Ijarah – Leasing 303 Answer 2 As per the inspection report, the asset was not handled with care and proper mainte- nance was not made by the client. Therefore, the bank should ask the client to repair the asset at his cost; the bank will not bear the loss. Apparently, the rental will continue to become due and rescheduling of the Ijarah payment plan should not be needed. However, the Shar ¯ ı´ah advisor should be involved and may decide, on merit, whether the client may be given any relaxation or not. Answer 3 In the given scenario, the bank can accept the offer of the client for the purchase of ten cars with the consideration that the price offered by the client covers the current outstanding liabilities, i.e. 3.7 million, and through this offer the bank can earn a profit of Rs. 300 000, i.e. Rs. 30 000 per car, even after returning the security deposit, with the assumption that the security deposit is included in the offer price. Answer 4 As per the Ijarah agreement, any loss that occurs to the asset without negligence of the client will be borne by the bank. The client has the right to take back the security deposit as the agreement has come to an end due to the destruction of the asset. Therefore, he will be paid Rs. 50 000 of his security deposit. The bank has been paying the Takaful premium as owner of the asset. As such, legally the bank is entitled to receive the Takaful claim. However, the client has been paying rental more than the mere rental of similar assets as prevalent in the market, due to the inclusion of the cost by the bank in the normal rental, and he has paid all the instalments as per agreement. As per clause 8/8 of the AAOIFI Standard on Ijarah, the bank should allow/give the customer Rs. 130 000 that includes Rs. 50 000 of security deposit and the claim recovered from the Takaful company after deducting the liabilities outstanding as per # 3 above, making the amount Rs. 80 000. Box 11.4: Accounting Treatment of Ijarah 1. Operating Ijarah Assets acquired by the bank as lessor • are recognized at historical cost; • depreciate as per normal depreciation policy; • are presented as investments in the Ijarah assets A/c. Ijarah revenue/expense • is allocated proportionately in financial periods over the lease term; • is presented as Ijarah revenue. Initial direct costs • are allocated over the lease term or otherwise charged directly as an expense. 304 Understanding Islamic Finance Box 11.4: (Continued) Repairs of leased assets • a provision for repairs is established if repairs are material and differ in amount from year to year; • repairs undertaken by the lessee with the consent of the lessor are to be recognized as expense. 2. Ijarah Muntahia-bi-Tamleek through gift Assets acquired • are recognized at historical cost; • are presented as Ijarah Muntahia-bi-Tamleek, with assets measured at book value; • depreciate as per normal depreciation policy; • however, no residual value shall be subtracted since it is to be transferred to the lessee through gift. Ijarah revenue/expense • is allocated proportionately in financial periods over the lease term; • is presented as Ijarah revenue. Initial direct costs • material costs are allocated over the lease term or otherwise charged directly as an expense. Repairs of leased assets • a provision for repairs is established if repairs are material and differ in amount from year to year; • repairs undertaken by the lessee with the consent of the lessor are to be recognized as expense. At the end of the financial period/lease term • legal title passes, subject to settlement of Ijarah instalments. Permanent impairment/sale of lease asset • If the Ijarah instalments exceed the fair rental amount and impairment is not due to action or omission of the lessee, the difference between the two amounts shall be recognized as liability due and charged to the income statement. 