finance

2. MUSHARAKAH
By
Muhammad Yahya Asim
DIMINISHING

3. Diminishing Musharakah
Diminishing Musharakah
(Shirkah-Al-Mutanaqisah) is a type of
Shirkah where one partner purchases the
other partner’s share gradually

4. Types of Diminishing Musharakah
Diminishing Musharakah
Shirkat-ul-Aqd
(Joint Venture)
Shirkat-ul-Milk
(Joint Ownership)

5. FEATURES OF DIMINISHING MUSHARAKAH
IN SHIRKAT-UL-AQD (JOINT VENTURE)
Two partners start business in Shirkah to
EARN PROFIT
One of the partners undertakes to
purchase the share of another partner gradually
every month or each year.

6. Rules of Diminishing Musharakah
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 this undertaking.
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 the time of
purchasing.
c) If promise is not fulfilled, then it can be forced by Court of
law.

7. Rules of Diminishing Musharakah
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.

8. FEATURES OF DIMINISHING MUSHARAKAH
IN SHIRKAT-UL-MILK (JOINT OWNERSHIP)
Two or more partners purchase any asset
(machinery, property, etc.) and their intention
is that one or both partners will use this
asset or rent out their share and one partner
undertakes to purchase the share of other
gradually.

9. Rules of Diminishing Musharakah
in Shirkat-ul-Milk (Joint Ownership)
1. There will be an agreement of Shirkat ul
Milk and it will be decided How much
investment will be made by each partner.
2. Asset will be purchased and everyone will
be owner of this asset as per the ratio of his
investment and all other rules of Shirkat-
ul-Milk will be applicable.

10. Rules of Diminishing Musharakah
in Shirkat-ul-Milk (Joint Ownership)
3. One Shareek can rent out his share to
other partner or to a third party and
Ijarah Agreement will be signed.
4. Within period of Ijarah, Shariah rulings
relating to Ijarah will be applicable.

11. Rules of Diminishing Musharakah
in Shirkat-ul-Milk (Joint Ownership)
5. One of the partners can promise to purchase
the share of another partner and in this
promise, the price of unit may be decided.
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.

12. Use of Diminishing of Musharakah in current
Islamic Banking System

13. Use of Diminishing of Musharakah in Banking System
Diminishing Musharakah usually being used
in House Financing for four purposes:
1. Purchase of House
2. Construction of House
3. Renovation of House
4. Balance Transfer Facility (BTF)

14. Features for Diminishing Musharakah for
Purchase of House
1. The Client in the approved area of the bank makes
the choice of house.
2. Bank & client enter into Musharakah agreement. In
this agreement it is decided to purchase the house
jointly and ratio of investment by each one.

15. Features for Diminishing Musharakah for
Purchase of House
3. The property will be in the name of the
client.
4. This is Shirkat-ul-Milk.
5. According to the ratio of ownership, each
one is responsible for the loss.
6. Bank divides its own part of asset into
units, which is promised by the client to
purchase on pre-agreed price.

16. Features for Diminishing Musharakah
for Purchase of House
7. After taking possession of house, bank rent
out its share to the client by execution of
Ijarah Agreement.
8. Rent may be fixed on prevailing market rate
or with mutual consent.
9. Bank’s monthly profit may also be decided,
as monthly rent of the house and principal
amount will be recovered in the unit price.

17. Features for Diminishing Musharakah
for Purchase of House
10. In Ijarah Agreement, a lump sum amount of rent
is necessary to be fixed for a certain period.
Rent for the rest of the period, may be linked with
agreed Benchmark.
11. Each unit will be purchased on the basis of Offer
& Acceptance.

18. Features for Diminishing Musharakah
for Construction of House
There are two scenarios :
a. Financing for Purchase of Plot &
Construction.
b. Financing only for Construction

19. Financing for Purchase of Plot &
Construction
1. Musharakah Agreement will be signed
between bank and client in which
investment of everyone will be agreed. It
will also be agreed that client as working
partner will be responsible for
construction.
2. Both the partners will be owners of the
property in same ratio as the ratio of
investment.

20. Features for Diminishing Musharakah for
Construction of House
3. The property will be in the name of the client.
4. This is Shirkat-ul-Milk.
5. According to the ratio of ownership, each one is
responsible for the loss.
6. Bank will divide its own part of asset into units,
which is promised by the client to purchase on
pre-agreed price

21. Financing for Purchase of Plot &
Construction
7. After completion of house, Ijarah Agreement
will be signed and bank will give his share of
house on rent to the client. Before completion of
construction, rent cannot be charged.
8. Rent may be fixed on prevailing market value or
with mutual consent.
9. Bank’s monthly profit may also be decided, as
monthly rent of the house and principal amount
will be recovered in the unit price.

