Can musharaka financing of SMEs be applied to the interest-based banking system?
It has already been established that Islamic partnership finance has potential for SME financing, even though some outstanding problems have to be solved if it is to be widely adopted. The methods of musharaka (Islamic partnership finance) may also be of interest to conventional financial institutions, however, since there are only a few differences between musharaka and conventional partnership arrangements. This article describes the principles and methods of musharaka, and the problems encountered in its application. It is argued that if the profit-and-loss sharing formula of musharaka is taken as one form of venture capital, rather than an ideological concept, it may have a great deal of universal application, especially as a supplement to interest-based credit financing of SMEs.