Prospects and Challenges of Musharakah and Musharakah Mutanaqisah Financing in Islamic Microfinance: Case Studies of Indonesia and Malaysia
Article Sidebar
Main Article Content
Abstract
Musharakah, a unique Islamic mode of financing, involves joint contributions of capital and labor by both financier and entrepreneur. This profit and loss sharing (PLS) contract is considered one of the most ideal Islamic financing models, embodying the principles of cooperation and partnership. A specific application of this model is the diminishing partnership contract, known as Musharakah Mutanaqisah (MM). This study explores the implementation of musharakah and MM in Islamic microfinance through a qualitative comparative case study of two institutions: Bank Pembiayaan Rakyat Syariah (BPRS) Amanah Ummah Bogor, Indonesia, and Entrepreneurship Development Program (i-Taajir) under the Centre for Islamic Economics IIUM-CIMB Islamic Bank, Malaysia. Data were collected through interview, financial reports, institutional documents, and secondary sources, and analyzed thematically. The findings reveal that while both institutions apply musharakah-based financing to empower micro-entrepreneurs, they face challenges related to risk management, regulatory frameworks, and limited client understanding. Managerial implications suggest the need for better financial literacy programs, internal capacity building, and policy support to optimize musharakah implementation in microfinance settings. This study offers recommendations for enhancing the sustainability and operational effectiveness of equity-based Islamic financing models in the microfinance sector.
Article Details
Section
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Author(s) who published in this journal agree to following terms:
- Authors understand and agree that copyright of manuscripts published are held by Al-Muzara'ah. The statement to release the copyright to Al-Muzara'ah is stated in Copyright Transfer Agreement (CTA) form.
- Copyright encompass exclusive rights to reproduce, to distribute, and to sell any part of the journal articles in all form and media.
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License (CC BY-SA) where Authors and Readers can copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, but they must give appropriate credit (cite to the article or content), provide a link to the license, and indicate if changes were made. If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.
References
Abdul Jabar, N., Ramli, R. & Abidin, S. (2018). Understanding the mushārakah mutanāqiṣah of Koperasi Pembiayaan Syariah Angkasa (KOPSYA). ISRA International Journal of Islamic Finance, 10(1), 62-77.
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Shariah standards No.12, 5/1, p.217 (2008).
Ali, S. A. M., Hassan, R. & Othman, A. A. (2024). Al-Musharakah-led Islamic sustainable finance. In Islamic Finance and Sustainable Development (pp. 148-161). Routledge. https://doi.org/10.4324/9781003468653-17.
Alkhan, A. (2020). Analyzing the practice of mushāraka mutanāqisa in the islamic banking industry: The Kingdom of Bahrain as a case study. Asian Economic and Financial Review, 10, 275-288. https://doi.org/10.18488/JOURNAL.AEFR.2020.103.275.288.
As-Salafiyah, A., Ali, M. M., & Rusydiana, A. S. (2025). Beyond profit: Maqāsid al-sharī’ah in Islamic finance through partnership contracts (ʿuqūd al-ishtirāk). In Contributions to economics (pp. 175–194). Springer. https://doi.org/10.1007/978-981-96-8650-6_9.
Asadov, A., Muhamad Sori, Z. B., Mohamad Ramadilli, S., Anwer, Z., & Shamsudheen, S. V. (2018). Musharakah mutanaqisah home financing: Issues in practice. Journal of Islamic Accounting and Business Research, 9(1), 91–103. https://doi.org/10.1108/JIABR-08-2015-0036.
Asian Institute of Finance. (2013). Musharakah Mutanaqisah Home Financing. Kuala Lumpur (MY), Asian Institute of Finance.
Asyiqin, I. Z. & Alfurqon, F. F. (2024). Musyarakah mutanaqisah: Strengthening Islamic financing in Indonesia and addressing murabahah vulnerabilities. Jurnal Media Hukum, 31(1), 1–18. https://doi.org/10.18196/jmh.v31i1.20897.
Baber, H. (2017). A comparative study of Islamic housing finance models and issues. Qualitative Research in Financial Markets, 9(2), 168–180. https://doi.org/10.1108/QRFM-12-2016-0053.
Bartlett, L. & Vavrus, F. (2016). Rethinking Case Study Research: A Comparative Approach. New York (US), Routledge. https://doi.org/10.4324/9781315674889.
BPRS Amanah Ummah. (2018). Institutional Contract Document [Unpublished institutional document].
BPRS Amanah Ummah. (2024). Institutional financial report 2024 [Unpublished institutional document].
BPRS Amanah Ummah. (n.d.). Tentang kami [online]. [accessed 2025 Dec 15]. Retrieved from: https://www.amanahummah.co.id/tentang-kami/.
Centre for Islamic Economics IIUM. (2019). i-Taajir program report [Unpublished institutional document].
CNBC Indonesia. (2025, September 29). BPRS Amanah Ummah Dapat Penghargaan Best Rural Bank Sharia [Video]. CNBC Indonesia TV. https://www.cnbcindonesia.com/syariah/20250929160908-31-671192/video-bprs-amanah-ummah-dapat-penghargaan-best-rural-bank-sharia.
El Fakir, M. & Tkiouat, M. (2015). Moral hazard in Islamic finance: A game theoretical approach to Musharakah contract. International Journal of Islamic and Middle Eastern Finance and Management, 8(1), 94–104.
El Sherif, R., Pluye, P., Hong, Q. N., & Rihoux, B. (2024). Using qualitative comparative analysis as a mixed methods synthesis in systematic mixed studies reviews: Guidance and a worked example. Research Synthesis Methods, 15(3), 450–465. https://doi.org/10.1002/jrsm.1698.
