Musharakah is a word of Arabic origin which literally means sharing. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is an ideal alternative for the interest-based financing with far reaching effects on both production and distribution. In the modern capitalist economy, interest is the sole instrument indiscriminately used in financing of every type. Since Islam has prohibited interest, this instrument can not be used for providing funds of any kind. Therefore, Musharakah can play a vital role in an economy based on Islamic principal.
The basic rules of Musharakah:
Musharakah or shirkat-ul- amwal is a relationship established by the parties through a mutual contract. There fore, it goes with out saying that all the necessary ingredients of a valid contract must be present here also. For example, the parties should be capable of entering in to a contract; the contract must take place with free consent of the parties’ with out any duress, fraud, or misrepresentation, etc.