Interest based financing:
1- A fixed rate of return on a loan advanced by the financier is predetermined irrespective of the profit earned or loss suffered by the debtor.
2- Results In injustice either to the creditor or to the debtor. If the debtor suffered a loss, it is unjust on the part of the creditor to claim a fixed rate of profit or return. Also if the debtor earns a very high rate of profit, it is injustice to the creditor to give him only small proportion of the profit leaving the rest for the debtor.
3- The financier can not suffer loss.
Musharakah:
1- Musharakah does not envisage a fixed rate of return. The return is based on the actual profit earned by the join venture.
2- The returns of the creditors are tied up with the actual profits accrued through the enterprise. The greater the profits of the enterprise, the higher the rate of return to the creditor. If the enterprise earns enormous profits, all of it can not be secured by the debtor exclusively but will be shared by common people e.g. depositors in the bank.
3- The financier can suffer loss, if the joint venture fails to produce fruits.
Termination of Musharakah:
It is agreed upon by the jurists that a partnership is terminated in the following cases if,
1- One of the partners terminates the partnership.
2- One of the partners dies (where the heirs get the choice to continue the partnership or liquidate it to draw their share from the partnership)
3- One of the partners becomes insane.
If the remaining partners want to continue the business under any of the above scenarios, it is achievable with mutual agreement. The remaining partners would have to purchase the share of the out-going partner.
Another question raised is whether the partners agree, at the time of contracting, that the partnership will not be terminated unless all partners agree to the termination. Though the earlier Fiqh books are silent on the issue, there is nothing in the shari’ah that would prohibit such an arrangement.