Musyarakah With Tiered Profit Sharing, Is It Allowed?

Devin Halim Wijaya20 April 2024

0 28 3 minutes read

One of the possible profit-sharing schemes proposed in a Musyarakah contract is a tiered profit-sharing scheme. This is done by providing different profit sharing ratios based on a certain percentage of profit realised from capital or sales. An example is as follows:

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Example 1:

Ahmad and Agus enter into a Musyarakah contract in the business of selling pastries for 1 year where Ahmad provides capital of Rp 125,000,000, – and Agus provides capital of Rp 75,000,000, -. with the distribution of business results as follows:

If the realised profit is below or equal to 10% of the capital then the profit sharing is done with a ratio of 40% for Agus and 60% for Ahmad
If the realised profit is above 10% and below 20% of the capital then the profit sharing is done with 2 levels:
a. Profits that reach 10% of the capital are distributed with a ratio of 40% for Agus and 60% for Ahmad
b. The remaining profits that are above 10% are distributed with a ratio of 60% for Agus and 40% for Ahmad
If the realised profit is equal to or above 20% of the capital then the profit sharing is done with 3 levels:
a. Profits that reach 10% of the capital are distributed with a ratio of 40% for Agus and 60% for Ahmad
b. The remaining profits that are above 10% and below 20% are distributed with a ratio of 60% for Agus and 40% for Ahmad
c. The remaining profit from 20% and above is distributed with a ratio of 70% for Agus and 30% for Ahmad.

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This is allowed based on AAOIFI sharia standard chapter Shirkah and contemporary Shirkah point 5/5/1/3:

يجوز الاتفاق على أي طريقة لتوزيع الربح ثابتة أو متغيرة لفترات زمنية: بنسبة كذا للأولى و كذا للثانية تبعا لاختلاف الفترة أو بحسب كمية الأرباح المحقة شريطة ألا تؤدي إلى احتمال قطع اشتراك أحد الأطراف في الربح.

It is permissible to agree on a fixed or changing method of profit sharing for a certain period of time: with a certain percentage for the first and second periods according to the difference in periods or based on the amount of profit earned, provided that it does not lead to the possibility of preventing one of the parties from earning profit.

In the standard above, it is explained that it is permissible to do profit sharing with a ratio that changes according to the agreement of the partners.

This is also in accordance with the general rules of muamalah:

الأصل في الأشياء الإباحة

The original law of all things is permissible

This rule explains that everything that has no prohibition is permissible in sharia, and there is no evidence that strictly prohibits the distribution of Musyarakah profit sharing with different ratios when the limits are known.

However, in implementing a graduated Musyarakah profit-sharing system, there should be no scheme that deprives one of the partners of the opportunity to earn a profit share, for example as follows:

Yusuf and Yunus enter into a Musyarakah contract in the business of selling thrift clothes for 1 year where Yusuf provides capital of Rp 125,000,000 and Yunus provides capital of Rp 75,000,000 with the following profit sharing:

If the realised profit is below or equal to 10% of the capital then all profits for Yusuf
If the realised profit is above 10% and below 20% of the capital then the profit sharing is done at 2 levels:
a. The profit that reaches 10% of the capital is entirely for Yusuf
b. The rest of the profit that is above 10% is distributed with a ratio of 60% for Yunus and 40% for Yusuf.

This scheme is prohibited because if the profit of the business between Yusuf and Yunus is below 10% of the capital or Rp 20,000,000, then Yunus does not get any profit at all. This is contrary to the principle of Musyarakah which aims to share profits.

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Musyarakah is one of the business cooperation contracts allowed in Islamic law. In its development, the practice of Musyarakah has various additional clauses that are considered more suitable for various cases and different needs, including the clause of graded profit sharing. May Allah ta’ala help us all in implementing the Shariah-compliant Musyarakah contract in our business activities.

Wallahu a’lam

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