.

Islamic Finance

Musharakah & Mudarabah By Maulana Taqi Usmani

Some objections on Musharakah Financing
Let us now examine some objections raised from practical point of view against using musharakah as a mode of financing.

Risk of Loss
1. It is argued that the arrangement of musharakah is more likely to pass on losses of the business to the financier bank or institution. This loss will be passed on to depositors also. 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.

This argument is, however, misconceived. Before financing on the basis of musharakah, the banks and financial institution will study the feasibility of the proposed business for which funds are needed. Even in the present system of interest-based loans the banks do not advance loans to each and every applicant. They study the potentials of the business and if they apprehend that the business is not profitable, they refuse to advance a loan. In the case of musharakah, they will have to carry out this study with more depth and precaution.

Moreover, no bank or financial institution can restrict itself to a single musharakah. There will always be a diversified portfolio of musharakah. If a bank has financed 100 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. After taking proper measures and due care, what can happen at the most is that some and them make a loss. But on the other hand, the profitable musharakahs are expected to give more return than the interest-based loans, because the actual profit is supposed to be distributed between the client and the bank. Therefore, the musharakah portfolio, as a whole, is not expected to suffer loss, and the possibility of loss to the whole portfolio is merely a theoretical possibility which should not discourage the depositors. This theoretical possibility of loss in a financial institution is much less than the possibility of loss in a joint stock company whose business is restricted to a limited sector of commercial activities. Still, the people purchase its shares and the possibility of loss does not refrain them from investing in these shares. The case of the bank and financial institutions is much stronger, because their musharakah activities will be so diversified that any possible loss in one musharakah will be more than compensated by the profits earned in other musharakahs.

Apart from this, 'an Islamic economy must create a mentality which believes that any profit earned on money is the reward of bearing risks of the business. This risk may be minimized through expertise and diversifying the portfolio where it becomes a hypothetical or theoretical risk only. But there is no way to eliminate this risk totally. The one who wants to earn profit, must accept this minimal risk. Since this understanding is already there in the case of normal joint stock companies, nobody has ever raised the objection that the money of the shareholders is exposed to loss. The problem is created by the system which separates the banking and financing from the normal trade activities, and which has compelled the people to believe that 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. Therefore, it is argued that they deserve a fixed return in any case. This separation of financing sector from the sector of trade and industry has brought great harms to the economy at macro-level. Obviously, when we speak of Islamic banking, we never mean that it will follow this conventional system in each and every respect. Islam has its own values and principles which do not believe in separation of financing from trade and industry. Once this Islamic system is understood, the people will invest in the financing sector, despite the theoretical risk of loss, more readily than they invest in the profitable joint stock companies.

Dishonesty
Another apprehension against musharakah financing is that the dishonest clients may exploit the instrument of musharakah by not paying any return to the financiers. They can always show that the business did not earn any profit. Indeed, they can claim that it has suffered a loss in which case not only the profit, but also the principal amount will be jeopardized.
It is, no doubt, a valid apprehension, especially in societies where corruption is the order of the day. However, solution to this problem is not as difficult as is generally believed or exaggerated.

If all the banks in a country are run on pure Islamic pattern with a careful support from the Central Bank and the government, the problem of dishonesty is not hard to overcome. First of all, a well-designed system of auditing should be implemented whereby the accounts of all the clients are fully maintained and properly controlled. It is already discussed that the profits may be calculated to the basis of gross margins only. It will reduce the possibility of disputes and misappropriation. However, if any misconduct, dishonesty or negligence is established against a client, he will be subjected to punitive steps, and may be deprived of availing any facility from any bank in the country, at least for a specified period.

These steps will serve as strong deterrent against concealing the actual profits or committing any other act of dishonesty. Otherwise also, the clients of the banks cannot afford to show artificial losses constantly, because it will be against their own interest in many respects. It is true that even after taking all such precautions, there will remain a 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.

