The age-old concept of partnership was seen by Muslim jurists from the 8th century Hijra onwards as a sacrosanct commercial arrangement—and, therefore, subjected to a form of fixity which is unparalleled in any other religious tradition. Since the formative period of Islamic law, the limited-liability partnership, or muḍāraba, a specific variation of the over-arching mushāraka partnership, has continued to hold central importance for Muslims. Yet, despite this centrality, it has not been examined with a view to reformulating it for contemporary Islamic banking and finance. This has led to its virtual neglect in modern Islamic banking operations. This article suggests that the revival of the muḍāraba facility requires the overcoming of key disadvantages inherent in its structure and that a restructuring on the basis of the hybrid facility called participating preferred ijāra is one possible way of achieving such an outcome.
See Andrew Winton“Limitation of Liability and the Ownership Structure of the Firm”Journal of Finance48 (1993): 487-512; Timur Kuran “The Logic of Financial Westernization in the Middle East” Journal of Economic Behavior and Organization 56 (2005): 593-615.
See Siddiqisupra note 27; M. Umar Chapra “Why has Islam prohibited interest? Rationale behind the prohibition of interest” in A.S. Thomas (Ed.) Interest in Islamic Economics: Understanding Ribā (London: Routledge 2006).
Mohammed UzairInterest-Free Banking (Karachi: Royal Book Company1978).
See Ronald H. Coase“The Nature of the Firm”Economica(4) New Series (16) (1937): 386-405; and Armen A. Alchian “Uncertainty Evolution and Economic Theory” Journal of Political Economy 58 (1950): 211-221.