Understanding Islamic Finance - Doha Academy of Tertiary Studies

316 Understanding Islamic FinanceIn all modern forms of Shirkah as well, the partners have equal rights, as mentionedabove. In a partnership concern, the partners, by a mutual agreement, distribute among themtheir responsibilities, duties and jobs. In limited companies and cooperative societies, theshareholders delegate their powers to some of them to be called directors, or some suchname. The partners may appoint a managing partner by mutual consent. Some of the partnersmay decide not to work for the Musharakah and work as sleeping partners.12.3.4 Treatment of Profit and LossProfit and loss sharing is a crucial aspect in partnership. As the amount of the share towardsthe capital subscribed by each partner can be unequal (except in the case of Mufawadah,briefly discussed in Section 12.2.2), the share in profits and losses can also be unequal.It is, however, necessary that the share of all the partners should be decided without anyambiguity. The generally accepted view, which is based on the views of Imam Ahmadand Imam Abu Hanifa, is that the ratio of distribution of profit must be agreed uponat the time of execution of the agreement, otherwise the contract will not be valid inSharī´ah.There is a slight difference of opinion among jurists about a ratio of profit distributiondifferent from the ratio of investment of two (or more) partners when both of them areobliged to work on the basis of a Musharakah contract. As a general rule, the shares of profitand of loss should be commensurate with the share in capital subscribed by each partner.According to Imam Malik, Imam Shafi‘e and Imam Zufar, each partner shall get the profitexactly in the proportion of his investment. On the other hand, according to Imam Ahmadand the majority of Hanafi jurists, the ratio of profit may differ from the ratio of investment,provided it is agreed with free consent of the parties. 27 The viewpoint of Imam Abu Hanifais a combination of both of these views. He says that, normally, the profit distribution ratiomay differ from the investment ratio. But if a partner has made an express condition thathe will not work for the Musharakah and will only be a sleeping partner, then his share ofprofit cannot be more than the ratio of his investment. 28 But it can be less than the ratio ofa partner’s capital according to all jurists. Therefore, it is permissible that a partner with a40 % investment may get 50 % of the profit, provided he has not declared that he will be asleeping partner. 29 Hanbali jurists allow even a sleeping partner more than the ratio of hisshare in a Musharakah investment. 30The difference of opinion is not generally taken care of and the general ruling is givenas per the views of Imam Abu Hanifa and Imam Ahmad, according to whom the profitratio can differ from the investment ratio on the basis of the amount of work to be doneby the partners, because along with capital, labour and work are also factors for accrual ofprofit. Thus, any partner can make a condition that he will get more than the ratio of hisinvestment as compensation for the work he will be doing for the Shirkah. According to all27 Ibn-Qudama, 1367 AH, 5, p. 31; Al-Kasani, 1993, 6, p.63.28 Al-Kasani, 1993, 6, pp. 62, 63.29 For details see Usmani, 2000b, pp. 213–215. The principle that “profit is based on agreement of the parties, but loss is alwayssubject to the ratio of investment” has been derived from the Fiqh of Imam Abu Hanifa and Imam Ahmad. (Ibn-Qudama, 1367 AH,5, p.140; Al-Kasani, 1993, 6, pp. 162, 163). As regards loss, there is complete consensus of the jurists on this part of the principle(Ibn-Qudama, 1367 AH, 5, p. 147).30 Ibn-Qudama, 1367 AH, 5, pp. 140; Usmani, 2000b, pp. 210–218.