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Diminishing Musharakah Project

Diminishing Musharakah Project

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Published by Muhsin Mohamed Said
Diminishing Musharakah Project
Diminishing Musharakah Project

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Published by: Muhsin Mohamed Said on Dec 12, 2010
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P E B B L E H I L L S U N I V E R S I T Y
Institute of Islamic Finance
DIMINISHING MUSHARAKAH
 Islamic Financial Instrument ManualMuhsin Mohamed Said
(MBA.279.UK.344)
Supervisor: Sarah KA
 
Project
 
submitted in partial fulfillment of the requirementof the of Degree of Master of Business AdministrationIn Islamic Banking & FinanceAtInstitute of Islamic FinanceAcademy for International Modern StudiesPebble Hills UniversityChatham - Kent, UKAugust, 2010
 
Diminishing Musharakah
Instrument ManualMuhsin M Said
 
MBA.279.UK.344
2
Table of Contents
Page
Executive summary
..................................................................................4
 
Section I
1.1
 
Overview of diminishing Musharakah
..............................................6
1.1.1
Concept of Musharakah, its types, basic rules & areas of application.....6
1.1.2
Meaning of Diminishing Musharakah................................................10
1.1.3
Types and basic structure of Diminishing Musharakah........................10
1.1.4
The basic rules of Diminishing Musharakah.......................................12
1.2
 
How DM is different with convectional financial system
...............14
 
1.2.1
Riba (interest)..............................................................................14
1.2.2
Risk sharing and fairness...............................................................18
1.2.3
Gharar and uncertainty..................................................................19
1.2.4
Principles of consumption...............................................................20
1.2.5
Speculative business and forward transactions..................................21
1.3
 
Diminishing Musharakah and other modes of Islamic Finance
.....24
 
1.3.1
DM vs. Mudarabah.........................................................................25
1.3.2
DM vs. Murabaha...........................................................................27
1.3.3
DM vs. Ijarah................................................................................29
1.3.4
DM vs. Salam................................................................................31
1.3.5
DM vs. Istisna...............................................................................35
 
Diminishing Musharakah
Instrument ManualMuhsin M Said
 
MBA.279.UK.344
3
Sections II:
2.1 DM Instrument applications
..................................................................37
 
2.1.1
House financing.................................................................................37
 
2.1.1.1
Purchase of house..................................................................38
2.1.1.2
Construction of house.............................................................39
2.1.1.3
Renovation of house...............................................................40
2.1.1.4
Balance transfer facility (BTF)..................................................41
2.1.2
Agriculture financing...........................................................................42
2.1.2.1
Farm Machinery & Transport financing......................................42
2.1.2.2
Livestock, Fruit & vegetable and Fishing farming financing..........43
2.1.3
Vehicle purchase, plant and machinery and other commercial premises....43
2.2
 
Operational flowchart
...........................................................................44
2.2.1
 
Operational flowchart explanation........................................................45
2.3
 
Work instructions for operators
...........................................................46
2.3.1
Shirkah agreement instructions...........................................................46
2.3.2
Ijarah agreement instructions.............................................................53
2.3.3
Sell/purchase instructions...................................................................57
2.4 Contracts
................................................................................................62
2.4.1
Shirkah agreement contract................................................................62
2.4.2
Diminishing Musharakah contract........................................................75
Section III
3.1
 
Case studies
...........................................................................................84
 
3.1.1
Purchase of vehicle ...........................................................................48
3.1.2
Construction of house........................................................................88
 
Section IV
4.1
 
Marketing plan
.......................................................................................93

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