other, reflect the view of Islamic banking proponents that under Islam the user of capital would not bear all the risk/cost of a failure. And that this would result in a balanced distribution of income and prevent financiers from dominating the economy.Musharakah & Mudarabah By Mufti Taqi Usmani | Limited Liability| central-mosque.com Musharakah (joint venture) Musharakah is a relationship between two or more parties that contribute capital to a business and divide the net profit and loss pro rata. Unlike mudarabah, there may be more than two partners and all the providers of capital are entitled (but not required) to participate in management. Like mudarabah, the profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner in proportion to respective capital contributions. This mode is often used in investment projects, letters of credit, and the purchase or real estate or property. Musharakah may be "permanent" (often used in business partnerships) or "diminishing" (often used in financing major purchases, see below). In Musharaka business transactions, Islamic banks may lend their money to companies by issuing "floating rate interest" loans, where the floating rate is pegged to the company's individual rate of return, so that the bank's profit on the loan is equal to a certain percentage of the company's profits. Use of musharaka (or at least permanent musharakah) is not great. In Malaysia, for example, the share of musharaka financing declined from 1.4 percent in 2000 to 0.2 percent in 2006Khan, What Is Wrong with Islamic Economics?, 2013: pp. 322–23 Diminishing Musharaka A popular type of financing for rydamajor purchases—particularly housing—is Musharaka al-Mutanaqisa (literally "diminishing partnership"). A musharaka al-mutanaqisa agreement actually also involves two other Islamic contracts besides partnership—ijarah (leasing by the bank of its share of the asset to the customer) and bay (gradual sales of the bank's share to the customer). In this mode of finance the bank and the purchaser/customer start with joint ownership of the purchased asset—the customer's sharing being their down-payment, the banks share usually being much larger. The customer leases/rents the asset from the bank—bank assessing (at least in theory) an imputed rent for use of the asset—while gradually paying off the cost of the asset while the bank's share diminishes to nothing. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party's