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‡ Musharakah literally means Sharing

‡ The word Musharakah has been derived from

³Shirkah´ which means being a partner

‡ Musharakah means a joint enterprises formed for

conducting some business in which all partners
share the profit according to an agreed ratio
while the loss is shared as per the ratio of
investment

‡ It is an ideal alternative for the interest based

financing with far reaching effects on the
economy
 Y
 

There are two types of Shirkah:

1. Shirkat-ul-Milk

Joint ownership of two or more persons in a

particular property

2. Shirkat-ul-Aqd
A partnership affected by mutual contract. It can
also be translated as a joint commercial enterprise
 

It means joint ownership of two or more persons in
a particular property.

This kind of Shirkah may come into existence in

two different ways:

1. Optional Shirkat-ul-Milk (Ikhtiari)

‡ If two or more person purchase an equipment, it

will be owned jointly by both of them and the
relationship between them with regard to that
property is called ³Shirkat-ul-milk.´

‡ Here this relationship has come into existence at

their own option, as they themselves elected to
purchase the equipment jointly.
 


˜. Compulsory Shirkat-ul-Milk (Ghair Ikhtiari)

‡ This comes into existence without any effort/action

taken by the parties.

‡ For example, after the death of a person all his

heirs inherit his property, which comes into their
joint ownership as a natural consequence of the
death of that person
 


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- MUSHARAKAH AGREEMENT FOR

HOUSING FINANCE
- UNDERTAKING FOR PURCHASE OF
MUSHARKAH PROPERTY
- RENTAL AGREEMENT
 ÿ
  

- The agreement of joint purchase, leasing and

undertaking to sell different units of the share of
the financier should not be tied-
tied-up together in
one single contract.
- It will be preferable that the purchase of
different units of the client is effected on the
basis of the market value of the house as
prevalent on the date of purchase of the unit,
but it is also permissible that a particular price is
agreed in undertaking to purchase the
Musharakah units.
 ÿ
  

- Ideally rent should also be charged

according to the market rate. However
Shariah allows that rent could be charged
according to a well known Bench Mark
such as Kibor, Libor etc.
- Shariah requires that the rent should be
fixed.
- A floating Bench Mark can also be used
with certain conditions.
 ÿ
  

- joint ownership created in this manner

should be real not fictitious which means
that each co-
co-owner should bear the u


u 
pertaining to his share in
the asset.
- Ideally ownership related costs should be
shared such as Property Tax, Takaful cost
etc.
[ 


 

- Standard operating procedures of the Bank are
Shariah Compliant.
Basic important Documents as per Shariah are
as follows:
- OFFER LETTER
- MUSHARAKAH AGREEMENT FOR HOUSING
FINANCE
- UNDERTAKING FOR PURCHASE OF MUSHARKAH
PROPERTY
- RENTAL AGREEMENT
[ 
[ 


 

Mainly three different products are being
offered currently:
- Home Buyer
- Home Builder
- Home Refinance
[ 
[ 


 



 
- The process involved is obvious.

- It should be clearly established that the

customer himself is not the owner of the
property.
- Schedule of Rental Agreement and that of
Undertaking for Purchase of Musharakah
units should be separately given to the
customer.
[ 
[ 


 



  
- Through the Musharakah agreement the
Bank purchases a share in the property
against the financing.
- Only rent would be charged for the first
year to avoid buy back.
- Proper utilisation of funds should be
ascertained.
[ 
[ 


 



  
- Financing should not exceed the appraised
value of the property.
[ 
[ 


 


u 
First scenario (BTF from conventional)
- Through the Musharakah agreement the
Bank purchases a share in the property
against the financing.
- Only rent would be charged for the first
year to avoid buy back.
[ 
[ 


 


u 
First scenario (BTF from conventional)
- Financing should not exceed 80% of the
Appraised value of the property.
- In case of cash enhancement proper
utilisation of the funds should be
established.
[ 
[ 


 


u 
Second Scenario (BTF from Islamic)
- Through Musharakah Agreement the Bank
will purchase Islamic Bankƞs Share.
- Rental and Principle could be recovered
from day one.
- However in case of cash enhancement
only rent would be charged from the
customer.
 u   

Early termination through full pay off is not
allowed before one year in following
cases:
- Home Builder

- Home Refinance (BTF from conventional)

- Home Refinance with cash enhancement

(BTF from conventional or Islamic).
 u   

- Prepayment charges can be taken from
the customer and would be treated as the
profit of the Bank.
- This should not be confused with
prepayment penalty charges taken on
Conventional side.
 [ [ 
Partial pay off or Balloon Payment is not
allowed before one year in following
cases:
- Home Builder

- Home Refinance (BTF from conventional)

- Home Refinance with cash enhancement

(BTF from conventional or Islamic).
 [ [ 
- The Balloon payment is adjusted against
the principle amount which means that
the customerƞs ownership share would
increase resulting in overall decrease in
Rental amount.
      
- Charity is different from penalty.
- Ideally it should be recovered whenever
due and credited to Charity account.
However due to system restraints it may
be recovered on quarterly or six monthly
basis.
- The Bank cannot waive off Charity.
   
 

 

- The Musharakah and Rental Agreements

and Undertaking for Purchase of
Musharakah Property will stand
terminated.
- No Principle or Rent would be further
recovered from the customer.
- The Bank will cover its loss through
Takaful.
j