Common Shariah Compliant Structures

Practical structures include Mudarabah (profit sharing), Musharakah (joint venture), Murabaha (cost plus sale), Ijara (lease), and Sukuk (asset based certificates). Where risk protection is needed, Takaful (mutual insurance) is preferred over conventional insurance.

Mudarabah (profit sharing partnership)

One party provides capital (rab al-mal) and the other provides expertise and management (mudarib). Profits are shared according to a pre-agreed ratio, while financial losses are borne by the capital provider unless mismanagement or negligence is proven. This structure aligns incentives by linking returns to real performance rather than guaranteed interest.

Musharakah (joint venture)

All partners contribute capital and may participate in management. Profits are distributed based on agreed ratios, while losses are shared in proportion to each party's capital contribution. Musharakah is often used for project financing where shared ownership and shared risk are appropriate.

Murabaha (cost plus sale)

A financier purchases a specified asset and sells it to the customer at a disclosed cost plus an agreed profit margin, often with deferred payments. The key Shariah features are clear asset ownership, transparency of price, and a fixed profit that is not tied to interest on money.

Ijara (lease)

The financier buys an asset and leases it to the customer for a defined period and rental amount. Ownership remains with the lessor, while use is transferred to the lessee. Maintenance responsibilities and eventual transfer of ownership (if agreed) are specified upfront to avoid uncertainty.

Sukuk (asset based certificates)

Sukuk represent proportionate ownership in underlying assets, usufruct, or services. Returns are derived from the performance of those assets (e.g., lease income or profit shares) rather than interest payments. Structures are designed to link investor returns to real economic activity with clear asset linkage.

Takaful (mutual insurance)

Participants contribute to a pooled fund that provides mutual protection against defined losses. The fund is managed on a cooperative basis, and any surplus after claims and costs may be redistributed to participants. This avoids conventional insurance structures that rely on excessive uncertainty or interest based investment.