Understanding Islamic Finance - Doha Academy of Tertiary Studies

Participatory Modes: Shirkah and its Variants 311of obligation is made clear before the contract is effected, for example, joint credit purchaseof a specific commodity and sale at a profit. 10Hanafi and Hanbali jurists, however, agree upon the validity of such a form of partnership.Loss in this form of Shirkah will have to be borne as per the liability taken at the beginning.If such a contract is enforced without first stipulating the extent of liability of each partner,they will be responsible for credit taken by each of them individually and the workingpartner will be entitled to wages for his work and not to a share in profits.MudarabahMudarabah, or partnership in the profits of capital and labour, signifies a contract of partnershipin which one party is entitled to profit on account of its Māl, while the other partyis entitled to profit on account of its labour.Of the above-mentioned kinds, Shirkah al ‘Inan and Mudarabah are the most popularkinds of partnership and enjoy Ijma‘a of the jurists. Shafi‘e, Jafari and Zahirites like IbnHazm treat only these two forms of Shirkah as lawful modes of joint venture. For the Shafi‘eand Jafari schools, Shirkah is a contract between two or more (persons) made with a viewto making all profits common between the two (or among all the partners); the object ofcontract preferably being trade. Hanafi and Maliki jurists believe in a broader circle of jointbusiness practices.Shirkahal ‘Inan is suitable for joint businesses, adaptable to any situation and practicablein the present day’s advanced commercial practices. It refers to a joint enterprise formed forconducting any business with the condition that all partners shall share the profit accordingto a specified ratio, while the loss will be shared according to the ratio of contribution tothe capital of the joint business. Two or more partners that are considered agents (Wakil) ofother partners share the business on the basis of the following conditions:1. Capital can be invested by the partners in any proportion.2. Power of appropriation in the property and participation in the affairs of the Shirkah maybe different and disproportionate to the capital invested by the partners.3. Profit may be divisible unequally and disproportionate to the capital invested, and maybe according to the agreement of the partners.4. Loss is to be shared in proportion to the capital invested.5. Each partner is an agent to the other partners.6. No partner is responsible for indemnification of the acts of commission and omissionson the part of other partners.There are a number of views regarding the last-mentioned condition above. Regardingrights and liabilities of partners, jurists contend that partners are allowed to sell partnershipcapital/assets, perform trading business with it, give it as deposit or collateral with othersand hand it over to any person for business on a Mudarabah basis. 11 Further, jurists considerthat the partners can perform all other acts that are according to the custom or commonpractice, subject to compliance with the main Sharī´ah principles. If any partner takes a loanfor the joint business, all partners will be (jointly) liable to pay. 1210 Al Mudawwanah, 1323 AH, 12, p.5.11 Al-Kasani, 1993, 6, pp. 68, 69.12 Al-Kasani, 1993, 6, p.72.