Commonly, business ventures start off with a loan. For Muslims, loans cannot be made or accepted according to traditional banking methods because this invariably entails the payment and receipt of interest and therefore is not permissible. Islamic banking allows prospective clients to borrow money while still adhering to Shariah law through profit-and-loss sharing scheme of financing; mudarabah and musharakah contracts. Musharakah (partnership) is the second basic Profit and Loss Sharing (PLS) concept in Islamic banking.
In fiqh, the concept of musharakah is used in much wider sense. However, in the context of Islamic banking operations, we are concerned with one type of musharakah, that which is known in fiqh as ‘inan (unequal-shares) partnership i.e. sharikat ‘inan fi al-mal since it is this form which is seen to be the most appropriate for Islamic banking environment. To date, because knowledge of Islamic banking among Muslims in Malaysia is shallow, Islamic banks failed to use mudarabah and musharakah as their main business products. As lending has been the traditional approach in banking, Muslims thought that only bai al-inah, murabahah and bai bithaman ajil (BBA) serve as the best alternative to lending.