Undoubtedly, the apprehension of dishonesty is more severe for the Islamic Banks and Financial institutions working in isolation from the main stream of conventional banks. They have not much support from their respective governments and central Banks. They cannot change the system, nor can they impose their own laws and regulations. However, they should not forget that they are not just commercial institutions. They have been established to introduce a new system of banking which has its own philosophy. They are duty bound to promote this new system, even if they apprehend that it will reduce the size of their profits to some extent. Therefore, they should start using the instrument of musharakah, at least on a selective basis. Each and every bank has a number of clients whose integrity is beyond all doubts. The Islamic banks should, at least, start financing them on the basis of true musharakah. It will help setting good precedents in the market and induce others to follow suit. Moreover, there are some sectors of financing where musharakah can be used easily. For example, the use of musharakah instrument in financing exports has not much room for dishonesty. The exporter has a specific order from abroad. The prices are agreed. The cost is not difficult to determine. Payments are normally secured by a letter of credit. The payments are made through the bank itself. There is no reason in such cases why the musharakah arrangement should not be adopted. Similarly, financing of imports may also be designed on the basis of musharakah with some precautions, as explained earlier in this chapter.

Secrecy of the Business
Another criticism against musharakah is that, by making the financier a partner in the business of the client, it may disclose the secrets of the business to the financier, and through him to other traders.

However, the solution to this problem is very easy. The client, while entering into the musharakah, may put a condition that the financier will not interfere with the management affairs, and he will not disclose any information about the business to any person without prior permission of the client. Such agreements of maintaining secrecy are always honored by the prestigious institutions, especially by the banks and financial institutions whose entire business is based on confidentiality.

Clients' Unwillingness to Share Profits
Many a time, it is mentioned that the clients are not willing to share with the Banks the actual profits of their business. The reluctance is based on two reasons:

1. They think that the bank has no right to share in the actual profit, which may be substantial, because the bank has nothing to do with the management or running of the business and why should they (the clients) share the fruit of their labour with the Bank who merely provides funds. The Clients also argue that conventional banks are content with a meagre rate of interest and so should be the Islamic Banks.

2. Even if the above was not a factor, the Clients are afraid to reveal their true profits to the Banks, lest the information is also passed on to the tax authorities and Clients' tax liability increases.

The solution to the first part, though not easy, is not difficult or impossible either. Such Clients need to be convinced and persuaded that borrowing on interest is a cardinal sin, unless there is a dire necessity for such borrowing. Mere expansion of business is not a dire need, by any stretch of imagination. By making a legitimate arrangement for obtaining funds for their business, by way of Musharakah, not only do they earn Allah's pleasure but also a legitimate return for themselves, as well as for the Islamic Banks.

In respect of the second factor, all that can be said is that in some muslim countries, rate of taxation are indeed prohibitive and unjust. Islamic Banks as well as their Clients must lobby with the governments and struggle to change the laws which hamper the progress towards Islamic banking. The governments should also try to appreciate the fact that if rates of taxation are reasonable and if the tax-payers are convinced that they will benefit by honestly paying their taxes, this would increase, and not decrease, government revenues.

Islamic Finance

Musharakah & Mudarabah By Maulana Taqi Usmani

Musharakah
'Musharakah' is a word of Arabic origin which literally means sharing. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is an ideal alternative for the interest-based financing with far reaching effects on both production and distribution. In the modern capitalist economy, interest is the sole instrument indiscriminately used in financing of every type. Since Islam has prohibited interest, this instrument cannot be used for providing funds of any kind. Therefore, 'Musharakah' can play a vital role in an economy based on Islamic principles.

'Interest' predetermines a fixed rate of return on a loan advanced by the financier irrespective of the profit earned or loss suffered by the debtor, while Musharakah does not envisage a fixed rate of return. Rather, the return in Musharakah is based on the actual profit earned by the joint venture. The financier in an interest-bearing loan cannot suffer loss while the financier in Musharakah can suffer loss, if the joint venture fails to produce fruits. Islam has termed interest as an unjust instrument of financing because it results in injustice either to the creditor or to the debtor. If the debtor suffers a loss, it is unjust on the part of the creditor to claim a fixed rate of return; and if the debtor earns a very high rate of profit, it is injustice to the creditor to give him only a small proportion of the profit leaving the rest for the debtor.

