An investment partnership or joint venture compliant with Sharia. In a musharaka, the financing party and its client (borrower) contribute assets (cash or property) to a joint venture and share in the profits of the joint venture in agreed percentages. The joint venture is structured so that the financing party receives its initial investment plus a return that is usually calculated by a reference to a benchmark such as LIBOR plus a margin. Losses, however, are shared in accordance with the parties' initial investment. All musharaka parties have the right to exercise control over the joint venture but it is typically managed by the client or borrower. Musharaka is widely regarded as the purest form of Islamic financing because it is based on the principles of sharing in and benefiting from risk. There are three types:

Musharaka is similar to mudaraba except that in a mudaraba only the financing party bears the losses associated with the joint venture or partnership.

For more information on Islamic finance in the US, see Practice Notes:

For more information on Islamic finance in the UK, see Practice note, Islamic finance: UK law overview.