Partnership (مشاركة): Sharing Gross Profit

1. Why Net Profit Can Become Difficult

In a running industry, partnership (مشاركة) may involve many fixed assets such as buildings, machinery and permanent staff. If every asset must be revalued and every item of depreciation or appreciation allocated to a short financing period, accounting becomes complicated and disputes may arise.

The difficulty is therefore not with partnership itself; it is with deciding which indirect costs truly belong to the financed activity.

2. A Different Approach: Gross Profit

One practical solution is to distribute gross profit rather than net profit. Direct expenses of the financed activity are deducted, but indirect expenses are not charged to the partnership pool; the industrial client bears them.

Term explanation: Gross profit: income remaining after direct production or selling costs are deducted, before general overheads.

3. Which Expenses Belong to the Partnership?

Typical direct expenses include raw material, wages of workers directly processing it, electricity consumed in production, and services rendered specifically for the partnership activity. These costs arise directly from the financed operation and can reasonably be charged to the partnership (مشاركة).

For banking practice, the rule must also be workable in accounting and monitoring. The aim is to preserve genuine risk-sharing while using a method that can be audited and applied consistently.

4. Why Building, Machinery and General Staff Are Different

A factory building, major machinery and permanent staff usually serve the business for much longer than the financing term and may also support activities outside this particular partnership. Charging their full cost to one short partnership would therefore be misleading. Only the portion genuinely attributable to the period could be considered, but depreciation itself may be difficult to measure without dispute.

5. Practical Example: A Ginning Factory

Suppose a ginning factory owns a building worth Rs. 22 million and plant and machinery worth Rs. 2 million. Its staff costs Rs. 50,000 per month. A bank provides Rs. 5 million through partnership (مشاركة) for one year.

The partnership should bear the direct production costs of that financed year, not automatically the full historical cost of the factory's long-term assets and staff.

6. Two Ways to Compensate the Industrial Client

If the client provides his own building, machinery and staff, two practical approaches are possible.

• The partnership pool may pay agreed rent for use of the building and machinery, irrespective of final profit or loss.
• Instead of separate rent, the client's agreed profit share may be increased to compensate him for providing those facilities.

For banking practice, the rule must also be workable in accounting and monitoring. The aim is to preserve genuine risk-sharing while using a method that can be audited and applied consistently.

7. Why This Structure Can Work

The client's fixed assets and staff may serve more than one business activity, so the partnership should bear only costs properly attributable to its own operations. Increasing the client's profit share instead of charging disputed indirect costs has also been supported by analogy with service-based investment partnership (مضاربة) in the view attributed to Imam Ahmad ibn Hanbal.