Abstract:   This research critically examines the practical execution of the Running Musharakah (RM) product within Islamic banking industry of Pakistan. It aims to provide a comprehensive understanding of its structure and application while addressing a significant gap in the existing literature. Previous research has predominantly focused on issues related with RM, providing limited insights into its structuring, variations, and underlying assumptions. The study employs a document review methodology, complemented by case studies and literature analysis. Data were collected from product manuals, agreements, process flows, and calculation sheets of full-fledged Islamic banks. The findings reveal that while Running Musharakah adheres to the general principles of Musharakah/Shirkah, but in practice, RM is a new form of Musharakah with different underlying assumptions, maxims, and calculations from classical Musharakah/Shirkah. Unlike traditional Musharakah, RM uses adjusted Cost of Goods Sold (COGS) or Cost of Sales (COS) for business valuation, which varies by industry. For instance, the service industry includes fixed assets alongside COS, whereas the travel industry relies on net current assets. RM also introduces a unique two-tier profit-sharing method, with

Keywords:   Running Musharakah, Bank’s investment, Adjusted cost of Goods Sold, Provisional profit, Profit ceiling, Total average value of Musharakah investment

Publisher:   ILMA UNIVERSITY

Published:   10 January 2025

Issue:   Issue 2 : Volume 20

E-ISSN:   2409-6520

P-ISSN:   2414-8393