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By
Ahmad Saufe Nawi
Musharakah
There are two types of Shirkah:
1. Shirkat-ul-Milk (Joint Ownership)

     Joint ownership of two or more persons in a
     particular property

2.   Shirkat-ul-Aqd (Joint Venture)

     A partnership affected by mutual contract. It
     can also be translated as a joint commercial
     enterprise
Diminishing Musharakah
The financier and the client participate either in
 joint ownership of a property or an equipment,
 or in a joint commercial enterprise

The share of the financier will be divided into a
 number of units

The client will purchase these units one by one
 periodically until he is the sole owner of the
 property
Components of
Diminishing Musharakah
  Joint ownership of the Bank and customer
  Customer as a lessee uses the share of the
  bank
  Redemption of the share of the Bank by the
  customer
Mode of Fixed Asset Financing
 Diminishing Musharakah is commonly used for the
 purpose of financing of fixed assets by various
 Islamic banks.
    House financing
    Car Financing
    Plant and machinery financing
    All other fixed Assets
Basic Operation
                                Joint
  BANK                        Ownership                CUSTOMER
                                  Rent
                              Musharaka

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

  The Bank enters into a Musharakah (Joint Ownership) agreement
   with the customer and both of them pay their respective shares
   to the seller of the asset.

   Client promises to purchase Bank’s share (units) over the tenure of
    transaction with the help of Undertaking to Purchase
Joint
BANK                       Ownership               CUSTOMER
                Gradual Transfer of Ownership
                           Musharaka

 Client promises to purchase Bank’s share (units) over the tenure
  of transaction with the help of Undertaking to Purchase
 Customer pays rent for the use of banks share in the property
 Client purchases the units every month via a separate offer &
  acceptance every month and will eventually become the owner of
  the property.
Joint
BANK                      Ownership                CUSTOMER
                Gradual Transfer of Ownership
                          Musharaka


 Ownership of the asset is gradually transferred to the customer
  upon payment of asset price. (with the help of a Sale
  transaction between bank & customer at the end of each period)
CONCLUSION
The scholars agreed that it is best to implement DM
 partnership for house financing or machinery
 financing whereby both assets can be leased out to
 agreed rental.
Joint ownership of house or machinery is accepted by
 all school of Islamic jurisprudence since the financier
 sells its shares to the customer (Usmani, 2002)
DM is considered to be an appropriate mode to
 finance collective investment due to benefits to the
 respective parties as mentioned below;
    o   Banker’s Perspective: It earns periodical profit all the year
        round
    o   Partner’s Perspective: It encourages the partner to participate
        in halal investment. It realises the customer’s ambition to
        individually own the asset/project in the short run when the
        bank withdraws gradually.
    o   Society's Perspective: It corrects the course of the economy
        by developing the mode of positive partnership instead of the
        negative relationship of indebtedness, by doing so it achieves
        equity in distributing the results.

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Diminishing musharakah

  • 2. Musharakah There are two types of Shirkah: 1. Shirkat-ul-Milk (Joint Ownership) Joint ownership of two or more persons in a particular property 2. Shirkat-ul-Aqd (Joint Venture) A partnership affected by mutual contract. It can also be translated as a joint commercial enterprise
  • 3. Diminishing Musharakah The financier and the client participate either in joint ownership of a property or an equipment, or in a joint commercial enterprise The share of the financier will be divided into a number of units The client will purchase these units one by one periodically until he is the sole owner of the property
  • 4. Components of Diminishing Musharakah  Joint ownership of the Bank and customer  Customer as a lessee uses the share of the bank  Redemption of the share of the Bank by the customer
  • 5. Mode of Fixed Asset Financing Diminishing Musharakah is commonly used for the purpose of financing of fixed assets by various Islamic banks.  House financing  Car Financing  Plant and machinery financing  All other fixed Assets
  • 6. Basic Operation Joint BANK Ownership CUSTOMER Rent Musharaka  The customer approaches the Bank with the request for Project/Machinery/House financing  The Bank enters into a Musharakah (Joint Ownership) agreement with the customer and both of them pay their respective shares to the seller of the asset.  Client promises to purchase Bank’s share (units) over the tenure of transaction with the help of Undertaking to Purchase
  • 7. Joint BANK Ownership CUSTOMER Gradual Transfer of Ownership Musharaka  Client promises to purchase Bank’s share (units) over the tenure of transaction with the help of Undertaking to Purchase  Customer pays rent for the use of banks share in the property  Client purchases the units every month via a separate offer & acceptance every month and will eventually become the owner of the property.
  • 8. Joint BANK Ownership CUSTOMER Gradual Transfer of Ownership Musharaka  Ownership of the asset is gradually transferred to the customer upon payment of asset price. (with the help of a Sale transaction between bank & customer at the end of each period)
  • 9. CONCLUSION The scholars agreed that it is best to implement DM partnership for house financing or machinery financing whereby both assets can be leased out to agreed rental. Joint ownership of house or machinery is accepted by all school of Islamic jurisprudence since the financier sells its shares to the customer (Usmani, 2002)
  • 10. DM is considered to be an appropriate mode to finance collective investment due to benefits to the respective parties as mentioned below; o Banker’s Perspective: It earns periodical profit all the year round o Partner’s Perspective: It encourages the partner to participate in halal investment. It realises the customer’s ambition to individually own the asset/project in the short run when the bank withdraws gradually. o Society's Perspective: It corrects the course of the economy by developing the mode of positive partnership instead of the negative relationship of indebtedness, by doing so it achieves equity in distributing the results.