 For quite a few modules, we have been studying applications of Islamic legal contracts in the context of modern Islamic banking and finance. We have already covered the contracts like Murabaha and Musharka in great detail and with this module, we are going to explain some uses of Musharka in Islamic banking and finance. Remember, we are studying Islamic modes of financing and their applications in Islamic banking and finance. When we look at Musharka as a simple contract, we know that this is a partnership contract between two or more parties in such a way that all the parties to a Musharka, i.e. a partnership, pool their resources to do a business together in such a way that if there is any profit, that is distributed between the partners in accordance with their investment share and of course in accordance with an agreed distribution formula which they have already agreed to. If a loss occurs that loss is borne by the partners strictly in accordance with their investment share. Profit can be shared in accordance with their investment shares as well as any other distribution formula which they agree to. However, in case of loss, the loss is strictly borne by the partners in accordance with their investment shares. The simplest form of Musharka is the joint investors in an investment fund managed by a fund manager. So, we have quite a few Islamic funds offered by Islamic fund management companies or other fund management companies. So, the investors into those funds are actually partners. This could be deemed as an example of Shirkatul milk which is also called as joint ownership. In case of Shirkatul milk, there is no direct contractual arrangement amongst the investors to establish a Musharka. So, this is an important aspect of Musharka. Musharka is of many type of which Shirkatul milk is one. In this form of Musharka, obviously both the profit and loss sharing is strictly in accordance with the investment shares of the investors. Let us explain the fund structure. There is a fund manager. For example, in case of Pakistan, UBL funds is a fund manager which offers quite a number of Islamic investment funds. So, this fund manager establishes an investment fund and asks general public to invest in it. So, AAA, all these are investors. They invest in this fund, this investment fund which is set up by the fund manager. Now, fund manager actually manages this investment fund and the contractual relationship between the investment fund and fund manager could be based on Wakala. So, strictly speaking, the fund manager serves as a workheal for investment fund and because this investment fund is actually owned by the investors, so the fund manager could be deemed as an agent, investment agent or workheal for the investors. Now, after this, let us look at scenario number one in which case the fund investment fund actually generates some positive return. Before that, let us share some features of investment fund management. In this case, the fund manager receives a fee. It is called as investment management fee and let us assume this is 2 percent of the assets under management. So, assets under management means the money which is put into the investment fund, its value would be called assets under management. Total investment in the fund is 100 million and number of investors, those putting money into the fund, it is 200. Individual investments by these 200 investors would be different and in general we say that the individual investments by the investors would be alpha i multiplied with the size of the fund which is 100 million, where alpha i are the individual shares of the investors in the investment. Let us take an example. If alpha 1 is 0.001, alpha 2 is 0.0005 and alpha 3 is 0.0006, then investors 1 and 2 and 3 would have invested 100,000 dollars, 50,000 dollars and 60,000 dollars respectively in the fund. If net return on the investments is 10 million dollars, investment management fee in this case would be 2.2 million. Why 2.2 million? Because the return is 10 million and 100 million plus 10 million that would generate a management fee of 2.2 million going to the fund manager. Investors 1, 2 and 3 will receive 7,800, 3,900 and 6,680 dollars respectively as their shares in the profit. Scenario 2, if the investment portfolio generates negative return, if for example the net return on the investments is about 10 million dollars, investment management fee in this case would be 1.8 million dollars because 2 percent would be applicable to the 90 million dollars AUM. Investors 1, 2 and 3 will incur losses of 11,800, 5,900 and 7,080 respectively given that these would be determined by their respective investment shares in the fund. Now, as a summary scenario 1, investors 1, 2 and 3 would receive 7,800, 3,900, 6,880 as positive return. In case of scenario 2 which is the case of loss, the investors 1, 2 and 3 would incur losses equal to 11,800 dollars, 5,900 dollars and 7,080 respectively. So, this gives an example of profit loss sharing in the context of Islamic fund management and we are trying to highlight the use of the concept or contract of musharaka in this particular case shirkatulmil which is joint ownership and let me remind you once again in case of shirkatulmil the profit is shared in accordance with the investment shares and that is the case in case of loss sharing as well.