Understanding Islamic Finance - Doha Academy of Tertiary Studies

314 Understanding Islamic Financeunanimous that the value of goods should be assessed in terms of monetary units. Debtcannot become part of partnership capital until it is received.In the case of limited companies, capital is given the form of equal units called shares,and the intended partners can buy as many of these shares as possible disproportionately.The objects which, according to Islamic law, cannot be sold or utilized cannot form thebasis of a partnership contract. Broadly, Shirkah rules require that the capital of the partnersshould be merged and commingled. The implication of commingling is that individualownership is replaced by the collective ownership of the joint venture and any appreciationin value of the Musharakah assets will reflect the right of all the partners with the ratio oftheir capital; any partner cannot say that his part, a shop for example, that he contributedto the business at the beginning, has appreciated more in the case of a rise in its price,and hence only he is entitled to the enhancement. Commingling does not necessarily implyan indistinguishable character that the amount of capital should be in the form of cash, oridentical goods or transfer of money or goods towards the partnership capital just at the timeof contract. The merger can be actual or constructive, the latter being made on the basis ofvaluation on any agreed standard like market value. In the case of goods, the share of thepartners will be calculated in terms of their money value at the time of contract.After analysing the views of jurists of all schools of thought regarding the nature ofcapital, Shaikh Muhammad Taqi Usmani has concluded:“We may, therefore, conclude that the share capital in a Musharakah can be contributed either incash or in the form of commodities. In the latter case, the market value of the commodities shalldetermine the share of the partner in the capital”. 22Other aspects relating to the nature of partnership capital in the modern age include thefollowing: a person can become a partner of a running business having fixed assets byinvesting capital in cash/kind, merger of various partnership firms is also possible. 23This implies that the capital of all the partners has to be quantified and specified. In thecase of running business, valuation should be made in such a way that cash/receivablesare taken at face value and the conversion rate in the case of different currencies shouldbe that of the day of execution of the Musharakah contract. In the case of fixed assets, anagreed-upon value will be taken, while the average utilized amount should be considered asMusharakah capital if financing is made on the basis of running Musharakah, as in the caseof deposit management by Islamic banks on the basis of Shirkah.12.3.3 Mutual Relationship Among Partners and Musharakah ManagementRulesShirkah business is managed by the will and equal right of all the partners. As indicatedearlier, parties to a contractual Musharakah are agents of one another. When a contractof Musharakah is executed, the conditions of agency are automatically presumed to bein existence in the contract. The actual possession of one partner over property of theMusharakah business is in the constructive possession of the other partners. However, if apartner purchases something for himself only, it is exclusively for him and not for the jointbusiness.22 Usmani, 2000a, pp. 38–41.23 This is according to Ahnaf, Malikis and Hanbali (Al-Kasani, 1993, 6:60; Ibn-Qudama, 1367 AH, 5:129; Usmani, 2000b,pp. 257–261).