3. Ijarah Muntahia-bi-Tamleek for token consideration or specified amount Assets acquired • are recognized at historical cost; • are presented as Ijarah Muntahia-bi-Tamleek assets and measured at book value; • residual value is subtracted in determining the depreciable cost. Depreciation is charged as per normal depreciation policy. Ijarah revenue/expense • is allocated proportionately in financial periods over the lease term; Ijarah – Leasing 305 • is presented as Ijarah revenue. Initial direct costs • material costs are allocated over the lease term or otherwise charged directly as an expense. Repairs of leased assets • a provision for repairs is established if repairs are material and differ in amount from year to year; • repairs undertaken by the lessee with the consent of the lessor are to be recognized as an expense. At the end of the financial period/lease term • legal title passes, subject to settlement of Ijarah instalments and on purchase of the asset by the lessee; • if the lessee is not obliged to purchase and decides not to do so, the asset shall be presented as assets acquired for Ijarah and valued at the lower of the cash equivalent value or the net book value. If the cash equivalent is less than the net book value, the difference between the two shall be recognized as loss; • if the lessee is obliged to purchase the asset due to his promise but decides not to do so, and the cash equivalent value is lower than the net book value, the difference between the two amounts shall be recognized as a receivable from the lessee. Permanent impairment/sale of lease asset • if the Ijarah instalments exceed the fair rental amount and impairment is not due to action or omission of the lessee, the difference between the two amounts shall be recognized as liability due and charged to the income statement. 4. Ijarah Muntahia-bi-Tamleek through sale prior to the end of the lease term for a price equivalent to the remaining Ijarah instalments Assets acquired • are recognized at historical cost; • are presented as Ijarah Muntahia-bi-Tamleek assets and measured at book value; • depreciate as per normal depreciation policy. Ijarah revenue/expense • is allocated proportionately in financial periods over the lease term; • is presented as Ijarah revenue. Repairs of leased assets • a provision for repairs is established if repairs are material and differ in amount from year to year; • repairs undertaken by the lessee with the consent of the lessor are to be recognized as expense. Permanent impairment/sale of lease asset • as in the above case. 12 Participatory Modes: Shirkah and its Variants 12.1 INTRODUCTION Islamic modes are asset-based and entail real economic activity and undertaking responsi- bility or liability. The modes that form the basis of Islamic finance belong to participatory or profit/loss sharing (PLS) or risk-sharing techniques and as such are considered the most desirable modes by the majority of jurists on Islamic finance. This does not imply that non- participatory modes, as discussed in the previous few chapters, do not involve business risk; taking risk and responsibility is rather a precondition for the legality of profit in any busi- ness. Shirkah-based participatory modes of business, however, involve direct participation in profits and losses by the parties. Two contracts, namely Mudarabah and Musharakah, that lend themselves to the system of profit/loss sharing are based on the concept of Shirkah. A partnership may be in the right of ownership (Shirkatulmilk), wherein a profit motive may not necessarily exist, or it may be contractual (Shirkatul‘aqd), in which the partners enter into a contract to conduct a joint business with the objective of earning profit and agree to share the profit on a pre-agreed ratio and bear the loss, if any, to the extent of the investment of each partner. Another variant may be wherein one partner may provide the capital and the other may manage the business (Mudarabah) for earning profit. These modes are the means of providing risk-based capital and are jointly termed participatory modes of finance. In this chapter we shall discuss variants of Shirkah, namely Musharakah, Mudarabah, modern corporations and Diminishing Musharakah, as modes of business by Islamic financial institutions (IFIs). Partnership-based business was widely practised in the pre-Islamic period. The holy Prophet (pbuh) himself did business on the basis of partnership before his prophethood and many of his Companions did it during his life and later. Islam approved the concept of business partnership. 1 The practice was so commonly prevalent among the Arabs and other Muslims that, perhaps under their influence, the Christians of the areas in Europe where Muslims went also conducted it and introduced it far inside Europe. 