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Musharakah With Party Engaged In Interest-Based Transactions

Is it permissible for a bank to enter into a Musharakah agreement with a party that is known to deal in interest-based transactions, in particular borrowing funds on interest?

It is permissible to enter into a musharakah agreement with such a party provided that:

• Proceeds from capital purchases should be divided according to the share in the partnership, thus freeing the bank from any responsibility with regards to the manner in which the partner is utilizing his funds.
• No guarantee on proceeds or principal should be provided.

• The bank may purchase the shares of the other party according to the principles of diminishing Musharakah.

• The bank may not enter into a borrowing transaction whether as a borrower or guarantor of an interest-based loan.

• The bank may not provide resettlement agreements for an interest-based loan.

• No mortgage agreement should be entered into for the benefit of an interest-based loan.

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