In the modern economic system, it is the banks which advance depositors' money as loans to industrialists and traders. If industrialists having only ten million of their own, acquire 90 million from the banks and embark on a huge profitable project, it means that 90% of the project has been created by the money of the depositors while only 10% has been created by their own capital. If this huge project brings enormous profits, only a small proportion i.e. 14 or 15% will go to the depositors through the bank, while all the rest will be gained by the industrialists whose real contribution to the project is not more than 10%. Even this small proportion of 14 or 15% is taken back by the industrialists, because this proportion is included by them in the cost of their production. The net result is that all the profit of the enterprise is earned by the persons whose own capital does not exceed 10% of the total investment, while the people owning 90% of the investment get no more than the fixed rate of interest which is often repaid by them through the increased prices of the products. On the contrary, if in an extreme situation, the industrialists go insolvent, their own loss is no more than 10%, while the rest of 90% is totally borne by the bank, and in some cases, by the depositors. In this way, the rate of interest is the main cause for imbalances in the system of distribution, which has a constant tendency in favor of the rich and against the interests of the poor.

Conversely, Islam has a clear cut principle for the financier. According to Islamic principles, a financier must determine whether he is advancing a loan to assist the debtor on humanitarian grounds or he desires to share his profits. If he wants to assist the debtor, he should resist from claiming any excess on the principal of his loan, because his aim is to assist him. However, if he wants to have a share in the profits of his debtor, it is necessary that he should also share him in his losses. Thus the returns of the financier in Musharakah have been tied up with the actual profits accrued through the enterprise. The greater the profits of the enterprise, the higher the rate of return to the financier. If the enterprise earns enormous profits, all of it cannot be secured by the industrialist exclusively, but they will be shared by the common people as depositors in the bank. In this way, Musharakah has a tendency to favor the common people rather than the rich only.

This is the basic philosophy which explains why Islam has suggested Musharakah as an alternative to the interest based financing. No doubt, Musharakah embodies a number of practical problems in its full implementation as a universal mode of financing. It is sometimes presumed that Musharakah is an old instrument which cannot keep pace with the ever-advancing need for speedy transactions. However, this presumption is due to the lack of proper knowledge concerning the principles of Musharakah. In fact, Islam has not prescribed a specific form or procedure for Musharakah. Rather, it has set some broad principles which can accommodate numerous forms and procedures. A new form or procedure in Musharakah cannot be rejected merely because it has no precedent in the past. In fact, every new form can be acceptable to the Shariah in so far as it does not violate any basic principle laid down by the Holy Qur’an, the Sunnah or the consensus of the Muslim jurists. Therefore, it is not necessary that Musharakah be implemented only in its traditional old form.

The present chapter contains a discussion of the basic principles of Musharakah and the way in which it can be implemented in the context of modern business and trade. This discussion is aimed at introducing Musharakah as a modern mode of financing without violating its basic principles in any way. Musharakah has been introduced with reference to the books of Islamic jurisprudence, and basic problems which may be faced in implementing it in a modern situation. It is hoped that this brief discussion will open new horizons for the thinking of Muslim jurists and economists and may help implementing a true Islamic economy.

The Concept of Musharakah

Musharakah" is a term frequently referred to in the context of Islamic modes of financing. The connotation of this term is a little limited than the term "Shirkah" more commonly used in the Islamic jurisprudence. For the purpose of clarity in the basic concepts, it will be pertinent at the outset to explain the meaning of each term, as distinguished from the other.

"Shirkah" means "Sharing" and in the terminology of Islamic Fiqh, it has been divided into two kinds:

(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: Sometimes it comes into operation at the option of the parties. For example, if two or more persons purchase an equipment, it will be owned jointly by both of them and the relationship between them with regard to that property is called "Shirkat-ul-milk." Here this relationship has come into existence at their own option, as they themselves elected to purchase the equipment jointly.

But there are cases where this kind of "Shirkah" comes to operate automatically without any action taken by the parties. For example, after the death of a person, all his heirs inherit his property which comes into their joint ownership as an automatic consequence of the death of that person.

(2) Shirkat-ul-‘aqd: This is the second type of Shirkah which means "a partnership effected by a mutual contract". For the purpose of brevity it may also be translated as "joint commercial enterprise."

Shirkat-ul-‘aqd is further divided into three kinds:

(i) Shirkat-ul-amwal where all the partners invest some capital into a commercial enterprise.

(ii) 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. For example, if two persons agree to undertake tailoring services for their customers on the condition that the wages so earned will go to a joint pool which shall be distributed between them irrespective of the size of work each partner has actually done, this partnership will be a shirkat-ul-a‘mal which is also called Shirkat-ut-taqabbul or Shirkat-us-sana’i‘ or Shirkat-ul-abdan.