Farooq, M. & Ahmed, M. M. M. (2013). Musharakah financing: Experience of Pakistani banks. World Applied Sciences Journal, 21(2), 181–189.
Finn, V. (2022). A qualitative assessment of QCA: Method stretching in large-N studies and temporality. Quality & Quantity, 56(5), 3815–3830. https://doi.org/10.1007/s11135-021-01278-5.
Hamsir, S., Sastrawaty, N. & Zainuddin. (2025). The dominance of debt-based financing in Islamic banking: Legal challenges and implications in Indonesia. Manchester Journal of Transnational Islamic Law and Practice, 21(2), 145–156.
Haneef, R., Kunhibava, S. & Smolo, E. (2011). Musharakah mutanaqisah and legal issues: Case study of Malaysia. ISRA International Journal of Islamic Finance, 3(1), 93–122. https://doi.org/10.55188/ijif.v3i1.119.
Kane, H. & Kahwati, L. (2022). Mixed methods and qualitative comparative analysis. In D. Wyse et al. (Eds.), International Encyclopedia of Education (4th ed., pp. 581–587). Elsevier. https://doi.org/10.1016/B978-0-12-818630-5.11057-7.
Kashi, A. & Mohamad, A. (2017). Does musharakah mutanaqisah converge with bai bithamin ajil and conventional loans?. International Journal of Law and Management, 59(5), 740–755. https://doi.org/10.1108/IJLMA-04-2016-0044.
Knight, C. G. (2015). Human-environment interactions: Case studies. In International Encyclopedia of the Social & Behavioral Sciences (2nd ed., pp. 405–409). Elsevier. https://doi.org/10.1016/B978-0-08-097086-8.91006-7.
Lock, I. & Seele, P. (2018). Gauging the rigor of qualitative case studies in comparative lobbying research. Journal of Public Affairs, 18(4), e1832. https://doi.org/10.1002/pa.1832.
Lojo-Bajrić, A. & Hadžić, F. (2020). Market rent value as a basis for profit margin calculation in home financings based on diminishing musharakah with ijarah: Possibilities for implementation in Bosnia and Herzegovina. In S. Mehic & F. Hadzic (Eds.), Islamic finance practices: Experiences from South Eastern Europe (pp. 149–167). Springer. https://doi.org/10.1007/978-3-030-34420-7_7.
McAlearney, A. S., Walker, D., Moss, A. D. & Bickell, N. A. (2016). Using qualitative comparative analysis of key informant interviews in health services research. Medical Care, 54(4), 400–405. https://doi.org/10.1097/MLR.0000000000000503.
Meera, A. K. M. & Abdul Razak, D. (2005). Islamic home financing through musharakah mutanaqisah and al-bay’ bithaman ajil contracts: A comparative analysis. Review of Islamic Economics, 9(2), 5-30.
Mehri, B., Hassan, M. K., & Jouaber-Snoussi, S. (2017). The optimal profit-sharing ratio in Islamic finance. Review of Financial Economics, 34, 47–55.
Miah, M. D. & Suzuki, Y. (2018). A critique to a naïve critique to ‘murabaha’ ‘tawarruq’ syndrome. In Dilemmas and challenges in Islamic finance: Looking at equity and microfinance (pp. 28–44). CRC Press. https://doi.org/10.1201/9781315105673.
Nurhayati, Y. & Hasan, A. (2022). Analysis of the mutanaqisah musyarakah contract as a solution for home ownership financing in Islamic banking. Indonesian Interdisciplinary Journal of Sharia Economics (IIJSE), 5(1), 390-408.
Otoritas Jasa Keuangan. (2025). Statistik Perbankan Indonesia – Juni 2025 [online]. [accessed 2025 Dec 10]. Retrieved from: https://ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Pages/Statistik-Perbankan-Indonesia---Juni-2025.aspx.
Pratama, G. (2025 August 29). Ini dia bank-bank dengan rating kinerja “sangat bagus” tahun 2025 versi Infobank [online]. Infobank News. [accessed 2025 Dec 5]. Retrieved form: https://infobanknews.com/ini-dia-bank-bank-dengan-rating-kinerja-sangat-bagus-tahun-2025-versi-infobank/.
Ruslan, R. & Jaffar, M. Y. (2012). Musharakah mutanaqisah home financing: Issues and prospects. International Journal of Academic Research in Business and Social Sciences, 2(11), 259–272.
Shah, T. (2025). From criticism to confirmation: A definitive examination of Running Musharakah model and its validity. Journal of Islamic Accounting and Business Research. https://doi.org/10.1108/JIABR-03-2024-0072.
Subky, K. H. Liu, J. Y., Abdullah, M. Farhan Mokhtar, Z. and Faizrakhman, A. (2017). The implication of musharakah mutanaqisah in Malaysian Islamic Banking arena: A perspective on legal documentation. International Journal of Management and Applied Research, 4(1), 17-30. https://doi.org/10.18646/2056.41.17-003.
Thomann, E. (2019). Qualitative Comparative Analysis (QCA) as a tool for street-level bureaucracy research. In P. Hupe (Ed.), Research Handbook on Street-Level Bureaucracy (pp. 370–391). Edward Elgar Publishing. https://doi.org/10.4337/9781786437631.00035.
Usmani, M. T. (1999). The concept of musharakah and its application as an Islamic method of financing. Arab Law Quarterly, 14(3), 203-220.
Warninda, T. D., Rokhim, R. & Ekaputra, I. A. (2019). Islamic bank profit-loss sharing financing and earnings volatility. Pertanika Journal of Social Sciences and Humanities, 27(S2), 229–239.