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.

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 is 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.