(iii)The third kind of Shirkat-ul-‘aqd is Shirkat-ul-wujooh. 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.

All these modes of "Sharing" or partnership are termed as "Shirkah" in the terminology of Islamic Fiqh, while the term "musharakah" is not found in the books of Fiqh. This term (i.e. musharakah) has been introduced recently by those who have written on the subject of Islamic modes of financing and it is normally restricted to a particular type of "Shirkah", that is, the Shirkat-ul-amwal, where two or more persons invest some of their capital in a joint commercial venture. However, sometimes it includes Shirkat-ul-a‘mal also where partnership takes place in the business of services.

It is evident from this discussion that the term "Shirkah" has a much wider sense than the term "musharakah" as is being used today. The latter is limited to the "Shirkat-ul-amwal " only, while the the former includes all types of joint ownership and those of partnership. Table 1 will show the different kinds of "Shirkah" and the two kinds which are called Musharakah" in the modern terminology.

Since "musharakah" is more relevant for the purpose of our discussion, and it is almost analogous to "Shirkat-ul-amwal", we shall now dwell upon it, explaining at the first instance, the traditional concept of this type of Shirkah, then giving a brief account of its application to the concept of financing in the modern context.

The basic rules of Musharakah

1. Musharakah or Shirkat-ul-amwal is a relationship established by the parties through a mutual contract. Therefore, it goes without saying that all the necessary ingredients of a valid contract must be present here also. For example, the parties should be capable of entering into a contract; the contract must take place with free consent of the parties without any duress, fraud or misrepresentation, etc., etc.

But there are certain ingredients which are peculiar to the contract of "musharakah". They are summarized here:

Distribution of Profit

The proportion of profit to be distributed between the partners must be agreed upon at the time of effecting the contract. If no such proportion has been determined, the contract is not valid in Shari‘ah.

The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners, or any rate of profit tied up with his investment.

Therefore, if A and B enter into a partnership and it is agreed between them that A shall be given Rs 10,000/- per month as his share in the profit, and the rest will go to B, the partnership is invalid. Similarly, if it is agreed between them that A will get 15% of his investment, the contract is not valid. The correct basis for distribution would be an agreed percentage of the actual profit accrued to the business.

If a lump sum amount or a certain percentage of the investment has been agreed for any one of the partners, it must be expressly mentioned in the agreement that it will be subject to the final settlement at the end of the term, meaning thereby that any amount so drawn by any partner shall be treated as 'on account payment' and will be adjusted to the actual profit he may deserve at the end of the term. But if no profit is actually earned or is less than anticipated, the amount drawn by the partner shall have to be returned.

Is it necessary that the ratio of profit of each partner conforms to the ratio of capital invested by him? There is a difference of opinion among the Muslim jurists about this question.

In the view of Imam Malik and Imam Shafi‘i, it is necessary for the validity of musharakah that each partner gets the profit exactly in the proportion of his investment. Therefore, if A has invested 40% of the total capital, he must get 40% of the profit. Any agreement to the contrary which makes him entitled to get more or less than 40% will render the musharakah invalid in Shari‘ah.

On the contrary, the view of Imam Ahmad is that the ratio of profit may differ from the ratio of investment if it is agreed between the partners with their free consent. Therefore, it is permissible that a partner with 40% of investment gets 60% or 70% of the profit, while the other partner with 60% of investment gets only 40% or 30%.

The third view is presented by Imam Abu Hanifah which can be taken as a via media between the two opinions mentioned above. He says that the ratio of profit may differ from the ratio of investment in normal conditions. However, if a partner has put an express condition in the agreement that he will never work for the musharakah and will remain a sleeping partner throughout the term of musharakah, then his share of profit cannot be more than the ratio of his investment.
Sharing of Loss

But in the case of loss, all the Muslim jurists are unanimous on the point that each partner shall suffer the loss exactly according to the ratio of his investment. Therefore, if a partner has invested 40% of the capital, he must suffer 40% of the loss, not more, not less, and any condition to the contrary shall render the contract invalid. There is a complete consensus of jurists on this principle. 3

Therefore, according to Imam Shafi‘i, the ratio of the share of a partner in profit and loss both must conform to the ratio of his investment. But according to Imam Abu Hanifah and Imam Ahmad, the ratio of the profit may differ from the ratio of investment according to the agreement of the partners, but the loss must be divided between them exactly in accordance with the ratio of capital invested by each one of them. It is this principle that has been mentioned in the famous maxim:

Profit is based on the agreement of the parties, but loss is always subject to the ratio of investment.

