diminishing musharakah 3rd.pptx

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Diminishing Musharakah


(Shirkah-Al-Mutanaqisah) is a type of Shirkah

where one partner purchases the other partner’s share gradually

Two or more partners purchase any asset(machinery, property, etc.) and their intention isthat one or both partners will use this asset or

rent out their share and one partner undertakesto purchase the share of other gradually.



Types of Diminishing Musharakah


Shirkat-ul-Aqd

(Joint Venture)

Shirkat-ul-Milk

(Joint Ownership)

Three major componentsJoint ownership of the Bank and customerCustomer as a lessee uses the share ofthe bankRedemption of the share of the Bank bythe customer



Rules of Diminishing Musharakahin Shirkat-ul-Milk (Joint Ownership)

1. There will be an agreement of Shirkat ul Milk and itwill be decided How much investment will be made byeach partner.

2. Asset will be purchased and everyone will be owner ofthis asset as per the ratio of his investment and allother rules of Shirkat-ul-Milk will be applicable.

3. One Shareek can rent out his share to other partner or

to a third party and Ijarah Agreement will be signed.(Sharia rules)

4. Within period of Ijarah, Shariah rulings relating toIjarah will be applicable.



Rules of Diminishing Musharakah

in Shirkat-ul-Milk (Joint Ownership)

5. One of the partners can promise to purchase the share ofanother partner and in this promise, the price of unit may bedecided. (It will be preferable that the purchase ofdifferent units by the client is effected on the basis of themarket value of the house as prevalent on the date ofpurchase of that unit, but it is also permissible that aparticular price is agreed in the promise of purchasesigned by the client. )

6. Unit can be purchased on the basis of Offer & Acceptance.

7. All the above mentioned agreements and undertaking should be independent and not linked up with each other.



Mode of Fixed Asset Financing

Diminishing Musharakah is commonly used for thepurpose of financing of fixed assets by variousIslamic banks.

House financing Car Financing for the personal use or for rendering

services i.e. taxi Plant and machinery financing Factory/Building financing Agriculture land financing All other fixed Assets



FEATURES OF DIMINISHING MUSHARAKAH

IN SHIRKAT-UL-AQD (JOINT VENTURE) Two partners start business in Shirkah to

EARN PROFIT

One of the partners undertakes topurchase the share of another partnergradually every month or each year.




in Shirkat-ul-Aqd (Joint Venture)

1. There will be an agreement of Shirkat-ul-Aqd between both partners where in investment of everyone and ratio of profit will be agreed.

2. One partner undertakes to purchase the share of other partner, but three conditions should be considered in thisundertaking.

a) This promise will not be a part of Shirkah Agreement.

b) The price of unit will not be agreed in this promise but promise to purchase should be at market value at thetime of purchasing.

c) If promise is not fulfilled, then it can be forced by Court

of law.




in Shirkat-ul-Aqd (Joint Venture)

3. At the time of purchase, the price of unit

will be decided on the basis of market

value of business.

4.Unit will be purchased through Offer &Acceptance.



Basic Transaction Structure

The customer approaches the Bank with therequest for Project/Machinery/House financing

The Bank enters into a Musharakah (Joint

Ownership) agreement with the customer andboth of them pay their respective shares tothe seller of the asset.

Customer pays rent for the use of banks share

in the property Ownership of the asset is gradually

transferred to the customer upon payment ofasset price.



The value of Bank’s share in Musharakah property isdivided into units, which it sells to the customer. Unitswill be worked out by dividing Bank’s financed amountby number of months for which finance to be allowed.

With each purchase of unit by the customer, theBank’s share in the Musharakah property startsdiminishing, whereas customer’s share startsincreasing, correspondingly.

Finally, the customer becomes the sole owner of theproperty after having purchased all units from theBank, along with the rentals thereon.



Shariah Principles

To create joint ownership in property is calledShirkat-ul-Milk and is expressly allowed by allschools of Islamic Jurisprudence.

All Muslim Jurists agree on the permissibility ofthe Financier leasing his share in property toclient and charging him rent i.e. the permissibilityof leasing one’s share to his partner.

There is difference of opinion among leasing one’sshare to a third part But there is no difference onpermissibility on leasing to a partner.



Shariah Principles

Promise of client to purchase units of share offinancier is also allowed.

The Transactions cannot be combined in a

single arrangements and they have to beexecuted independently.

This is because it is a well settled rule ofIslamic Jurisprudence that one transaction

cannot be made a condition for another. Instead of making the transactions a pre-

condition for one another there can be one-sided promises from one party to another

diminishing musharakah 3rd.pptx

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