Understanding Islamic Finance - Doha Academy of Tertiary Studies

Participatory Modes: Shirkah and its Variants 315All partners in a Shirkah have a right to take part in management of the joint business inthe following transactions: cash or credit sales, rejecting defective goods, renting the partnership’scommercial assets, cancellation of contracts, requesting credit facilities for the partnership,taking the partnership’s receivables, making payments or giving deposits and providingor receiving pledge for the partnership and doing all that is customary in the interests of thejoint business. They can give short-term/minor loans that may not, according to customarypractice, affect the operation of the partnership. However, the partners are not permitted togive out grants or loans unless all the partners have given their consent to such an action. 24Working for the joint business by each partner is not necessary and it can be agreed inthe partnership agreement that the management will be restricted to a single or some identifiedpartners, in which case the other partners should not act on behalf of the partnership.The partners can also agree to appoint a manager other than from the partners and pay hima fixed remuneration that will be treated as an expense of the Shirkah. An outside managercan also get a part of the investment profit as a good management bonus plus a fixed salary.However, if the management is carried out from the outset for a share in the profit earnedby the venture, meaning that the manager is working as a Mudarib, he will be entitled onlyto the share in the realized profit and will not be given any additional remuneration for hismanagement services. If a partner contributes to managing the venture or provides some kindof other service which other partners are not providing, such as accounting, he can be given,with mutual consent of the other partners, a share of the profit of the venture greater thanthat he would receive solely as a partner. A partner can be appointed for any of the servicesrequired by the Shirkah on the basis of an independent employment contract; he can alsobe dismissed from the service without the need to amend or terminate the Shirkah contract. 25The matter of indemnification is not the same in the different forms of Shirkah. In Shirkahal ‘Inan, which is more relevant to us, a partner is Wakil, but not Kafil (agent, but notindemnifier) of the other partners. Thus, a partner is not liable to indemnify an outsider onbehalf of another partner for a loss during such agency. Al-Kasani opines that the matterof indemnification is based on and regulated by usage (‘Urf) of the people. This meansthat if, in a society, some type of partnership has a presumptive and potential condition ofindemnification as a common usage, the condition will be considered valid.Partners also have the following rights in the absence of any condition to the contrary: 261. To invest the Shirkah capital in Mudarabah.2. To make any person an agent for any work in the Musharakah.3. To keep the property of Musharakah with any person as Amānah or deposit or give itas a loan.4. To mortgage the property of Shirkah.5. To travel for the concerned business at the expense of Shirkah.6. To become a partner in any other Musharakah on behalf of his own Shirkah business.7. To mix the property of Musharakah with that of his own.8. To accept the mortgage of property of any outsider on behalf of his Musharakah.9. Depending upon consent of the other partners and the ‘Urf, spending any sum out ofthe Musharakah property.10. To purchase and sell goods necessary for the conduct of business.24 AAOIFI, 2004–5a, clause 3/1/3/1, p. 202.25 AAOIFI, 2004–5a, clauses 3/1/3/4, 3/1/3/5, p. 203.26 Al-Sarakhsi, n.d., 11, p. 158.