The word Musharaka has been derived from the Arabic word ‘Shirkat’ or 'Sharikat' (Shirk). In Arabic, Shirkat or Sharikat or Shirk means partnership or sharing. Thus the literal meaning of 'Musharaka' is sharing though the connotation of this term is limited than the term Shirkat. The term Musharaka has been introduced recently in Islamic Banking literature to mean a particular type of Shirkat.

In Islamic Fiqh literature, Shirkat, in its primitive sense, signifies the conjunction of two or more estates, in such a manner, that one of them is not distinguishable from the other. The term Shirkat, however, is extended to contracts, although there be no actual conjunction of estates, because a contract is the cause of such conjunction. In the language of the law it signifies the union of two or more persons in one concern. It is the partnership between two or more persons or institutions.

Musharaka may be defined as a contract of partnership between two or more individuals or bodies in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.

In Islami Bank Bangladesh Limited (IBBL), the Bank may take part in a business with its Client(s), where both the Client(s) and the Bank provide capital in fixed proportions, take part in the management of business and share the profit in proportion to their respective capital ratio or at pre-agreed ratio and bear the loss, if any, in proportion to their respective capital/equity ratio