Jurisdiction(s):
United Kingdom

Key definition

Musharaka definition

What does Musharaka mean? Musharaka describes, in legal practice, a Shariah-compliant contractual partnership or participatory (participation) financing arrangement in which two or more parties contribute capital to a venture and share profits as agreed and losses in proportion to capital contributed. It is not defined in UK or Irish legislation or case law; it is a descriptive term from Islamic jurisprudence used across Islamic finance transactions and documentation. Key legal features include joint ownership of the venture or asset, shared commercial risk, profit distributions (not interest), and the ability to delegate management to one partner subject to agreed controls and oversight. It is commonly...

Drafting Musharaka profit-and-loss sharing transactions: Shari’ah requirements, Master Musharaka Agreement terms, independence of contracts, and ancillary documentation including wakala, kafala, undertakings and ijarah

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Practice notes

Introduction—transactional Islamic finance

There is a diversity of views and guiding maxims expressed by members of shari’ah boards when applying Shari’ah to commercial contexts, which in turn can lead to apparent divergence in the legal documents used within Islamic finance transactions. In response to these recognised market inconsistencies, attention worldwide has increasingly turned to the development of national, centralised regulatory authorities dedicated to Islamic finance. As an illustration, in 2017, following the national sanction of an Islamic finance industry, Morocco created by royal decree the Moroccan Shari’ah Committee for Participative Finance, comprising 10 Islamic scholars and financial experts, to oversee and regulate the newly established financial sector. The Central Bank of Bahrain (the CBB), which has overseen Bahrain’s financial system since 2002, has taken a comparable path, announcing in September 2017 that all banking reports—traditionally approved by in-house Islamic scholars—would be subject to external audit; moreover, from June 2018, fresh rules were issued to further unify the role and independence requirements of in-house Shari’ah boards. Together, these developments demonstrate the growing global effort to bring greater uniformity and external assurance to the governance of Islamic finance...

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Web page updated on 21/05/2026

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