DIMINISHING

MUSHARAKHA
 Diminishing Musharakah

Diminishing Musharakah
(DM is a type of Shirkah where one
partner purchases the other partner’s
share gradually
 FEATURES OF DIMINISHING
MUSHARAKAH
IN SHIRKAT-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.
Rules of Diminishing Musharakah
in Shirkat-ul-Milk (Joint Ownership)

1. There will be an agreement of Shirkat ul Milk

and it will be decided How much investment
will be made by each partner?

2. Asset will be purchased and all partners will

be owner of this asset as per ratio of his
investment and all other rules of Shirkat-ul-
Milk will be applicable.
Rules of Diminishing Musharakah
in Shirkat-ul-Milk (Joint Ownership)

3. One Shareek can rent out his share to other

partner or to a third party and Ijarah
Agreement will be signed.

4. Within period of Ijarah, Shariah Ahkaam

relating to Ijarah will be applicable.
 Rules of Diminishing Musharakah
in Shirkat-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.

7. All the above-mentioned agreements and

undertaking should be independent and not
tide-up with each other.
 Uses of Diminishing of
Musharakah in Banking System
Diminishing Musharakah usually being
used in House Financing for these
purposes:
 Purchase of House
 Construction of House
 Renovation of House
 Features of Diminishing
Musharakah for Purchase of House
1. The Client in the approved area of the bank makes
the choice of house.
2. Bank & client enter into Musharakah agreement. In
this agreement it is decided to purchase the house
jointly and ratio of investment by each one.
3. The property will be in the name of the client.
4. This is Shirkat-ul-Milk.
5. According to the ratio of ownership, each one is
responsible for the loss.
 Features of Diminishing
Musharakah for Purchase of House
7. After taking possession of house, bank rent out
its share to the client by execution of Ijarah
Agreement.

8. Rent may be fixed on prevailing market rate or

with mutual consent.

9. Bank’s monthly profit may also be decided, as

monthly rent of the house and principal
amount will be recovered in the unit price.
 Features of Diminishing
Musharakah for Purchase of House
10. In Ijarah Agreement, a lump sum amount of rent is
necessary to be fixed for a certain period.
11. Rent for the rest of the period, may be linked with
agreed Benchmark.
12. Each unit will be purchased on the basis of Offer &
Acceptance.
13. Bank divides its own part of asset into units,
which is promised by the client to purchase on
pre-agreed price.
 Features of Diminishing Musharakah
for Construction of House

 There are two scenarios:

 A)-Financing for Purchase of Plot

 & Construction.

 B)-Financing only for Construction.

 (A)-Financing for Purchase
of Plot & Construction
1. 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
partner will be responsible for construction.
2. Both partners will be co-owner of the property in
same ratio as ratio of investment.

3. The property will be in the name of the client and

mortgaged with the bank.

4. This is Shirkat-ul-Milk.
 Financing for Purchase of Plot
& Construction
5. According to the ratio of ownership, each one is responsible
for the loss.

6. Bank will divide its own part of asset into units,

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

6. After completion of house, Ijarah Agreement will be signed

and bank will give its share of house on rent to the client.
Before completion of construction, rent cannot be charged.
 Financing for Purchase of Plot
& Construction
8. Rent may be fixed on prevailing market value or
with mutual consent.

9. Bank’s monthly profit may also be decided, as

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

10. 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 linked with agreed
Benchmark.
 Financing for Purchase of Plot
& Construction
11. Each unit will be purchased on the basis of Offer
& Acceptance.

12. Purchase of unit can be started after Musharakah

Agreement.
 (B)- Financing Only for
Construction Of House
1. Valuation of plot will be made. This value will be
investment of client in Musharakah Agreement and
bank’s financing for construction will be investment of
bank.

2. 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 partner will be
responsible for 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 Shirkat-ul-Milk.

6. According to the ratio of ownership, each one is

responsible for the loss.
7. Bank will divide its own part of asset into units,
which is promised by the client to purchase on pre-
agreed price.
 Financing Only for Construction Of House
8. After completion of house, Ijarah Agreement will be
signed and bank will give his share of house on rent.
Before completion of construction, rent cannot be
charged.
9. Rent may be fixed on prevailing market value or with
mutual consent.
10. Bank’s monthly profit may also be decided, as monthly
rent of the house and principal amount will be
recovered in the unit price.
 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 linked with agreed
Benchmark.
Financing Only for Construction
Of House
12. Before one year, client cannot purchase
bank’s units.

13. Each unit will be purchased on the basis

of Offer & Acceptance.
 (C )-Features for DM
for Renovation of House
1. 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 bank’s investment.
2. 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
will be responsible for renovation.
3. The both partners will be owner of the house in same
ratio as ratio of investment.
 Features for Diminishing Musharakah
for Renovation of House

4. The property will be in the name of the

client.
5. This is Shirkat-ul-Milk.
6. According to the ratio of ownership, each
one is responsible for the loss.
7. Bank will divide its own part of asset into
units, which is promised by the client to
purchase on pre-agreed price.
 Features for Diminishing Musharakah
for Renovation of House

8. Bank will divide its own part of asset into units,

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

9. After completion of renovation, Ijarah

Agreement will be signed and bank will give his
share of house on rent. Before completion of
renovation, rent cannot be charged.
 Features for Diminishing Musharakah
for Renovation of House

10. Rent may be fixed on prevailing market

value or with mutual consent.

11. Bank’s monthly profit may also be

decided, as monthly rent of the house
and principal amount will be recovered in
the unit price.
 Features for Diminishing Musharakah
for Renovation of House

12. 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
linked with agreed Benchmark.

13. Before one year, client cannot purchase bank’s

units.

14. Each unit will be purchased on the basis of

Offer & Acceptance.