Partnership and investment

Shirkah (partnership: inan, mufawadah, abdan, wujuh)

Partnership in Islamic law, with classical forms based on capital, work or credit and a rule that losses follow capital.

Shirkah is partnership, the family of contracts behind musharakah. AAOIFI's partnership standard recounts the classical contractual forms as inan, where each partner contributes capital and may deal in the partnership's assets, abdan, a partnership in skilled work, wujuh, a partnership based on the partners' creditworthiness, and mufawadah, in which the partners are equal in every respect. It leaves mufawadah outside its scope because it is rarely used, and across the forms profit is shared as agreed while losses follow each partner's share of capital.

Sources

AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 12, Sharikah (Musharakah), items 2/2/1 and 3/1, and Appendix C

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

MusharakahA partnership in which each partner contributes capital; profit is shared as agreed and loss in proportion to capital.Shirkat al-milk (co-ownership)Co-ownership of an asset by two or more parties, whether by choice, as in a joint purchase, or by circumstance, as in inheritance.Diminishing musharakahA partnership in which one partner buys the other's share in stages until it owns the whole asset; common in home finance.MudarabahA partnership of capital and work: profit is shared by an agreed ratio, while financial loss falls on the capital provider.Tanazul (waiver of entitlement)A party's waiver of an entitlement it would otherwise have, such as profit above an agreed ceiling.