2 In the early/conventional books of Fiqh, joint businesses are discussed mainly under the caption of Shirkah, which is a set of broad principles that can accommodate many forms of joint business. According to the majority of the classical jurists, Mudarabah is also a type of Shirkah when used as a broad term. In Fiqh books, discussion on Mudarabah is available both in the chapters on Shirkah and under the separate caption of Mudarabah. 1 Hassan, 1993, p.104. 2 See Postan and Rich, 1952, 2, pp. 173, 267. 308 Understanding Islamic Finance Musharakah is a term used by the contemporary jurists both for broad and limited connota- tions. In the limited sense, it is used for contractual partnership in which all partners provide funds, not necessarily equally, and have the right to work for the joint venture. In the specific sense, it is an amalgam of Musharakah and Mudarabah wherein a Mudarib, in addition to the capital provided by the Rabbul-m ¯ al, employees his own capital as well. This arrangement is also permissible according to the jurists. 3 While in Musharakah all parties contribute to the joint business and work for it, in Mudarabah, one party contributes funds and the other acts as entrepreneur and the profit is shared in a predetermined, mutually agreed ratio. In Mudarabah, the financier bears the loss while the entrepreneur loses his already expended labour. In this chapter we shall discuss the traditional concept of Shirkah as discussed in books of Fiqh followed by a discussion on the application of the system of profit and loss sharing in the contemporary world. The modern Shirkah takes the form of partnerships, joint stock companies and cooperative societies and, in a sense, that of pools, cartels, trusts and syndicates, etc. In modern law, all these forms are treated differently in accordance with the differences in their objec- tives and the nature of combination. An important difference between the Islamic and the modern partnership laws exists in the former’s religious character. To describe the rules of partnership, we shall discuss the subject in the three main sets of Musharakah, Mudarabah and Diminishing Musharakah, the last being the latest development of Islamic jurisprudence based on the broad principles of Shirkah. 12.2 LEGALITY, FORMS AND DEFINITION OF PARTNERSHIP The legality of Shirkah is proved by the texts of the Holy Qur’ ¯ an and Sunnah and the consensus of the Islamic jurists. 4 In particular, the two forms of Shirkah al Inan (general partnership) and Mudarabah, which we will be discussing in the following pages, enjoy acceptance by all jurists without any difference of opinion. Jurists normally divide Shirkah into two broad categories of Shirkatulmilk (partnership by ownership or in right of ownership) and Shirkatul‘aqd (partner- ship by contract). With these twoforms,traditionalShirkahisthemainsourceof rules governing the operations of Musharakah, Mudarabah and Diminishing Musharakah by Islamic financial institutions in the present age. Keeping in mind the discussion by classical jurists and the modern business environment, Shirkah can be defined as a business where two or more people combine their capital or labour or creditworthiness together, having similar rights and liabilities, to share the profits or a yield or appreciation in value and to share the loss, if any, according to their proportionate ownership. This implies that capital is not necessary in certain structures of Shirkah. “Profit” in the context of this definition and according to Islamic law can be made through purchase, sale, hire or wages and excludes income arising from the contracts of marriage, divorce, subsistence payable to wives and children or in the case of penalties and fines. We define various forms of Shirkah in the following section. 5 3 Usmani, 2000a, pp. 27–33, 53, 54. 4 Holy Qur’ ¯ an, verses: 4: 12 and 38: 24; the holy Prophet is reported to have conveyed the message of Allah (SWT), who says: “So long as the two partners remain honest to each other, I am the 3rd”. (Abu Daud and Sahih al Hakim). 