Transaction and Working-Capital Financing

1. Financing a Single Transaction

partnership (مشاركة) and investment partnership (مضاربة) can finance one specific trade transaction instead of an entire long-term business.
• This can serve small traders' day-to-day needs.
• It can be used for one import transaction.
• It can also be used for one export transaction.
• The structure depends on who contributes capital and who manages the transaction.

2. Import Financing and the L/C

• If the Letter of Credit (L/C) is opened without an importer margin, investment partnership (مضاربة) can be used.
• If the importer contributes a margin, partnership (مشاركة) or a combination with investment partnership (مضاربة) may be used.
• After the goods are imported and sold, actual profit is shared according to the agreed ratio.

Term explanation: Letter of Credit (L/C): a banking arrangement used in trade to support payment against specified documents and conditions.

3. Ownership of Imported Goods

• In partnership (مشاركة), the financier owns the imported goods to the extent of his investment ratio.
• The importer owns the remaining share according to his investment.
• This ownership is real, not merely a security label.
• Profit and risk therefore arise from actual participation in the goods.

The ownership must be real rather than only documentary. Rights, benefits and the relevant ownership risk should follow the share actually owned at that stage.

4. If the Goods Are Not Sold by the End

• The importer may buy the financier's remaining ownership share.
• The sale should occur at market value or another price agreed on the date of sale.
• A compulsory purchase price should not be fixed in advance when partnership (مشاركة) begins.
• If a price was mentioned earlier, the financier cannot force the importer to buy at that pre-agreed price.

5. Export Financing

Export financing can be easier because the exporter often has a specific foreign order.
• Export price is usually known in advance.
• Expected profit can be estimated more easily.
• partnership (مشاركة) or investment partnership (مضاربة) may finance the transaction.
• Export proceeds are shared according to the agreed profit ratio.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

6. Negligence vs Genuine Business Loss

• The financier may require the exporter to comply fully with L/C conditions.
• Loss caused by the exporter's negligence or misconduct is borne by the exporter.
• Genuine business loss unrelated to negligence remains a partnership risk.
• Personal fault and normal business risk must therefore be separated.

The practical test is to separate normal business loss from loss caused by negligence or misconduct. Genuine investment loss follows the relevant capital rule, while a party remains responsible for loss caused by its own fault.

7. Working Capital of a Running Business

• The existing running business is valued by mutual agreement.
• That value is treated as the client's contribution to partnership (مشاركة).
• New money supplied by the financier becomes the financier's capital contribution.
• This uses the practical view that non-cash business assets may form partnership (مشاركة) capital after valuation.

Capital is not only an accounting figure. It determines important legal consequences such as ownership exposure and, where applicable, the way genuine loss is allocated.

8. The Financier as a Sleeping Partner

• partnership (مشاركة) may run for a fixed period such as 1 year, 6 months or less.
• The financier may remain a sleeping partner.
• The parties agree on his share of actual profit.
• Because he does not work in the business, his profit share should not exceed his investment ratio under the rule applied here.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

9. Constructive Liquidation

At the end of the term, the business can be valued again instead of physically selling every asset.
• The new valuation shows the increase or decrease in total value.
• This may be treated as constructive liquidation.
• Profit can therefore be determined without shutting down the running business.

Term explanation: Constructive liquidation: determining the business value as if it were settled, without actually selling every asset.

10. Worked Example: Capital and Profit

Suppose A's business is valued at 30 units and B adds 20 units.
• Total capital = 50 units.
• A's capital ratio = 60%; B's = 40%.
• They agree that profit will be shared 80% to A and 20% to B.
• Business value rises to 100, so profit = 50 units.
• B gets 20% of 50 = 10 units; with his original 20, his total entitlement = 30.
• A gets 40 profit units; with his original 30, his total entitlement = 70.

11. Worked Example: If Value Falls

Now suppose value falls from 50 to 40 units.
• Total loss = 10 units.
• Loss follows capital ratio, not profit ratio.
• B invested 40%, so B bears 4 units and his 20 becomes 16.
• A invested 60%, so A bears 6 units and his 30 becomes 24.

The example is useful because it separates the legal roles from the cash movement. Once those roles are clear, the same principle can be applied to more complex commercial cases.

Profit follows the valid agreed ratio; loss follows the capital ratio.

12. Level Summary

• partnership (مشاركة) and investment partnership (مضاربة) can finance a single import or export transaction.
• Import ownership follows investment ratios.
• A later buyout should use market value or a price agreed at the time of sale, not a compulsory pre-fixed price.
• Exporter negligence is borne by the exporter; genuine business loss remains partnership risk.
• A running business can be valued and combined with new financing as partnership (مشاركة) capital.
• End-of-term valuation can operate as constructive liquidation.
• Profit follows the agreed profit ratio; loss follows the capital ratio.

Single-transaction and working-capital financing remain genuine only when ownership, profit and loss follow the partnership structure.