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Islamic Finance




Running Musharaka


A type of musharaka that employs the concept of running finance (RF); it is an alternative to running finance that is based on the contract of sharikat al-aqd (contractual musharaka). Running musharaka (RM) allows a customer (borrower of funds) to draw down funds without having to apply again and submit additional documents for the additional amounts. The profit sharing is subject to mutual agreement of the two parties (partners) (based on gross profits of the customer’s business). In this sense, the financier (say an Islamic bank) enters into the transaction as a sleeping partner through sharikat al-aqd.

Running musharaka is only used to finance operating acitivities (working capital requirements) of the customer (not fixed assets or other long-term assets).

This form of musharaka, however, is fraught with shari’a violations/ issues, particularly the fictitious nature of the transaction and the disconnection it creates with maqasid al-shari’a and departure from real economy activities.



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