5 For various forms of Shirkah, see Ibn Qudama, 1367 AH, 5, p. 1 and Usmani, 2000b, pp. 139–144. Participatory Modes: Shirkah and its Variants 309 12.2.1 Partnership in Ownership (Shirkatulmilk) The basic element of Shirkatulmilk is the mixing of ownership, either mandatorily or by choice. Two or more people are joint owners of one thing. It is further subdivided into two categories: optional and compulsive. Optional partnership by ownership is explained in the words: “where two persons make a joint purchase of one specific article or where it is presented to them as a gift, and they accept of it; or where it is left to them, jointly, by bequest and they accept of it”. Basically, it is not for sharing of profit. The co-owners may use the property jointly or individually. Compulsive partnership is where the capital or goods of two people become united without their act and it is difficult or impossible to distinguish between them, or where two people inherit one property. In other forms of partnership, a partner is treated as an agent to the other partner’s share, but in partnership by ownership, partners (co-owners) are not agents of each other; here, a partner is a stranger and in the absence of the other partner, he has no right to use the absent partner’s property, nor can he be responsible for any liability arising out of the latter’s share. He cannot use even his own share if it is detrimental to the interest of the other partner’s share. It is, however, lawful for one partner to sell his own share to the other partner, and he may also sell his share to others, without his partner’s consent, except only in cases of association or a mixture of property, for in both these instances, one partner cannot lawfully sell the share of the other to a third person without his partner’s permission. If joint property is used by one partner, the owner may demand rental for his part of the property from the benefiting partner. The distribution of the revenue of Shirkatulmilk is always subject to the proportion of ownership. 12.2.2 Partnership by Contract (Shirkatul‘aqd) This is the main form of Shirkah, which is created by offer and acceptance and is applicable in most of the cases of modern business where two or more persons are involved. The AAOIFI Standard has defined it as an agreement between two or more persons to combine their assets, labour or liabilities for the purpose of making profit. 6 It is created through a contract – offer and acceptance is its basic element – partners are agents of each other and one partner cannot sell his share without the other partners consent and cannot guarantee capital or any profit of the other partners. This form can be further divided into: Shirkatulamwal, where all the partners invest some capital into a commercial enterprise that comes under the collective ownership of the partners as per the ratio of their capital; Shirkatula‘mal, where the partners jointly undertake to render some services to their customers and share the fee charged by them according to the agreed ratio and each partner brings his own resources, if needed, for the business; and Shirkatulwujooh, meaning partnership in creditworthiness where all partners avail credit from the market using their credibility and sell the commodity to share the profit so earned at an agreed ratio. In Shirkah, the rights and liabilities of all the partners should be similar, although not necessarily equal. The basic principle of Shirkah is that a man who shares in profits must also bear the risks. This principle is based on the Prophet’s saying that earnings are concomitant to risks. 6 AAOIFI, 2004–5a, Standard on Shirkah (Musharakah), clause 2/1, p. 200. 310 Understanding Islamic Finance Contractual partnership (Shirkatul‘aqd) is subdivided into several kinds depending upon the subject matter of partnership: capital (or goods), labour or personal creditworthiness, as discussed briefly in below. Shirkah-al-Mufawadah, or Universal Partnership According to the Hanafi jurists, Shirkah-al-Mufawadah is where two persons, being the equal of each other in respect of property, privileges and religious persuasion, enter into a contract of partnership. This form is very cumbersome to operate because it refers to sharing everything on an equal basis. Therefore, it is factually nonexistent. It is, in fact, advocated by Hanafi jurists only. Imam Shafi‘e, Imam Ahmed ibn Hanbal, Imam Malik and the Jafari jurists do not support this form. 7 Shirkah al ‘Inan, or General Partnership Shirkah al ‘Inan, involving collective capital of the partners, is where any two persons become partners in any particular business or where they become partners in all matters of commerce indifferently. It is