Diminishing Musharakah Musharakah Mutnaqisah‫ﻣﺸﺎرآﺔ ﻣﺘﻨﺎﻗﺼﺔ‬ According to this concept, a financier and his client participate either in the

joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share till all the units of the financier are purchased by him so as to make the sole owner of the property, or the commercial enterprise, as the case may be. The diminishing based on the above concept has taken different shapes in different transactions.

The Case of Purchasing a Taxi Through Musharakah Financing: Khairul wants to purchase a taxi to use it for offering transport services to passengers and to earn incomes through fares recovered from them, but he is in short of funds. An Islamic bank agrees to participate in the purchase of the taxi. Explain how this can be done based on 80 (bank)/20 (Khairul) partnership structure. The price of the taxi is RM100,000 and period of financing is 2 years. Assume the daily income for the venture is RM1,000.

Both of the parties purchase the taxi jointly. 80% of the price paid by Islamic bank and 20% paid by Khairul. After the taxi is purchased, it is employed to provide transport to passengers whereby the net income of RM1,000 is earned on daily basis. Since the bank has 80% share in the taxi it is agreed that 80% of the fare will be given to them (RM800) and 20% (RM200) given to Khairul. At the same time the share of Islamic bank is further divided into eight units. After 3 months Khairul purchases one unit of Islamic bank, consequently the share of Islamic bank is reduced to 70% and the share of Khairul is increased to 30%. This means that he will get RM300 from the daily income of the taxi and the bank will be getting RM700. this process will go on until after the expiry of two years, the whole taxi will be owned by Khairul and the bank will take back his original investment along with income distributed to him as aforesaid.

Taxi Financing on the basis of Diminishing Musharakah: The proposed arrangement is composed of the following transactions: 1. to create joint ownership in the property (sharikat al-milk) “this has been expressly allowed by all schools of Islamic jurisprudence. Therefore no objection can be raised against creating this joint ownership. 2. giving the share of the bank to Khairul on rent. There is no difference of opinion among Muslim jurists in the permissibility of leasing one’s undivided share in the property to his partner. 3. promise from Khairul to purchase the units of share of the bank. This is also allowed by all Islamic schools. (However, all these 1-3 should not be combined into one contract).

4. actual purchase of the units at different stages. Sale must be effected by the exchange of offer and acceptance at that particular date. 5. amount of payment is according to the remaining share of the bank for the taxi.

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