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.