contracted by each party, respectively, becoming the agent of the other and not his surety. This form enjoys consensus among all Islamic jurists. It is the most important form and seems to be nearer to the modern concept of a business partnership. We shall be discussing in detail mainly the rules of this general form of contractual partnership. Shirkatula‘mal Shirkatula‘mal, or San ¯ ai‘ (partnership in labour or crafts), signifies a situation where two persons become partners by agreeing to work jointly, and to share their earnings, in partner- ship. It is also known as Shirkah Taqabbul, or Shirka al Abd ¯ an. Some classical examples of such a partnership are the partnerships between medical practitioners, teachers, miners, transport owners and farmers. 8 Shirkatul Wujooh, or Partnership in Creditworthiness Shirkatul Wujooh is where two persons become partners by agreeing to purchase goods jointly, upon their personal credit (without immediately paying the price) and to sell these goods on their joint account. Partners undertake to fulfil their obligations according to the percentages determined by the parties. They also agree on the ratio of liability for which each partner is responsible while paying such debt. 9 According to Imam Shafi‘e, it is unlawful. The Maliki jurists observe that such a form of partnership has an element of random chance and is, therefore, invalid. They have, however, permitted it on the condition that the element 7 Jurists of the Shafi‘e school of thought have legalized only Shirkatul ‘Inan. (Usmani, 2000b, p.186, with reference from Mughni al-Muhtaj of Ramly and Takmelah Sharah Muhazzab). 8 Al Mudawwanah al Kubra, Cairo, 1323 AH (Matba al Sadah), 12,p.51. 9 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/2. Participatory Modes: Shirkah and its Variants 311 of obligation is made clear before the contract is effected, for example, joint credit purchase of a specific commodity and sale at a profit. 10 Hanafi and Hanbali jurists, however, agree upon the validity of such a form of partnership. Loss in this form of Shirkah will have to be borne as per the liability taken at the beginning. If such a contract is enforced without first stipulating the extent of liability of each partner, they will be responsible for credit taken by each of them individually and the working partner will be entitled to wages for his work and not to a share in profits. Mudarabah Mudarabah, or partnership in the profits of capital and labour, signifies a contract of part- nership in which one party is entitled to profit on account of its M ¯ al, while the other party is entitled to profit on account of its labour. Of the above-mentioned kinds, Shirkah al ‘Inan and Mudarabah are the most popular kinds of partnership and enjoy Ijma‘a of the jurists. Shafi‘e, Jafari and Zahirites like Ibn Hazm treat only these two forms of Shirkah as lawful modes of joint venture. For the Shafi‘e and Jafari schools, Shirkah is a contract between two or more (persons) made with a view to making all profits common between the two (or among all the partners); the object of contract preferably being trade. Hanafi and Maliki jurists believe in a broader circle of joint business practices. Shirkahal ‘Inan is suitable for joint businesses, adaptable to any situation and practicable in the present day’s advanced commercial practices. It refers to a joint enterprise formed for conducting any business with the condition that all partners shall share the profit according to a specified ratio, while the loss will be shared according to the ratio of contribution to the capital of the joint business. Two or more partners that are considered agents (Wakil) of other partners share the business on the basis of the following conditions: 1. Capital can be invested by the partners in any proportion. 2. Power of appropriation in the property and participation in the affairs of the Shirkah may be different and disproportionate to the capital invested by the partners. 3. Profit may be divisible unequally and disproportionate to the capital invested, and may be according to the agreement of the partners. 4. Loss is to be shared in proportion to the capital invested. 5. Each partner is an agent to the other partners. 