Musharaka

A partnership where profits and losses are shared between parties.

Unlike a loan, both parties contribute capital and share in the real outcome. If the business does well, both profit. If it does badly, both share the loss. This is the structure behind halal mortgages in the UK.

Islamic perspective

Musharaka is permitted because it reflects real shared risk. The bank is not guaranteed a return regardless of outcome, which distinguishes it from a riba-based loan.

Example

Ahmed and Gatehouse Bank jointly buy a house for £300,000. Ahmed owns 20% and the bank owns 80%. Ahmed pays rent on the bank's share and gradually buys out more. After 25 years, he owns it fully.

Related terms

Diminishing Musharaka Riba Ijara

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