Permanent Partnership

This mode is represented in the contribution of partners to equal or unequal ratios of capital to establish a new project or to participate in an established one, whereby each participant owns a share in the capital permanently and deserves his share of the profit. The partnership originally is intended to continue up to the dissolution of the company. It is possible that for one reason or another, one of the partners sells its share in the capital to withdraw from the project.

The Islamic banks use the mode of partnership in many projects. They finance their customers with part of the capital in exchange of a share of the output as they may agree upon. Mostly they leave the responsibility of management to the customer partner and retain the right of supervision and follow up.

THE PRACTICAL STEPS OF PERMANENT PARTNERSHIP :

1. Partnership in Capital:

The bank: Tenders part of the capital required in its capacity as a partner and authorizes the customer / partner to manage the project.

Partner: Tenders part of the capital required for the project and becomes the trustee for bank's funds.

2. Results of the project:

The work in the project is for the growth of capital. The project may achieve positive or negative results.

3. Distribution of wealth accrued from the project:

In case of loss, each partner bears part of the loss proportionate to its share in capital.

Profit is divided between the two parties (the bank and the partner) in accordance with the agreement.

AREAS OF APPLICATIONS

Partnership is considered to be an appropriate mode for collective investment in modern economic life. The Islamic banks use partnership by contributing capital to new or established projects. They also bear part of the cost of a project in the ratios of their shares in capital.

The Islamic banks by using partnership as a mode of investment make sufficient liquidity available to the customer for a long period. The Islamic banks are usually active partners and participate in determining the methods of production and the objectives of the establishment. They also supervise and follow up the performance of the establishment. The Islamic banks share profit or loss with the customer (partner) without burdening the customer with debt or any financial liabilities which the customer has to pay under all circumstances.

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