The bank would be established on the principles of “Shirkat” that is a number of persons providing share capital to be jointly invested, hereafter called ‘shareholders’. The shareholders would finance enterprises, on the basis of partnership or ‘mudlarabah’ and render other services against fees or commission.
The minimum number of shareholders must be two. No maximum number can be fixed, theoretically, but for operational convenience as well as other reasons sum upper limit, varying with local conditions, is appropriate. The number of shareholders should be too great and in their best interest, should be kept to the minimum, though always more than two.
The amount of capital provided by each shareholders may be equal or mary vary. Ideally, sharevalue might be fixed (e.g. at Rp.1000.000) per share with each shareholders being allowed to secure as many shares as he wishes. The minimum and maximum limits of the subscribed capital may also be specified. Ultimately, each shareholders would become the owner of the bank, proportionately with the level of his assets in the total investment.
The distribution of the bank’s profits should be appropriate to the size of capital investment (number of shares) and, for this purpose, the total profit may be devided by the total investment in the bank to determine the percentage payable to each individual shareholder. There is, however, every justification for some formula of some formula of disproportionate distribution of profit, given that some shareholders would be more competent and willing than others to effectively promote the business and take on managerial responsibilities. But for the sake of smooth running of the bank’s business and for establishment of a meaningful accounting system, profit distribution should, in our view, be based upon the number of paid-up shares, bearing in mind (in the light of the principles of the shari’a for partnership) that if the bank goes into loss in any year, no shareholders can escape his liability, and must share the loss, in proportion to the size of his shares.
Consent for the acquisition of additional capital (either on credit or on the basis of mudlarabah), to promote and expand the bank’s business would be binding upon every partner to the bank. The bank would also be authorized advance loans and offer monetary investment to individuals or to organizations. It would of course, have the right to acqiure the services of administrative, excecutive and clerical staff and the purchase and hire transport, buildings and other requisites for it use. For such expenditure and for any other expenditure necessary to operate its business on sound lines, the bank would be allowed to draw upon its capital. Conversely, every partner as a private individual would be allowed to participate in any other business or enterprise and invest money or accept loans in partnership or on the basis of mudlarabah. His personal enterprises, as a private individual, would have nothing to do with the business of the bank.
All major decisions regarding overall operation of the bank would be made with the mutual understanding of the partners. If, however, the number of partners is very large, power to take decisions on various matters (which should be determined beforehand) would be delegated to a council of Representatives. Day-to-day decisions on routine business matters would be entrusted to salaried managers whose appointment and removal would rest in the hands of the partners or the Council of Representatives.
Banking is a continuous activity which cannot be reckoned to have anded at anyone particular moment. In view of this, it is in the partner’s interest to adopt an appropriate method for calculating profit and loss-the method should suit the organization as well as the partners. It would be advisable to have the account of the bank audited annually and a statement of profits and losses prepared. After calculating overall balance, the share of individual partners should be worked out. Profit should be paid out. In case of loss, the individual partner should be duly notified that his capital has been debited by the amount of his share of the loss and has accordingly decreased. The partnership agreement should then be renewed and the business continued for the next year. The account of every financial year should be separately recorded and dividends already distributed non-recoverable, for making good losses incurred during the current year, not should the profit earned be edjusted against the losses suffered. In the event of loss, any partner would, of course, have the right to make up the deficiency in his capital investment by fresh deposits.
Every partner should have the right to withdraw from the partnership at any time. As soon as the bank receives notice of withdrawal, efforts should be made to complete the amount of the bank’s collective business so that the partner’s share-capital is returned along with the profit he has earned. If it is necessary to some time for the finalization of the account say till the end of the running quarter of the year this should be done. It can bo provided for in the partnership agreement that a partner may withdraw from partnership only at the end of the financial yaer or the time of quarterly settlement of accounts. After the withdraw of a partner or partners, the partnership will continue so far as the other partners are concerned. In the event of a partner’s death the partnership will cease to exist as far as that partner is concerned and after preparing the accounts on the lines mentioned, his share capital plus his profit or minus his loss, must be returned to his legal heirs or to the persons nominated in the will of the deceased. He heir or heirs may be admitted to partnership if he or they so desire and provided that the other partners do not object to their admission.
As the bank would authorized to receive and advance loans, the financial liability of a partner should not be limited to the extent of his share-capital, but should in priciple be unlimited. As no theoritical limit can be imposed on the bank in the matter of receiving and advancing loans, it follows that the financial obligations of each partner will be unlimited. If the bank suffers losses such that its capital is insufficient to pay its liabilities, the deficiency must be met by the partners from their personal assets. However, if a partner has undertaken some financial responsibilities in a private capacity, other partners will not be bound to share them, nor will the bank be sheld responsible for them in any way.
