 In this module, we would learn Musharraqah, like Mudarabah, this is an investment mode of financing or something which could be used as an investment mode of financing in Islamic banking and finance. Musharraqah is an arrangement between two or more parties in such a way that both the parties share their resources to do a business together in such a way that they aim to earn some sharia-compliant profit. If the profit occurs, the partners or the parties doing the business together would share the profit in accordance with an agreed profit distribution ratio. If loss occurs, in that case the parties would be sharing the loss in accordance with their investment shares. In this way, Musharraqah is different from Mudarabah. In case of Mudarabah, there is one party which provides capital and the other party actually does the business. And of course, in case of profit, they share the profit in accordance with an agreed profit distribution ratio. And in case of Mudarabah, if loss occurs, then the party providing capital would bear the loss. However, in case of Musharraqah, which is also called Musharraqah in Urdu, this is a business arrangement. This is a partnership between two or more parties. If the profit occurs, the way they share the profit, they have to agree on the profit distribution ratio, which was the case in Mudarabah as well. In case of loss, however, the loss is borne by the partners in accordance with their investment shares. If they have invested money in the 40% share, then the 40% share would also bear the loss. And the 60% share would bear the loss. Like Mudarabah, however, the profit sharing ratio must be agreed in advance. And once it has been agreed, no party unilaterally can change the profit distribution ratio. In case of Mudarabah, there was no security of capital and there was no guaranteed return. This applies in case of Musharraqah as well. Profit sharing ratio and loss sharing ratio, they can be different. And this is very important. If one party has contributed 30% of the capital into Musharraqah and the other party has contributed 70% of the capital of Musharraqah, they can agree on 50-50 split of the profit. But as I said earlier, loss can be borne only in accordance with the investment shares. So this is a very important aspect of Musharraqah which must be taken into account when we are applying Musharraqah in the business. Now it is also possible for one of the partners to be a silent partner. So if there are two partners and they have contributed money into the business, say 50-50, and one partner says, I don't want to manage the business. It is possible Musharraqah rules allow this kind of arrangement as well. Now Musharraqah capital should be ideally in the form of money. However, it is possible for the partners to do Musharraqah in other assets as well. For example, if two brothers, if they own a certain amount of wheat, they can trade in that commodity jointly in the form of Musharraqah. To avoid any loss, it is recommended or to avoid any ambiguity and any kind of conflict between the partners. It is always recommended that Musharraqah assets should be valued at the start of the business. Now let's see what Musharraqah is. So far, we have seen what Musharraqah is. Musharraqah is not profit sharing only. I think this is a very important aspect about Musharraqah. In case of Mudarba, only profit is shared between the two parties. In case of Musharraqah however, both profit and loss are shared between the partners. So Musharraqah is actually a profit loss sharing arrangement. It is not just profit sharing and this is a very important aspect of Musharraqah which must be kept in mind. Now Musharraqah capital is also not treated like any other debt owed by the company. Rather it is equity of the business. In Mudarba's case, we had said that Mudarba capital doesn't become the equity of the business. In case of Musharraqah, this is partnership and in case of partnership, the money contributed by the partners, it actually becomes the equity of the business. So this is another difference between Mudarba and Musharraqah. Thirdly, Musharraqah is not easy to be implemented in case of running business. Now a person is running his business and he needs more money. And he wants to raise funds from the market. So in that case of arrangement, Musharraqah is possible but it is not easy to be implemented. Let's see an example of this. Let's consider a company called Company A. It is seeking external financing in the form of Musharraqah. So the company's owner has decided that we have to take more money on the basis of Musharraqah. To increase the business or for whatever be the reason. Now many banks may not be interested in extending financing to this company on a Musharraqah base. It is possible that an Islamic Bank says that I can provide financing on the basis of Musharraqah. Now what will happen in that case? Bank will give money on the basis of Musharraqah. And this money will be a reference to another small activity in the business. How? Bank's money will be in this activity. And remember in case of Musharraqah, both the parties bank as well as in this case Company A must contribute capital. So whatever activity is within the business, the company will also invest in it. Or if that activity is going on, its valuation will be that it is our contribution and the bank's money will be the bank's contribution. So this will be a Musharraqah activity within a running business. In case of profitability of Musharraqah activity. If these Musharraqah assets are profit from them, then the bank will take their profit share as per the profit ratio. And the company's share will be kept by itself. And of course as we said, this profit sharing ratio must be agreed between the bank and the company A at the start. And once it has been agreed, it cannot be changed. If there is loss, then in this case, if this loss means that Musharraqah assets generate this loss, then in that case, the bank will withdraw its money and the minus loss will be the same. Similarly, the company will bear the loss in accordance with its investment share in that business activity. Now we had said that it is difficult to implement. So to identify another business activity within a running business, for example, if this is a car dealer, the company A is a car dealer, now it is sold and purchased. Now it needs more money. It wants to use more money for advertisement. So that advertisement component of the business would be called Musharraqah activity. And then we will be able to decide that if this is a lakh rupees, then the advertisement companies that are given this lakh rupees, they will have expenses. Then we will also have to decide how much the business will benefit from this advertisement. If the business benefit is more than the cost, then profit will be there. So because of these kinds of complications, normally we say that implementation of Musharraqah in case of a running business is difficult. It is not easy. It is possible. Actually a lot of Islamic banks in Pakistan are offering a product called Musharraqah running Musharraqah based working capital financing or running Musharraqah. And we would look into that product in our segment on risk management.