Is Risk Sharing a Requirement for the Validity of a Musharakah Contract?

Answered by Shaykh Faraz A. Khan

Question: Is risk sharing a requirement for validity of a musharakah contract?

For example; Abdullah buys a house for 100k. He only has $25 k but his uncle offers to finance the remaining 75% of the house by buying shares worth $75K.  Can Abdullah guarantee a certain percentage return on his uncle’s investment as rent?  Can he agree to be solely responsibly for all property taxes and bear all risks (profit or loss)?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

Yes, risk sharing is a condition for the validity of a musharakah contract.

Mufti Taqi Usmani, may Allah preserve him, states, “But in the case of loss, all the Muslim jurists are unanimous on the point that each partner shall suffer the loss exactly according to the ratio of his investment. Therefore, if a partner has invested 40% of the capital, he must suffer 40% of the loss, not more, not less, and any condition to the contrary shall render the contract invalid. There is a complete consensus of jurists on this principle.” [citing Ibn Qudama, al-Mughni]

[Usmani, An Introduction to Islamic Finance]

And Allah knows best.
wassalam
Faraz

Checked & Approved by Faraz Rabbani