6. No partner is responsible for indemnification of the acts of commission and omissions on the part of other partners. There are a number of views regarding the last-mentioned condition above. Regarding rights and liabilities of partners, jurists contend that partners are allowed to sell partnership capital/assets, perform trading business with it, give it as deposit or collateral with others and hand it over to any person for business on a Mudarabah basis. 11 Further, jurists consider that the partners can perform all other acts that are according to the custom or common practice, subject to compliance with the main Shar ¯ ı´ah principles. If any partner takes a loan for the joint business, all partners will be (jointly) liable to pay. 12 10 Al Mudawwanah, 1323 AH, 12,p.5. 11 Al-Kasani, 1993, 6, pp. 68, 69. 12 Al-Kasani, 1993, 6,p.72. 312 Understanding Islamic Finance A Musharakah (and also Mudarabah) contract may be for any specific project up to its completion or in the form of a redeemable investment by a partner, 13 particularly the financial institutions – also known as Diminishing Musharakah. If the Musharakah lasts as long as a business operates without any midway termination, it is considered a continuous Musharakah. The above discussion implies that Shirkah in Islamic law refers to all forms of partnership, also including Mudarabah. Some of the jurists observe that Mudarabah is a form of Shirkah, while some others treat this as different from Shirkah. It seems that the difference is due to variation in analysis of business conditions more than the differences in Shirkah principles. The former view is held by some of the jurists of the Maliki and Hanbali schools, while the latter by the Hanafi school. The Hanafi jurists argue that Mudarabah should not be treated as a form of Shirkah, because in Shirkah, the contracting parties become partners and, therefore, liable to losses soon after the business is started or the capital of the partners is combined, while in Mudarabah, the working party does not become a partner and is not liable to any losses unless and until profits arise. Before the creation of profits, the position of the working party is that of an agent, although the contract of Mudarabah becomes effective. 12.3 BASIC RULES OF MUSHARAKAH In this section we shall be discussing the rules relating mainly to a general partnership conducted with joint capital of the partners (Shirkatulamwal-cum-Shirkah al ‘Inan). All conditions necessary for any valid contract, e.g. free consent of the parties that must be without deception, misrepresentation and duress, etc., should be fulfilled in the Shirkah contract. Certain other conditions must also be fulfilled, and these are outlined in the following paragraphs. 12.3.1 Conditions with Respect to Partners The word “persons” as used in the definitions refers to both individuals and legal persons or corporate bodies. As regards individuals, it is unanimously agreed that they should be free and of sound mind. The study of relevant rules in Fiqh suggests that insolvency and prison are disqualifications for making the contract of sale; as the contract of partnership comprehends mutual agency, anybody who is handicapped in exercise of this right cannot act as a partner in the true sense and a contract so made should be deemed to be ineffective. On this ground, minors and the insane are incompetent to become partners. A minor can enter into a partnership if allowed by his guardian. 14 Imam Shafi‘e extends the state of incompetence to all those who, for any reason, lose their power of decision, like a man who is intoxicated. This is, however, a temporary incompetence. A man who is put under inhibition by a court either because of insolvency or due to any other reason is also not competent to enter into a contract of partnership, because his partner could be prevented from making use of the inhibited partner’s property. The Jafari scholars give five reasons which inhibit one from making a contract of sale. These are minority, stupidity, insanity, 13 Ibn-Qudama, 1367 AH, 5,p.63. 14 Al-Atasi, 1403 AH, Majallah, Article 1335. [...]