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DIMINISHING

MUSHARAKHA

Diminishing Musharakah
Diminishing Musharakah
(DM is a type of Shirkah where one
partner purchases the other partners
share gradually

FEATURES OF DIMINISHING
MUSHARAKAH

IN SHIRKATSHIRKAT-UL
UL--MILK (JOINT OWNERSHIP)

Two partners purchase any asset


(machinery/property)
and
their
intention is that one or both
partners will use this asset or
they rent out their share and one
Shareek undertakes to purchase the
share of other gradually.
gradually.

Rules of Diminishing Musharakah


in ShirkatShirkat-ul
ul--Milk (Joint Ownership)
1.

2.

There will be an agreement of Shirkat ul Milk


and it will be decided How much investment
will be made by each partner?
Asset will be purchased and all partners will
be owner of this asset as per ratio of his
investment and all other rules of ShirkatShirkat-ul
ul-Milk will be applicable
applicable..

Rules of Diminishing Musharakah


in ShirkatShirkat-ul
ul--Milk (Joint Ownership)
3.

4.

One Shareek can rent out his share to other


partner or to a third party and Ijarah
Agreement will be signed.
signed.
Within period of Ijarah,
Ijarah, Shariah Ahkaam
relating to Ijarah will be applicable
applicable..

Rules of Diminishing Musharakah


in ShirkatShirkat-ul
ul--Milk (Joint Ownership)

5.

One of the partners can promise(Unilateral) to


purchase the share of another partner .

6.

Unit can be purchased on the basis of Offer &


Acceptance..
Acceptance

7.

All the aboveabove-mentioned agreements and


undertaking should be independent and not
tide--up with each other
tide
other..

Uses of Diminishing of
Musharakah in Banking System

Diminishing Musharakah usually being


used in House Financing for these
purposes::
purposes

Purchase of House
Construction of House
Renovation of House

Features of Diminishing
Musharakah for Purchase of House
1.
2.

3.
4.
5.

The Client in the approved area of the bank


makes the choice of house.
house.
Bank & client enter into Musharakah agreement.
agreement.
In this agreement it is decided to purchase the
house jointly and ratio of investment by each
one..
one
The property will be in the name of the client
client..
This is Shirkat
Shirkat--ulul-Milk.
Milk.
According to the ratio of ownership, each one is
responsible for the loss
loss..

Features of Diminishing
Musharakah for Purchase of House

7.

8.

9.

After taking possession of house, bank rent out


its share to the client by execution of Ijarah
Agreement..
Agreement
Rent may be fixed on prevailing market rate or
with mutual consent.
consent.

Banks monthly profit may also be decided, as


monthly rent of the house and principal
amount will be recovered in the unit price
price..

Features of Diminishing
Musharakah for Purchase of House

10.

11.
12.

13.

In Ijarah Agreement, a lump


sum amount of
rent is necessary
to be fixed for a certain
period..
period
Rent for the rest of the period, may be linked
with agreed Benchmark.
Benchmark.
Each unit will be purchased on the basis of Offer &
Acceptance..
Acceptance

Bank divides its own part of asset into units,


which is promised by the client to purchase
on pre
pre--agreed price
price..

Features of Diminishing Musharakah


for Construction of House

There are two scenarios:

A)-Financing for Purchase of Plot


A)& Construction.

B)--Financing only for Construction.


B)

1.

2.

3.

4.

(A)-Financing for Purchase


(A)of Plot & Construction

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
agreed
partner will be responsible for construction
construction..
Both partners will be co
co--owner of the property in
same ratio as ratio of investment.
investment.
The property will be in the name of the client and
mortgaged with the bank.
bank.
This is ShirkatShirkat-ul
ul--Milk
Milk..

Financing for Purchase of Plot


& Construction
5.

6.

6.

According to the ratio of ownership, each one is


responsible for the loss.
loss.
Bank will divide its own part of asset into units,
which is promised by the client to purchase on
pre--agreed price
pre
price..

After completion of house, Ijarah Agreement will be


signed and bank will give its share of house on rent to
the client.
client. Before completion of construction, rent
cannot be charged.
charged.

Financing for Purchase of Plot


& Construction
8.

9.

10.

Rent may be fixed on prevailing market value or with


mutual consent.
consent.
Banks monthly profit may also be decided, as
monthly rent of the house and principal amount will
be recovered in the unit price
price..
In Ijarah Agreement, a lump sum amount of rent is
necessary to be fixed for a certain period
period.. Rent for the
rest of the period, may be linked with agreed
Benchmark..
Benchmark

Financing for Purchase of Plot


& Construction
11.

Each unit will be purchased on the


basis of Offer & Acceptance
Acceptance..

12.

Purchase of unit can be started after


Musharakah Agreement.
Agreement.

(B)- Financing Only for


(B)Construction Of House

1.

2.

Valuation of plot will be made.


made. This value will be
investment of client in Musharakah Agreement and
banks financing for construction will be investment of
bank..
bank

Musharakah Agreement will be signed between bank and


client in which investment of everyone will be agreed
agreed.. It
will also be agreed that client as working partner will be
responsible for construction
construction..

Financing Only for Construction Of House


3.

The both 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 ShirkatShirkat-ul
ul--Milk.

6.
7.

According to the ratio of ownership, each one is


responsible for the loss.
Bank will divide its own part of asset into units,
which is promised by the client to purchase on prepreagreed price.

Financing Only for Construction Of House


8.

9.
10.

After completion of house, Ijarah Agreement will be


signed and bank will give his share of house on rent.
rent.
Before completion of construction, rent cannot be
charged..
charged
Rent may be fixed on prevailing market value or with
mutual consent.
consent.
Banks monthly profit may also be decided, as
monthly rent of the house and principal amount will
be recovered in the unit price
price..
In Ijarah Agreement,
Agreement, a lump sum amount of rent is
necessary to be fixed for a certain period.
period. Rent for
the rest of the period, may be linked with agreed
Benchmark..
Benchmark

Financing Only for Construction


Of House
12.

Before one year, client cannot purchase


banks units.

13.

Each unit will be purchased on the basis


of Offer & Acceptance.

(C ))-Features for DM
for Renovation of House

1.

2.

3.

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 banks investment
investment..
Musharakha 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
agreed
will be responsible for renovation
renovation..
The both partners will be owner of the house in same
ratio as ratio of investment
investment..

Features for Diminishing Musharakah


for Renovation of House
4.
5.
6.
7.

The property will be in the name of the


client..
client
This is Shirkat
Shirkat--ul
ul--Milk
Milk..
According to the ratio of ownership, each
one is responsible for the loss
loss..
Bank will divide its own part of asset into
units, which is promised by the client to
purchase on prepre-agreed price.
price.

Features for Diminishing Musharakah


for Renovation of House
8.

9.

Bank will divide its own part of asset into units,


which is promised by the client to purchase on
pre--agreed price.
pre
price.
After completion of renovation, Ijarah
Agreement will be signed and bank will give his
share of house on rent.
rent. Before completion of
renovation, rent cannot be charged.
charged.

Features for Diminishing Musharakah


for Renovation of House
10.

11.

Rent may be fixed on prevailing market


value or with mutual consent.
consent.
Banks monthly profit may also be
decided, as monthly rent of the house
and principal amount will be recovered in
the unit price
price..

Features for Diminishing Musharakah


for Renovation of House
12.

13.

14.

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
period
linked with agreed Benchmark
Benchmark..
Before one year, client cannot purchase banks
units..
units
Each unit will be purchased on the basis of
Offer & Acceptance.
Acceptance.