The Nature of the Capital

Most of the Muslim jurists are of the opinion that the capital invested by each partner must be in liquid form. It means that the contract of musharakah can be based only on money, and not on commodities. In other words, the share capital of a joint venture must be in monetary form. No part of it can be contributed in kind. However, there are different views in this respect.

1. Imam Malik is of the view that the liquidity of capital is not a condition for the validity of musharakah, therefore, it is permissible that a partner contributes to the musharakah in kind, but his share shall be determined on the basis of evaluation according to the market price prevalent at the date of the contract. This view is also adopted by some Hanbali jurists.

2. Imam Abu Hanifah and Imam Ahmad are of the view that no contribution in kind is acceptable in a musharakah. Their standpoint is based on two reasons:

Firstly, they say that the commodities of each partner are always distinguishable from the commodities of the other. For example, if A has contributed one motor car to the business, and B has come with another motor car, each one of the two cars is the exclusive property of its original owner. Now, if the car of A is sold, its sale-proceeds should go to A. B has no right to claim a share in its price. Therefore, so far as the property of each partner is distinguished from the property of the other, no partnership can take place. On the contrary, if the capital invested by every partner is in the form of money, the share capital of each partner cannot be distinguished from that of the other, because the units of money are not distinguishable, therefore, they will be deemed to form a common pool, and thus the partnership comes into existence.

Secondly, they say, there are a number of situations in a contract of musharakah where the partners have to resort to redistribution of the share-capital to each partner. If the share-capital was in the form of commodities, such redistribution cannot take place, because the commodities may have been sold at that time. If the capital is repaid on the basis of its value, the value may have increased, and there is a possibility that a partner gets all the profit of the business, because of the appreciation in the value of the commodities he has invested, leaving nothing for the other partner. Conversely, if the value of those commodities decreases, there is a possibility that one partner secures some part of the original price of the commodity of the other partner in addition to his own investment.

3. Imam al-Shafi‘i has come with a via media between the two points of view explained above. He says that the commodities are of two kinds:

(i) Dhawat-ul-amthal i.e. the commodities which, if destroyed, can be compensated by the similar commodities in quality and quantity e.g. wheat, rice etc. If 100 kilograms of wheat are destroyed, they can easily be replaced by another 100 kg. of wheat of the same quality.

(ii) Dhawat-ul-qeemah i.e. the commodities which cannot be compensated by the similar commodities, like the cattle. Each head of sheep, for example, has its own characteristics which cannot be found in any other head. Therefore, if somebody kills the sheep of a person, he cannot compensate him by giving him similar sheep. Rather, he is required to pay their price.

Now, Imam al-Shafi‘i says that the commodities of the first kind (i.e. Dhawat-ul-amthal) may be contributed to the musharakah as the share of a partner in the capital, while the commodities of the second kind (i.e. the Dhawat-ul-qeemah) cannot form part of the share capital.

By this distinction between Dhawat-ul-amthal and Dhawat-ul-qeemah, Imam al-Shafi‘i has met the second objection on 'participation by commodities' as was raised by Imam Ahmad. For in the case of Dhawat-ul-amthal, redistribution of capital may take place by giving to each partner the similar commodities he had invested. However, the first objection remains still unanswered by Imam al-Shafi‘i.

In order to meet this objection also, Imam Abu Hanifah says that the commodities falling under the category of Dhawat-ul-amthal can form part of the share capital only if the commodities contributed by each partner have been mixed together, in such a way that the commodity of one partner cannot be distinguished from that of the other.

In short, if a partner wants to participate in a musharakah by contributing some commodities to it, he can do so according to Imam Malik without any restriction, and his share in the musharakah shall be determined on the basis of the current market value of the commodities, prevalent at the date of the commencement of musharakah. According to Imam al-Shafi‘i, however, this can be done only if the commodity is from the category of Dhawat-ul-amthal.

According to Imam Abu Hanifah, if the commodities are Dhawat-ul-amthal, this can be done by mixing the commodities of each partner together. And if the commodities are Dhawat-ul-qeemah, then, they cannot form part of the share capital.

