Musharakah (equity participation)

Musharakah (equity participation)

In a Musharakah agreement (also known as Shirkah), all the partners are involved in business operations – where as with Mudarabah, the Rabb-ul-Maal (investor) has lead responsibility. The losses are also shared, hence becoming more of a joint management venture. Hence the word itself “Musharakah” which comes from an Arabic origin of “Shirkah” which means “sharing”, since both investor and entrepreneurs share losses as well as profits.

Musharakah helps finance new business operations based on Islamic principles, which prohibit making a profit on interest from loans. Just like angel investment, one party helps another begin or expand a business. However, in this case, both parties would share X amount of all profits or losses and no actual “loan” of finances would occur.

Some partnerships are contractual, some are not – and parties involved become co-ownerships of a business. Musaharakah works similar to Equity Financing in the western world, except that capital is based on a share of profit or loss, as opposed to interest based.

In Musharakah agreements (again, pre-agreed at the start) everyone can agree to work for the joint venture, and all parties involved act as each others agent in business matters. Further details about how Musharakah works are available on line, however it is best discussed with your potential investor or entrepreneurial partner whether you need to take this route.

Although Angel investing is still at an early stage of development in the region, there are many new angel investment groups in the Middle East, such as the Arab Business Angel Network (ABAN), as well as a range of independent investors on sites such as ours.

Angel Investors are becoming more common in the Middle East, and Business Angel networks are also being formed in countries such as Egypt, Jordan, Lebanon, UAE, Qatar and Saudi Arabia, making a more available set of options out there for entrepreneurs.

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