PARTNERSHIP IN ISLAM

ABSTRACT

   This paper aims at explaining the literal and technical meaning of partnership in Islam, its specific conditions as well as elucidating different types of  partnership and their classification
Moreover, it also emphasis on some of the Models of partnership as well as the position of partnership in Islam has been recapitalized.

    Moreover, it also crow out the different types of partnership and their subdivision, and also making simple interpretation on some basic rules concerning distribution of profit and loss, the nature of capital of Musharakah as well as management of Musharakah.

INTRODUCTION

بسم الله الرحمن الرحيم

   Islam re-emphasized on the issue of principle of wide circulation of wealth, that is wealth and property should be circulated among the general public and activity transferred from one hand to another in the form of expenditure and investment. And the wisdom behind this is to insure all round development in economic affairs of the Muslim Ummah.

   Therefore, the purpose of partnership in transaction is to gain profit, while profit could be yield by managing the goods, and that is exactly what happened in the contract of trading partnership.

Moreover, engaging in partnership means one is engage into that which is lawful. Allah (swt) clearly stated that:

in  Surah Al-Baqara, Verse 275:

"الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ وَمَنْ عَادَ فَأُولَٰئِكَ أَصْحَابُ النَّارِ هُمْ فِيهَا خَالِدُونَ"

"Those who swallow down usury cannot arise except as one whom Shaitan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it)-- these are the inmates of the fire; they shall abide in it."

  Also in another Verse, Allah (Swt) Is in support of every group of partners who indulge into partnership with clear intention and stand just to one another. where He (swt) stated in

"Surah Al-Mujadila, Verse 7:

"أَلَمْ تَرَ أَنَّ اللَّهَ يَعْلَمُ مَا فِي السَّمَاوَاتِ وَمَا فِي الْأَرْضِ مَا يَكُونُ مِن نَّجْوَىٰ ثَلَاثَةٍ إِلَّا هُوَ رَابِعُهُمْ وَلَا خَمْسَةٍ إِلَّا هُوَ سَادِسُهُمْ وَلَا أَدْنَىٰ مِن ذَٰلِكَ وَلَا أَكْثَرَ إِلَّا هُوَ مَعَهُمْ أَيْنَ مَا كَانُوا ثُمَّ يُنَبِّئُهُم بِمَا عَمِلُوا يَوْمَ الْقِيَامَةِ إِنَّ اللَّهَ بِكُلِّ شَيْءٍ عَلِيمٌ"

"Do you not see that Allah knows whatever is in the heavens and whatever is in the earth? Nowhere is there a secret counsel between three persons but He is the fourth of them, nor (between) five but He is the sixth of them, nor less than that nor more but He is with them wheresoever they are; then He will inform them of what they did on the day of resurrection: surely Allah is Cognizant of all things."

DEFINATION OF PARTNERSHIP

  Linguistic Meaning The word for partnership is sharika and some jurists use the word shirkah.

Ibn al-Humam in Fath al-Qadir describes sharika as meaning the mixing of the shares so that one of them cannot be distinguished from another.

   Shaikh Taqiuddin an-Nabhani states in Nidaam ul Iqtisaad fil Islam (Economic System in Islam) that Ash-Sharika linguistically means mixing two or more shares together such that neither can be distinguished from the other.

Shariah Meaning Differences in the types of sharikah between the Mujtihideen has meant that there has been difficulty in producing a general shariah definition.

  The Maliki scholar Al-Khayyat quotes a definition from al-Dardir in his al-Sharikat that a partnership is “a contract between two or more owners of wealth for joint trade or it is a contract for shared labour and shared profits.”
Ibn Qudamah the Hanbali scholar in al-Mughni defined it as “participation of two or more persons in transactions.

  However perhaps the most comprehensive shariah definition is provided by Sheikh Taqiuddin an-Nabhani in Nidaam ul Iqtisaad where the partnership in Shar'a is defined as a contract between two or more persons, in which they agree to perform financial work with the intention of making profit.

APPROVAL OF PARTNERSHIP IN ISLAM

Partnership is allowed in Islam because when Muhammad (saw) was sent as a Messenger people were dealing with companies and he (salAllahu alaihi wasallam) did not forbid this.

   Al Bukhari narrated that Abu Al-Minhal said: "I and my partner bought something in cash and credit. Al-Bara ibn 'Azib came to us so we asked him about this. He said: 'My partner, Zaid ibn Al-Arqam, and I did the same and we asked the Prophet (salAllahu alaihi wasallam) about this.' He (salAllahu alaihi wasallam) said: 'That which is in cash you take, and that which is in credit you return it back."'

