Musharakah is a partnership contract that involves an agreement between two or more parties to combine capital and labor resources for the purpose of generating profits. The term "musharakah" is a relatively recent addition to modern Islamic financial terminology, and this type of contract is known as "shirkat" in Islamic jurisprudence, which means joint ownership. Musharakah represents a flexible mechanism for participating in a joint venture, where project management, profit distribution, participation periods, methods, and exit conditions can be negotiated by all the partnership participants. Depending on the investment and co-ownership of the business, Musharakah is divided into two main types:

1. Shirkat al-Mulk: This partnership is based on joint ownership of some property.

2. Shirkat al-Aqd: This partnership is based on contracts or, in modern financial terminology, is referred to as a "joint commercial venture." This type of contract is further divided into the following subtypes:

• Shirkat al-Amwal: Involves joint investment of capital in a commercial enterprise, which then operates independently. Profits are distributed according to the partnership agreement, and losses are distributed strictly proportionally to the contributions of each participant to the capital of the joint venture.
• Shirkat al-Amal: Involves the creation of a joint venture formed to provide professional services or skilled labor. In this case, partners are not required to contribute capital to the business, and profits are shared based on pre-agreed proportions.
• Shirkat al-Wuju: This is a joint partnership of two or more parties based on reputation with the goal of making a profit, for example, earning income from the spot sale of goods purchased on credit or intended for resale. The parties' responsibility for debts is determined in the contract.

Application of the Musharakah contract in Islamic banks:

1. Permanent Musharakah: Used by Islamic banks to participate in the creation of joint-stock companies for the purpose of participating in a particular project on an ongoing basis.

2. Temporary Musharakah: Represents the participation of an Islamic bank in a specific project on a temporary basis for profit generation. It can be used in the following cases:

• Financing specific business deals: An Islamic bank can collaborate with businesses to provide financing for a specific transaction or project.
• "Diminishing Musharakah": This involves the participation of an Islamic bank together with another party in the creation of a specific project with specific capital. The bank and the partner contribute to the capital of the project in defined proportions. The other party gradually buys out the bank's share in the project until the bank's stake is entirely purchased and transferred to the other party. As a result, the bank exits the partnership, and the other partner becomes the owner of the project. This mechanism is, for example, used in Islamic banks for mortgage financing, sometimes in conjunction with an Ijara (lease) agreement.