Diminishing Musharaka

 

It is a partnership whereby one of the partners undertakes to buy the other partner’s share gradually until he owns the entire project. This process consists of the partnership in the sale and purchase between the two partners. The partnership contract should not contain a sale and purchase provision, but rather the buying partner should give a promise to buy by means of a document separate from the partnership contract. Also, the sale and purchase of the other partner’s share should be made through a contract which is separate from the partnership contract. No condition should be made in a contract in respect of the other contract.

Procedural Steps
 

   1.      The customer expresses to the Bank his desire to own a specific property through Musharaka.

   2.      The Bank starts the process of owning the agreed property.

   3.      The Bank and the customer enter into a Diminishing Musharaka Contract, pro rata the share of each of them in the Musharaka.

   4.      The Bank leases its share in the property to the customer and receives the (monthly) rent. At the end of the period, the lessee owns all the shares (by a separate sale contract). Or, the Bank sells its share to the customer in one go at an agreed price, or they may agree to sell the Bank’s share to the customer in stages and that the price may be determined for each sale at the time of sale, or at a fixed price plus an annual Bibor-linked rate.