It seems that the view of Imam Malik is more simple and reasonable and meets the needs of the modern business. Therefore, this view can be acted upon.

We may, therefore, conclude from the above discussion that the share capital in a musharakah can be contributed either in cash or in the form of commodities. In the latter case, the market value of the commodities shall determine the share of the partner in the capital.

Management of Musharakah

The normal principle of musharakah is that every partner has a right to take part in its management and to work for it. However, the partners may agree upon a condition that the management shall be carried out by one of them, and no other partner shall work for the musharakah. But in this case the sleeping partner shall be entitled to the profit only to the extent of his investment, and the ratio of profit allocated to him should not exceed the ratio of his investment, as discussed earlier.

However, if all the partners agree to work for the joint venture, each one of them shall be treated as the agent of the other in all the matters of the business and any work done by one of them in the normal course of business shall be deemed to be authorized by all the partners.

Termination of Musharakah

Musharakah is deemed to be terminated in any one of the following events:

(1) Every partner has a right to terminate the musharakah at any time after giving his partner a notice to this effect, whereby the musharakah will come to an end.
In this case, if the assets of the musharakah are in cash form, all of them will be distributed pro rata between the partners. But if the assets are not liquidated, the partners may agree either on the liquidation of the assets, or on their distribution or partition between the partners as they are. If there is a dispute between the partners in this matter i.e. one partner seeks liquidation while the other wants partition or distribution of the non-liquid assets themselves, the latter shall be preferred, because after the termination of musharakah, all the assets are in the joint ownership of the partners, and a co-owner has a right to seek partition or separation, and no one can compel him on liquidation. However, if the assets are such that they cannot be separated or partitioned, such as machinery, then they shall be sold and the sale-proceeds shall be distributed.

(2) If any one of the partners dies during the currency of musharakah, the contract of musharakah with him stands terminated. His heirs in this case, will have the option either to draw the share of the deceased from the business, or to continue with the contract of musharakah.

(3) If any one of the partners becomes insane or otherwise becomes incapable of effecting commercial transactions, the musharakah stands terminated. Termination of Musharakah without closing the business If one of the partners wants termination of the musharakah, while the other partner or partners like to continue with the business, this purpose can be achieved by mutual agreement. The partners who want to run the business may purchase the share of the partner who wants to terminate his partnership, because the termination of musharakah with one partner does not imply its termination between the other partners.
However, in this case, the price of the share of the leaving partner must be determined by mutual consent, and if there is a dispute about the valuation of the share and the partners do not arrive at an agreed price, the leaving partner may compel other partners on the liquidation or on the distribution of the assets themselves.

The question arises whether the partners can agree, while entering into the contract of the musharakah, on a condition that the liquidation or separation of the business shall not be effected unless all the partners, or the majority of them wants to do so, and that a single partner who wants to come out of the partnership shall have to sell his share to the other partners and shall not force them on liquidation or separation.

Most of the traditional books of Islamic Fiqh seem to be silent on this question. However, it appears that there is no bar from the Shari‘ah point of view if the partners agree to such a condition right at the beginning of the musharakah. This is expressly permitted by some Hanbali jurists. This condition may be justified, especially in the modern situations, on the ground that the nature of business, in most cases today, requires continuity for its success, and the liquidation or separation at the instance of a single partner only may cause irreparable damage to the other partners.

If a particular business has been started with huge amounts of money which has been invested in a long term project, and one of the partners seeks liquidation in the infancy of the project, it may be fatal to the interests of the partners, as well as to the economic growth of the society, to give him such an arbitrary power of liquidation or separation. Therefore, such a condition seems to be justified, and it can be supported by the general principle laid down by the Holy Prophet ’in his famous hadith:

All the conditions agreed upon by the muslims are upheld, except a condition which allows what is prohibited or prohibits what is lawful.

So far the basic concept of shirkat-ul-amwal or musharakah in its original and traditional sense have been summarized.
Now we are in a position to discuss some basic issues involved in its application to the modern conditions as an approved mode of financing. But it seems more pertinent to discuss these issues after giving an introductory account of mudarabah which is another type of profit-sharing and a typical mode of financing. Since the rules of financing in both musharakah and mudarabah are similar and the issues involved in their application are inter related, it will be more useful to discuss the concept of mudarabah before embarking on these issues.