The bank and customer join the temporary partnership and carry on the business. The bank and the customer contribute the capital according the agreed ratio. Profit is also distributed according to the agreed ratio. It is an important mode of Islamic Financing.
Following are the important features of Musharika :
1. Business Operation :-
All the business is operated by the customer. He is responsible for organizing the business. The bank only evaluates and monitors the business. The customer invests his capital and also uses his skill and knowledge.
2. Case of Profit :-
In case of profit, bank shares the profit according the agreed ratio.
3. Case of Loss :-
In case of loss in Musharika Financing the bank will share the loss according to the ratio of fund invested in the business. The banks share of fund will be the actual amount financed by it.
4. Hire Purchase :-
Basically Musharika investment was introduced to cover the working capital of the business. Now banks are also allowed to invest the money for the fixed capital.
5. Safety of Capital :-
In Musharika Financing bank obtains security from the party for the safety of his capital.
6. Insurance :-
The security which is obtained by the bank, it is also insured. The expenses of insurance are paid by the party.
7. Selection of Party :-
Before financing the loan bank selects the parties keeping in view their previous reputation and profit record for 2 to 3 years. It is also checked that non of the director has been a defaulter of the bank. Under Musharika system the finance is approved by the bank head office.