Department of Business Administration
Government College Women University, Faisalabad
2020
Bachelors in Business Administration
Assignment 2
Course:
Islamic Financial System
Course Code:
BBA–624
Submitted to:
Ms. Aysha Noureen
Submitted By:
Areela Khatoon
Registration No:
2016-GCWUF-3093
Semester 8th (A)
Roll No: 78
Musharakah and Mudarabah as Equity based Financing
Two main profit and loss sharing (equity based) financing instruments in Islamic finance are
Musharakah (Joint venture) and Mudarabah (trustee project finance). Musharakah and Mudarabah
initiate a joint venture in which all partners participate right from the beginning of the business
and stay partners up to the end of the business when all the assets are liquidated.
Concept of Musharakah and Mudarabah:
Non-debt or equity creating instruments (Musharakah and Mudarabah) govern principal-agent
relationship and partnership.
Musharakah:
The term Shirka (sharing) is used for Musharakah and it is also known as Shirkat-ul-amwal. It is
a contract which governs capital or labor pooling and distribution of profit and loss. It is considered
as an equity based instrument because of its similarity with the conventional concepts of shares
issued by the company.
Mudarabah:
Mudarabah governs a kind of agency contract in which one party manages the capital of another
party, entirely. In other words, a partnership where one partner gives money to another for
investing it in commercial enterprise.
Concepts of Musharakah and Mudarabah based on basic principles:
Following are some basic principles on which concept of Musharakah and Mudarabah is based.
• Financing through Musharakah and Mudarabah is interest free so it never means
advancing in money. It means participation in the business and in the case of Musharakah
