Musharika means sharing. It is a business organization in which two or more than two parties contribute capital and labor. The profit and loss is distributed among the partners according to their agreed ratio. Musharika is governed according the agreement executed between the partners. Banks in Pakistan have been permitted for investment on the basis of profit and loss sharing. Profit and loss sharing accounts have been opened in every bank.
Features of Musharika
1. Relationship :-
In case of Musharika the relationship between banks and other party is that of debtor and creditor according the ordinance.
2. Profit and Loss Determination :-
In Musharika business profit is determined after taking in to consideration the various other factors besides the capital like political ans economic conditions . Bank cannot claim the profit on equal footing.
3. Bank Investment :-
In case of Musharika bank invests the capital. It does not lend the money to the other party.
4. Working Capital :-
In this case investment shall be used only for the financing requirements of working capital.
5. Security :-
To ensure safety of the capital the bank shall in its own right may obtain adequate security from the party.The securities shall be kept fully insured at the party cost.
6. Power of Sanction :-
In case of first timer the power for approving working capital finance under Musharika system shall rest with the head office only.
7. Case of Loss :-
In case of loss bank also shares with other partner in the proportion to their respective share in capital of the venture.
8. Payment of Profit :-
An estimate of anticipated profit or projected rate of profit is provided by the other party to the bank when it enters into Musharika. It pays the share of the profit to the bank made during a quarter in agreed proportion.
9. Right of Bank :-
If customer fails to provide the accounts to the bank than bank has right to debit the customer, his share of profit according the anticipated rate of profit.