... Mudarabah and took half of the profits 49 50 51 52 53 54 55 Ibn-Qudama, 13 67 AH, p.33 Ibn-Qudama, 13 67 AH, 5, p 32 Al-Marghinani, 19 57, 3, p 256 Ibn-Qudama, 13 67 AH, p.30 Udovitch, 1 970 , pp 174 – 175 ; AAOIFI, 2004–5a, Standard on Mudarabah, clause 4, p 231 Al-Sarakhsi, n.d., 12, p 18 Al-Sarakhsi, n.d., 12, p 18 322 Understanding Islamic Finance earned by the two brothers, because the public money in their... AAOIFI Standard on Musharakah has defined a stock company as an entity, the capital of which is distributed into equal units of 77 78 79 80 81 82 83 Ibn-Qudama, 13 67 AH, pp 18, 35 Ibn-Qudama, 13 67 AH, pp 5, 64 AlJaziri, 1 973 , 3, p 61 Usmani, 2000b, pp 276 –283 Al-Kasani, 1993, 6, p 77 Usmani, 2000b, pp 313–329 See, for details, AAOIFI, 2004–5a, Standard on Musharakah, pp 208–213 Participatory Modes: Shirkah... the profit for any partner”. 37 31 32 33 34 35 36 37 AAOIFI, 2004–5a, Standard on Musharakah, p 221 Al-Kasani, 1993, 6, p 62 Ibn-Qudama, 13 67 AH, 5, pp 32, 34 Al-Sarakhsi, n.d., 11, p 1 57 Ibn-Qudama, 13 67 AH, pp 33, 62 AAOIFI, 2004–5a, Standard on Musharakah, clauses 3/1/1/4, 3/1/5 AAOIFI, 2004–5a, Standard on Musharakah, clause 3/2, p 2 07 318 12.3.5 Understanding Islamic Finance Guarantees in Shirkah... share the loss according to the ratio of their investment, while in Mudarabah, the loss, if any, is suffered by the Rabbul-m¯ l only However, if a 75 76 AAOIFI, 2004–5a, Standard on Mudarabah, clause 10 Usmani, 2000a, pp 47 49 328 4 5 6 7 Understanding Islamic Finance the Mudarib has conducted business with negligence or has been dishonest, he shall be liable for the loss caused by his negligence or misconduct... Musharakah, clause 4/1/2/3 AAOIFI, 2004–5a, Standard on Musharakah, clause 4/1/2/14 87 AAOIFI, 2004–5a, Standard on Musharakah, clause 4/1/2 /7; also at p 223 88 See Resolution No 63(1 /7) of the International Islamic Fiqh Academy; AAOIFI, 2004–5a, Standard on Musharakah, clause 4/1/2/15, pp 210, 224 85 86 330 Understanding Islamic Finance become void due to the element of interest The case of qualification... the present practice 92 93 94 95 Al-Kasani, 1993, 4, p 493 For details, see Usmani, 2000b, pp 363–368 Usmani, 2000a, pp 91, 92 Ibn-Qudama, 13 67 AH, 6, p 1 37; for details see Usmani, 2000b, pp 3 57 360; AAOIFI, 2004–5a, p 215 338 Understanding Islamic Finance of Islamic financial institutions, DM is being used in such a manner that lease/sale is made to the co-partners, in respect of which there is no... decided accordingly However, contemporary jurists are 15 16 17 18 19 20 21 Hussain, 1964 Ibn Qudama, 13 67 AH, 2, p 168 Al-Marghinani, 3, p 342 Al-Atasi, 1403 AH, Majallah, Article 959 AAOIFI, 2004–5a, clauses 3/1/1/2, 3/1/1/3, p 201 Al-Kasani, 1993, 6, p 63 Ibn-Qudama, 13 67 AH, 5, p 16; Al-Sarakhsi, n.d., 11, pp 156, 159 314 Understanding Islamic Finance unanimous that the value of goods should be assessed... some transactions and profit has been realized in some others, the profit can 71 72 73 74 AAOIFI, 2004–5a, Standard on Mudarabah, clause 8/8 AAOIFI, 2004–5a Standard on Mudarabah, clause 8/4 AAOIFI, 2004–5a, Standard on Mudarabah, clause 8/2 Al Jaziri, 1 973 , 2, pp 862–865 Participatory Modes: Shirkah and its Variants 3 27 be used to offset the loss at the first instance, then the remainder, if any,... expenses) and not in a sum of money or a percentage of the capital or investment by the partners 40 41 42 Al-Atasi, 1403 AH, Section 352, 4: 277 For details see Usmani, 2000b, pp 220–231 AAOIFI, 2004–5a, clause 3/1/6/2, pp 2 07, 222 320 Understanding Islamic Finance Box 12.1: (Continued) 3 It is not necessary that agreement for sharing profit should be proportionate to capital contribution 4 A sleeping... allowed to donate Mudarabah funds or waive receivables of the business without explicit permission from the financier. 67 64 65 66 67 AAOIFI, 2004–5a, Standard on Mudarabah, clause 5/1 Al Jaziri, 1 973 , 2, p 815 Al Jaziri, 1 973 , 2, p 851 AAOIFI, 2004–5a, Standard on Mudarabah, clauses 9/5–9 /7, pp 236, 244 Participatory Modes: Shirkah and its Variants 12.4.3 325 Work for the Mudarabah Business According . the profits 49 Ibn-Qudama, 13 67 AH, p.33. 50 Ibn-Qudama, 13 67 AH, 5,p.32. 51 Al-Marghinani, 19 57, 3, p. 256. 52 Ibn-Qudama, 13 67 AH, p.30. 53 Udovitch, 1 970 , pp. 174 – 175 ; AAOIFI, 2004–5a, Standard. partners. 40 Al-Atasi, 1403 AH, Section 352, 4: 277 . 41 For details see Usmani, 2000b, pp. 220–231. 42 AAOIFI, 2004–5a, clause 3/1/6/2, pp. 2 07, 222. 320 Understanding Islamic Finance Box 12.1: (Continued) 3 caption of Mudarabah. 1 Hassan, 1993, p.104. 2 See Postan and Rich, 1952, 2, pp. 173 , 2 67. 308 Understanding Islamic Finance Musharakah is a term used by the contemporary jurists both for broad and