   However, in another Hadith    Ad-Daraqutni narrated from Abu Hurairah that the Prophet (salAllahu alaihi wasallam) said: "Allah the Supreme said:  'I am the third of the two partners as long as one of them does not betray his companion. If he betrayed, I would withdraw from them"

In affirming the above hadith Allah (swt) had clearly stipulated in the Qur'an where he said :
" There is no Najwa (secret counsel ) of three, but He is their forth ( with his knowledge, while He Himself is over the throne, over the seventh heaven) nor of five but He is their sixth (with his knowledge), not of less than that or more but He is within with His knowledge) wheresoever they may be;.........".  (Q58:

KINDS OF PARTNERSHIP

In principle, there are two kinds of shirkah:

(1) Shirkat-ul-milk:This means joint ownership of two or more persons in a particular property or item. This kind of “Shirkah” may come into existence in two different ways:

a) By purchase:

   This is an optional form of shirkah and comes into existence through choice.  If two or more persons buy an item splitting the total cost, then it will be owned jointly by both of them and the relationship between them with regard to that property or item is called “Shirkat-ul-milk.”  Here, the investing partners opted to buy a product together.

For example, Aaliya and Safiyya pay N50 each for a printer.  In such a case, Aaliya and Safiyya will be partners due to purchasing an item.  They will jointly own the printer.

b)By inheritance:

This is an automatic form of shirkah which takes place without any action by the parties.  As soon as some body passes away, his/her heirs inherit the property and own it collectively Shirkat-ul-amwaal  consequence of the death of that person.

(2) Shirkat-ul-‘aqd (Partnership by contract):

 This is the second type of Shirkah which means “a partnership effected by a mutual contract”.   In simple terms, this is the type of partnership formed when two or more persons do business together. Shirkat-ul-‘aqd is further divided into three kinds:

a)Shirkat-ul-amwaal (Partnership by investment): This shirkah or partnership is formed when partners invest some capital into a business. For example, Abdullah and his brother Hassan begin a business of clothing, each investing N12,000 in the business.

b)Shirkat-ul-a‘maal (Partnership by work):

This is where all the partners jointly undertake to render some services for their customers, and the fee charged from them is distributed among them according to an agreed ratio. For example, Zaid and Zakariyya under take tailoring services for their customers.  The money received earned will go to a joint pool which shall be distributed between them, irrespective of the size of work each partner has actually done. This partnership will be a shirkat-ul-a‘mal which is also called Shirkat-ut-taqabbul or Shirkat-us-sana’i‘ or Shirkat-ul-abdan.

c) Shirkat-ul-wujooh (Partnership by face): Here the partners have no investment at all. All they do is that they purchase items on credit and attempt to resell them for cash at a higher price. The resulting profit is shared among the partners after the debt is repaid from the proceeds.
For example, Ishaaq and Dawud desire to start a business but lack the funds.  They decide to approach Harun, who has a lot of goods to sell.  They ask Harun to sell his goods to them on credit, he agrees.  Ishaaq and Dawud take these goods and advertise them on their website.  A month later, all the goods have been sold and a considerable profit has been made.  Ishaaq and Dawud pay Harun and then divide the remaining profit. Profits shall be distributed in the proportion mutually agreed in the contract

TYPES OF PARTNERSHIP

Under Islamic economic system there are four types of Partnership:

i. Shirka al-Anan
ii. Shirka al-Abdan Labour skill association or association of bodies.
iii. Qirad- Dormant partnership.
iv.  Mudarabah -co- partnership.
the first two are called ordinary Partnership.

(1) SHIRKAH AL-ANAN

limited partnership this is where two or more persons contributed specified capital or property equally in order to conduct business and share the profits or losses equally. One partner is not authorized to undertake any dealings or transaction without his co partner consent.

(2).  SHIRKAH AL-ABDAN

Bodies association or labour/skills association. This is where two  or more persons enter into association for purpose of exercising a skill or profession yielding fruitful result practically shared among partners with the view to lending mutual assistance, even though the associates work separately.

(3). QIRAD (DORMANT PARTNERSHIP)

This is an agreement in contract by which a person entrust founds to a merchant in order that he shall trade with it, subject to the lender having share in profit. Thus,  in Qirad, the capital is handed over to the second partner who trade with it as an agent and the contract cames into force when the agent start the trading journey.

(4). MUDARABAH

This originated from the Arabic phrase "Darbul-Ard" to work  of moving about in the land of Allah seeking for bounties  through trade or work (labour) mentioned in the Qur'an (Q73:20).
   In legal terminology it is simply means a contract in which certain property or stock is offered by the owner or propitiator known as (Ribal- mal) to the other party to form a joint partnership in which both participate in profit.THE BASIC RULES OF PARTNERSHIP:

    Since musharakah is in essence, a contract all conditions and rules of a contact must be met. But a part from those general rules thare are some basic rules that apply specifically to Musharakah which include:

(A) DISTRIBUTION OF PROFIT

1. The proportion of profit to be distributed among the partners must be determined and agreed upon at the time of the contract. Otherwise the contract is not valid under Shari’ah.

