This report is about Musharakah and its risk management in Pakistan. Purpose of this research is to find out how Musharakah operates and what kind of risks it has and how those risks are managed by Islamic Banks and various conventional banks offering Musharkah.
According to Islamic law, Musharakah is a partnership between financial institution and client where both parties contributes capital and share profit and loss on the basis of Musharkah agreement and shariah compliance.
The process of Musharkah is to invest somewhere under Islamic jurisprudence where the contribution of financial institution is more than its partner (Client), and when client starts paying rentals to the partner (Financial institution) as agreed before to acquire 100% ownership, this process is called Diminishing Musharakah.
As Musharkah is one of the most operating product of Islamic Banking, its risk and management should also be considered before joining Musharakah. This report has also focused on the types of risk Musharakah contain and how those risks should be managed according to SBP guidelines.
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