In musharaka, participants pool funds for a specific project or enterprise. Profit is distributed in a pre-agreed proportion, which need not match capital shares, while losses are strictly proportional to invested contributions.
This structure makes the financing party a co-owner rather than a creditor: their income depends on project results and is not guaranteed. This is why musharaka is considered the fullest embodiment of the risk-sharing principle.
Project management may be conducted jointly or delegated to one partner by agreement.
A special variant is diminishing musharaka, where the financing organization's share is gradually purchased by the client, and upon completion of payments, the asset fully transfers to them. This scheme is used for home financing and is functionally similar to a mortgage, though structurally it represents a staged purchase of a share in common property rather than a secured loan.