2. According to Imam Malik and Imam Shafe’i, it is necessary that each partner’s share in the profit is exactly equal to the proportion of initial investment into the partnership.

3.According to Imam Ahmed, the ratio of profit distribution may vary, without restriction, from the ratio of investment.

4.According to Imam Abu Hanifah, the ratio of profit distribution may vary, however, for silent partners (non-active partners, who only contribute capital), it cannot be any higher than the ratio of investment.

(B) DISTRIBUTION OF LOSS

All the Muslim jurists are unanimously agreed that each partner's share in loss must be exactly equal to the ratio of initial investment. Any thing to the contrary will render the contract invalid.

(C) THE NATURE OF CAPITAL

There are the following opinions on this:

1.According to Imam Malik and some Hanbali jurists, the nature of capital is not a restriction in a Musharakah arrangement. Therefore, in-kind (non-cash) contributions by partners are allowed.
The share in partnershipwill be determined based on the market value of the commodity contributed.

2. According to Imam Abu Hanifah and Imam Ahmed, no in-kind contributions are allowed in a Musharakah arrangement. This is because they believe it poses problems if the partnership needs to be liquidated or redistributed.



3. Imam Shafe'i makes a distinction between replaceable commodities and irreplaceable commodities (like cattle).

The view of Imam Malik has been widely accepted

(D). MANAGEMENT OF MUSHARAKAH

The norm is for each partner to take part in the management of the partnership, with each partner acting as an agent of the partnership and any work done by one partner deemed to be authorized by all partners.

However, if the partners wish they can contract under alternate arrangements for the management of the partnership.

(E) TERMINATION OF MUSHARAKA

It is agreed upon by the jurists that a partnership is terminated if:

1. One of the partners terminates the partnership at any time after giving his partner a notice to this effect, where by the partnership will come to an end.

2. One of the partners dies (where the heirs get the choice to continue the partnership or liquidate it to draw their share from the partnership);

3. One of the partners becomes insane. If the remaining partners want to continue the business under any of the above scenarios, it is achievable with mutual agreement. The remaining partners would have to purchase the share of the out-going partner.

   Another question raised is whether the partners can agree, at the time of contracting, that the partnership will not be terminated unless all partners agree to the termination. Though the earlier fiqh books are silent on the issue, there is nothing in the Shari’ah that would prohibit such an arrangement

THE PROFIT AND LOSS SHARING TECHNIQUES IN ISLAMIC BANK

In summary according to Maliki and Shafi'i, the profit share or loss will be divided equally.
while Hanafi and Hambali they are on view that the ratio of profit and loss will be shared according to their contribution. e.g

SIDDIQ MODEL

*A= contributed N100,000 for 2years
*B= contributed N100,000 for 1year
*C= contributed N100,000 for 1year

According to this Model to encourage longtime deposit the owner of two years account will benefit more or double of the one year depositors and the ratio division is as follows:
N300,000 profit was realize as a profit after business at the ratio of:

A= ratio 2
B= ratio 1
C= ratio 1

total of the ratio
2:1:1
2+1+1 = 4

A= 2/4×300,000 = 2/4= 0.5×300,000 = 150,000
or
 A = 2/4 × N300,000.
2×N300,000= N600,000.
N600,000÷4 = N150,000.
the  profit of "A" is N150,000.

*B = 1/4×300,000 = 1/4= 0.25×300,000 = 75,000
or
1/4×300,000
1×300,000=300,000.
e.i  300,000÷4 = 75,000

the profit of  "B" is N75,000.

*C = 1/4×300,000 = 1/4= 0.25×300,000 = 75,000
or
1/4×300,000
1×300,000=300,000.
e.i  300,000÷4 = 75,000

the profit of  "C" is N75,000.

Example No: 2

High amount deposit benefit high amount of profit
N350,000 deposit for maize production by :
A= N200,000
B= N100,000
C= N50,000
and after harvest  N500,000 was realize as a profit in ratio of
A= 4
B= 2
C= 1
Total ratio 4+2+1=7

Solution
*A= 4/7×500,000 = 0.57×500,000 = 285714.28
the profit of "A" is N285714.28.

*B = 2/7×500,000=0.28×500,000= 142857.14
the profit of "B" is N142857.14.

*C = 1/7×500,000=0.14×500,000=71428.57.
The profit of "C" is N71428.57.

ZUBAIR THEORY OF MODELg

1. Identify the profit sharing ratio.
2. Try and make profit in conformity with Islamic jurisprudence.
3. the shares that has much profit coincide with high risk

e.g
BONDS

N.B
Taxes and business cost are not fully considered.

