A partnership mode of Islamic finance in which partners contribute equal or unequal ratios of capital, management skills, goodwill or any combination of these items in order to establish a new project or to participate in an existing one, whereby each partner owns a respective share in the partnership and is entitled, by virtue of this share, to a respective or agreed-upon share in the profit. However, losses, if incurred by the mutual project, will be borne by partners according to their respective shares in capital or ownership.

In principle, the partnership or musharakah is intended to be a going concern, until the company is dissolved. However, since musharakah is not an aqd lazim or binding contract, it is possible for any partner to withdraw from the project by selling his share in the capital to other partners or even to an outsider provided that existing partners approve it.

Islamic banks use musharakah mode to finance a mutual project with their customers, whilst receiving a share in the output as agreed upon by both sides.

Musharakah is an Arabic term that denotes a profit-and-loss sharing contract.