Diminshing musharakh by its name means a partnership that declines over time. DM is a subpart of Musharakah types and mostly used in house financing.

1. DIMINISHING MUSHARAKAH
By
SHIRKAT-UL-MUTANASIQAH

2. Diminishing Musharakah
In Diminishing Musharakah the client and the financier participates in the joint ownership of
property or equipment etc.
The share of the financier is divided into a number of units
The client purchases these units one by one periodically until he becomes the sole owner of the
property.
This concept is based on the declining ownership of the financier.
FinancierClient

3. Four components of Diminishing Musharakah
1. Joint ownership of the bank and the customer
2. Customer as a lessee uses the share of the bank
3. Redemption of the share of the bank by the customer
4. All the contracts needs to be independent/ Unilateral

4. Modes of fixed asset financing
1. House financing
2. Car financing
3. Plant and equipment financing
4. Any other fixed asset

5. Process of Diminishing Musharakah
1. Customer approaches the bank with request for Project/ machinery / house
financing
2. The bank enters a MUSHARAKAH agreement with the customer and both of
them pay their respective shares to the seller of the asset
3. Upon joint acquisition of the asset client and bank enters a lease payment
agreement through which bank leases its share in the asset to the client.
4. Client promises to purchase the banks share ( units ) over the tenure of
transaction with the help of a Unilateral Undertaking to Purchase
5. Customer pays rent for the use of banks share in the property
6. Client purchases units every month via a separate offer and acceptance every
month and eventually becomes the owner of the property.

7. Diminishing Musharakah Illustration
Months Rent Unit price Monthly
payment
Balance
unit price
Balance
units
0
1 4250 10,000 14.250
600,000
590,000
60
59
2 4179 10,000 14179 580,000 58
3 4108 10,000 14108 570,000 57
4 4038 10,000 14,038 560,000 56
57 283 10,000 10,283 30,000 3
48 213 10,000 10,213 20,000 2
59
60
142
71
10,000
600,000
10,142
10,071
10,000
0
1
0
Cost 1,000,000 100%
Customer
Share
400,000 40%
Financier
Share
600,000 60%
Profit
rate
8.50% -
Total
Units
60 -
Tenure in
years
5 -
Unit price 10,000 -
Schedule for a car purchase Calculations

8. Thankyou!