Example
*A = 100,000 bonds share 20,000=5 share.
the profit sharing ratio =5

*B= 100,000 treasury received 5,000=200 share.
The profit sharing ratio =20.
and the profit must to be in conformity with either Maliki and Shafi'i's view or Hanafi and Hambali View

CONCLUSION

   Conclusively, partnership signifies the conjunction of two or more person to Carry out a business in order to share profit by joint investment. In the widest sense of the term partnership exist where property is held  in common between two or more cooperators .
   Therefore, partnership existed among all communities right from the time of immemorial. Because even during the life time of the Prophet (saw) and his companions. partnership was very common and popular among Muslims Ummah in the area of business, agriculture and gardening. However, The prophet (saw) himself helps in establishing partnership between the migrant and helpers in Madinah, in field of agriculture and gardening.
     Furthermore,  there is no doubt that the scope of partnership which was build by the Muslims or build in the state of Islam is limited by laws of Allah the exalted. Thus, it is prohibited to any one to run a business that supplies or market illegal product and service in Islam.
Therefore, the prophet (saw) had underlined this stipulation where he reported to have said: "verily, if Allah forbid one thing He must forbid the result of its selling." Narrated by Ahmad, Abu Dawud and ad-darul-Qudnii

    Finally, partnership as a legal contact has numerous advantages to the world of Muslim socially, economically, religiously etc. therefore, it's merits to the development of Ummah can not be over emphasis.

REFERENCES

1. Auwal S (2003:pag 72-75 and 151-154) and Introduction to Islamic and Banking system, Gidan Dabino publishers, No 570 sabon Titi Dandago Kano Nigeria, ISBN:978-37417-7-2

2. Khurshid A. (1981:pag 67) Monetary and Fiscal Economics of Islam, published by Institute of policy Studies. Islamabad (Pakistan,) ISBN: 81-7435-022-5

3. Abdullahi Y.A. (1984:pag41,531), English translated Qur'an chapter 2:275 and 58:7, published by Alkali Sharif Bala Book shop Kurmi market, Kano Nigeria.

4. Google search : Title Musharaka/concept in Islamic economics and Finance
site: https//cief.WordPress.com/2006/3/12/Musharakah/


5. Google search: Title: A simple guid to Musharakah (business partnership)
site: https://darulfiqh.com/a-simple-guide-to-musharakah-business-partnership/

Assignment

DEFINATION OF PARTNERSHIP

Linguistic MeaningThe word for partnership is sharika and some jurists use the word shirkah.Ibn al-Humam in Fath al-Qadir describes sharika as meaning the mixing of the shares so that one of them cannot be distinguished from another.

Shaikh Taqiuddin an-Nabhani states in Nidaam ul Iqtisaad fil Islam (Economic System in Islam) that Ash-Sharika linguistically means mixing two or more shares together such that neither can be distinguished from the other.

Shariah MeaningDifferences in the types of sharikah between the Mujtihideen has meant that there has been difficulty in producing a general shariah definition.The Maliki scholar Al-Khayyatquotes a definition from al-Dardir in his al-Sharikat that a partnership is “a contract between two or more owners of wealth for joint tradeor it is a contract for shared labour and shared profits.”Ibn Qudamah the Hanbali scholar in al-Mughni defined itas “participation of two or more persons in transactions.

However perhaps the most comprehensive shariah definition is provided by Sheikh Taqiuddin an-Nabhani in Nidaam ul Iqtisaad where the company in Shar'a is defined as a contract between two or more persons, in which they agree to perform financial work with the intention of making profit.

BASIC OF PARTNERSHIP IN ISLAM

Daleel (Evidence)

Partnership is allowed in Islambecause when Muhammad was sent as a Messenger people weredealing with companies and he (salAllahu alaihi wasallam) didnot forbid this.

Al Bukhari narrated that Abu Al-Minhal said: "I and my partner bought something in cash and credit. Al-Bara ibn 'Azib came to us so we asked him about this. He said: 'My partner, Zaid ibn Al-Arqam, and I did the same and we asked the Prophet (salAllahu alaihi wasallam) about this.' He (salAllahu alaihi wasallam) said: 'That which is in cash you take, and that which is in credit you return it back."'

However, in another Hadith    Ad-Daraqutni narrated from Abu Hurairah that the Prophet (salAllahu alaihi wasallam) said: "Allah the Supreme said 'I am the third of the two partners as long as one of them does not betray his companion. If he betrayed, I would withdraw from them".

In affirming the above hadith Allah (swt) had clearly stipulated in the Qur'an where he said :
" There is no Najwa (secret counsel ) of three, but He is their forth ( with his knowledge, while He Himself is over the throne, over the seventh heaven) nor of five but He is their sixth (with his knowledge), not of less than that or more but He is within with His knowledge) wheresoever they may be;.........".  (Q58:7)