Understanding Islamic Finance - Doha Academy of Tertiary Studies

320 Understanding Islamic FinanceBox 12.1:(Continued)3. It is not necessary that agreement for sharing profit should be proportionate tocapital contribution.4. A sleeping partner cannot share the profit more than the percentage of his capital.If a partner did not stipulate that he would be a sleeping partner, he is entitled toget an additional profit share over his percentage of contribution to the capital evenif he did not work. 435. The partners may, at a later stage, agree to change the profit-sharing ratio, and on thedate of distribution, a partner may surrender a part of his profit to another partner.6. One partner can cap his share of profit to a certain amount of money, giving theprofit over and above that cap to the other partner(s).7. The final allocation of profit is not allowed to be based on expected profit. However,it is permissible to distribute a provisional profit, subject to final settlement afteractual or constructive liquidation.8. If the subject matter of Shirkah is a leased asset, the rental amount distributed to thepartners should be on account, subject to settlement and reimbursement accordingto the final position. 449. It is permissible for partners to decide not to distribute a portion of profit for thepurpose of creation of various reserves. 4510. Different profit-sharing formulas can be agreed for different periods or the magnitudeof the realized profits, provided such a formula does not lead to the likelihoodof a partner being precluded from participation in profit. 4611. Profit distribution/allocation should be made on the basis of actual or constructiveliquidation (valuation of assets) of the venture. Receivables must be valued at thecash value, i.e. after deduction for an allowance for doubtful debts. For receivables,it is not permitted to take into account the concept of time value of money or thenotion of discount of the debt amount as consideration for earlier payment. 47Rules relating to loss1. All partners will have to share the loss in proportion to their investment.2. However, it is valid according to the AAOIFI Standard that one partner can takeresponsibility for bearing the loss, at the time of loss, without any prior condition. 4812.4 THE CONCEPT AND RULES OF MUDARABAHMudarabah is a special kind of Shirkah in which an investor or a group of investors providescapital to an agent or manager who has to trade with it; the profit is shared according43 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/3; also see, for the basis of Sharī´ah rulings in respect of profit/losssharing, pp. 221, 222.44 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/13.45 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/15.46 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/5.47 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/10.48 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/1/5/4.