STRATEGIC FINANCE

Presentation
Topic Name ; Musharaka
presented by ;
Muniba shaheen
shumaila Asghar
Misbah khalid
 Islamic Banks
 Islamic banks are ultimate source of transactions according to islamic
rules and Regulations currently prevailing in this islamic culture
especially in Pakistan.
 List of Islamic banks is working in Pakistan like Bank Albaraka, Bank
Islamic Pakistan Limited, Burj Bank, Dubai Islamic Bank Pakistan
Limited, Meezan Bank Limited, MCB Islamic Banking, Ban Al Habib
Islamic Banking, Allied Islamic Bank, UBL Islamic Banking.
 Islamic Product ; Musharaka
• Musharakah is a joint enterprise or partnership structure in Islamic
finance in which partners share in the profits and losses of an enterprise.
• Since Islamic law (Sharia) does not permit profiting from interest in
lending, musharakah allows for the financier of a project or company to
achieve a return in the form of a portion of the actual profits according to
a predetermined ratio.
• Musharakah is a type of shirkah al-amwal (or partnership), which in
Arabic means sharing.
• Musharakah is frequently used in the purchase of property and real
estate, in providing credit, for investment projects, and to finance large
purchases.
Rules of Musharakah
 Types of Musharaka
• These are four types of musharakah.
• Shirkah Al-’inan: This is where the partners are simply the agent and
don’t serve as guarantors of other partners.
• Shirkah Al-mufawadah: This is an equal, unrestricted, and unlimited
partnership.
• Permanent Musharakah: There is no specific end date and this agreement
will continue until the partners decide to discontinue the partnership.
• Diminishing Musharakah: One partner’s share is drawn down.
Musharaka Financing
COMPARISON OF ISLAMIC BANKS PRODUCT (MUSHARAKAH)
VS CONVENTIONAL BANKS PRODUCT

• Musharakah Running Financing

Distinguish factors Musharakah running
finance
Contract It is a partnership contract.
Running Musharakah is
based on the Islamic
principle of Shirkat-ul-Aqd,
Bank will invest in the core
business/primary operating
activities of the customer.
Conventional banks
It is a partnership
contract. Bank will
invest in the core
business/primary
operating activities of
the customer.
Income Income is earned when Bank Income is generated by charging
participates in the operating mark-up on loan.
activities of the customer and
shares profit and loss whereas
profit is shared as per agreed
Profit sharing ratio and Loss is
shared as per Musharakah
Investment. Final settlement of
profit will be related to the
actual performance of the
business of the respective
MRF period.

Loss In case of loss in Musharakah, There is no loss distribution in

the loss will be shared conventional running finance
between the Bank and the product
Customer as per their ratios of
investment
Profit tiers Bank and the Customer will No Profit Tiers in Running
have two Profit Sharing Ratios Finance.
(PSR): Tier 1 Profit Sharing
Ratio (PSR) and Tier 2 Profit
Sharing Ratio (PSR)
 Long term finance
Distinguish factors Diminshing Musharaka
Diminshing Musharaka
contract It is a Shirkat-ul-Milk/Joint
Ownership contract.
Commencement Rental commenced after the
delivery of asset.
ownership & Risk Asset is jointly owned and the risk
is shared in proportion of
ownership
Income Income is generated by renting
out the bank’s ownership.
Repayment Customer pays the rental, and
purchases the units.
Loss in case of loss in Musharaka, the
loss will be shared between the
bank and the customer as per
their ratio of investment.
Conventional banks
it is a loan contract.
Installment/Interest starts before
the delivery of asse
Asset is owned by the customer
and all risks are borne by him.
Income is generated by charging
mark-up on loan
Customer pays the installment
comprising of mark-up and
principal repayment
total loss will be borne by
customers.
 Musharaka in house financing
Islamic housing finance
• in islamic housing finance, bank
is the owner of the property
upto the extent of its share.
• in the event of any loss in the
musharaka property due to any
natural disaster , an islamic
bank shares the loss in the
property
• in case the musharaka property
collapse,rental payement will be
stopped.
conventional housing finance
• conventional bank does not become
the co-owner of the property. it gives
loan to the customers for purchase of
property.
• conventional bank does not share in
the losses in case of any type of
demage to the property.
• in case of musharaka property
collapse, rental payment will not be
stopped as bank has lent money .
 Musharaka in house financing
Islamic housing finance
• customers can purchase additional
units at any time during transactions.
there is no restriction on purchase of
additional units.
• monthly payement cosists of two
components, unit price , monthly
rental payement.
conventional housing finance
• conventional banks usually restrict
customers to make balloon
payements during intial 2 to 3 years .
• monthly installement consists of two
components principal payment and
interest / markup.
 Conculsion
• Islamic banks are more profitable, have higher capitalization, have lower
risk, and contribute more to economic growth than conventional banks.
Conventional banks have designed several products such as credit cards,
running finance, car/house loans and long-term loan facility.