22. Financing for Purchase of Plot &
Construction
10. In Ijarah Agreement, a lump sum amount of
rent is necessary to be fixed for a certain
period. Rent for the rest of the period, may be
linked with agreed Benchmark.
11.Each unit will be purchased on the basis of
Offer & Acceptance.
12.Purchase of unit can be started after
Musharakah Agreement.

23. Financing for Construction Of House
1. Valuation of plot will be made. This value
will be investment of client in Musharakah
Agreement and bank’s financing for
construction will be investment of bank.
2. Musharakah Agreement will be signed
between bank and client in which investment
of everyone will be agreed. It will also be
agreed that client as working partner will be
responsible for construction.

24. Financing for Construction Of House
3. Both the partners will be owner of the property
in same ratio as ratio of investment.
4. The property will be in the name of the client.
5. This is Shirkat-ul-Milk.
6. According to the ratio of ownership, each one is
responsible for the loss.
7. Bank will divide its own part of asset into units,
which is promised by the client to purchase on
pre-agreed price.

25. Financing for Construction Of House
8. After completion of house, Ijarah Agreement
will be signed and bank will give his share of
house on rent. Before completion of
construction, rent cannot be charged.
9. Rent may be fixed on prevailing market value or
with mutual consent.
10. Bank’s monthly profit may also be decided, as
monthly rent of the house and principal amount
will be recovered in the unit price.

26. Financing for Construction Of House
11. In Ijarah Agreement, a lump sum amount of
rent is necessary to be fixed for a certain
period. Rent for the rest of the period, may
be linked with agreed Benchmark.
12.Before one year, client cannot purchase
bank’s units.
13.Each unit will be purchased on the basis
of Offer & Acceptance.

27. Features for Diminishing Musharakah
for Renovation of House
1. Valuation of house will be made and
this value will be treated as investment
of client in Musharakah Agreement and
renovation amount will be considered as
bank’s investment.

28. Features for Diminishing Musharakah
for Renovation of House
2. Musharakah Agreement will be signed
between bank and client in which
investment of everyone will be agreed. It
will also be agreed that client as working
partner will be responsible for renovation.
3. Both the partners will be owner of the
house in same ratio as ratio of investment.

29. Features for Diminishing Musharakah
for Renovation of House
4. The property will be in the name of the
client.
5. This is Shirkat-ul-Milk.
6. According to the ratio of ownership,
each one is responsible for the loss.
7. Bank will divide its own part of asset
into units, which is promised by the
client to purchase on pre-agreed price.

30. Features for Diminishing Musharakah
for Renovation of House
8. After completion of renovation, Ijarah
Agreement will be signed and bank will give
his share of house on rent. Before completion
of renovation, rent cannot be charged.
9. Rent may be fixed on prevailing market value or
with mutual consent.
10. Bank’s monthly profit may also be decided, as
monthly rent of the house and principal amount
will be recovered in the unit price.

31. Features for Diminishing Musharakah
for Renovation of House
11.In Ijarah Agreement, a lump sum amount
of rent is necessary to be fixed for a
certain period. Rent for the rest of the
period, may be linked with agreed
Benchmark.
12. Before one year, client cannot purchase
bank’s units.
13. Each unit will be purchased on the basis
of Offer & Acceptance.

32. Features for Diminishing Musharakah
for BTF
1. This product will be used only in those cases where
someone has obtained interest-based loan for house.
2. Valuation of house will be made and this value
will be treated as investment of client in
Musharakah Agreement and amount of loan paid by
bank will be investment of bank.

33. Features for Diminishing Musharakah
for BTF
3. Musharakah Agreement will be signed between
bank and client in which investment of
everyone will be agreed.
4. Both the partners will be owner of the property
in same ratio as ratio of investment.
5. The property will be in the name of the client.
6. This is Shirkat-ul-Milk.

34. Features for Diminishing Musharakah
for BTF
7. According to the ratio of ownership, each
one is responsible for the loss.
8. Bank will divide its own part of asset into
units, which is promised by the client to
purchase on pre-agreed price.

35. Features for Diminishing Musharakah
for BTF
9. Ijarah Agreement will be signed and bank will
give his share of house on rent to the client.
10. Rent may be fixed on prevailing market value or
with mutual consent.
11. Bank’s monthly profit may also be decided, as
monthly rent of the house and principal amount
will be recovered in the unit price.

36. Features for Diminishing Musharakah
for BTF
12.In Ijarah Agreement, a lump sum amount of rent is
necessary to be fixed for a certain period. Rent for the
rest of the period, may be linked with agreed
Benchmark.
13. Before one year, client cannot purchase bank units
14. Each unit will be purchase on the basis of Offer &
Acceptance.

37. Jazak Allah