DIMINISHING

MUSHARAKAH

By :
Nousheen Abbas Naqvi
Diminishing Musharakha

Diminishing Musharakah
(Shirkah-al-Mutanaqisah) – 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 everyone 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 to purchase
the share of another partner and in this
promise; the price of unit may be decided.

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 three
purposes:

1.Purchase of House/ Car/any fixed

asset
2.Construction of House
3.Renovation of House
Features for Diminishing
Musharakha for Purchase of House
1. The Client in the approved area of
the bank, makes the choice of house.

2. Bank & client enter into Musharakha

agreement. In this agreement it is
decided to purchase the house
jointly and ratio of investment by
each one.
Features for Diminishing
Musharakha for Purchase of House
3. Bank & client enter into Musharakah
agreement. In this agreement it is decided
to purchase the house jointly and ratio of
investment by each one.
4. This is Shirkat-ul-Milk.
Features for Diminishing
Musharakha for Purchase of House
6. According to the ratio of ownership, each
one is responsible for the loss.

• Bank divides its own part of asset into

units, which is promised by the client to
purchase on pre-agreed price.
Features for Diminishing
Musharakha for Purchase of House
8. After taking possession of house, bank rent out
its share to the client by execution of Ijarah
Agreement.

9. Rent may be fixed on prevailing market rate 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.
Features for Diminishing
Musharakha for Purchase of House
11.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.

12.Each unit will be purchased on the basis

of Offer & Acceptance.