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Diminishing Musharakah
Musharakah Mutnaqisah
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.
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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 beenexpressly 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 opinionamong Muslim jurists in the permissibility of
leasing ones undivided share in the
property to his partner.
3. promise from Khairul to purchase the units of share of the
bank. This is alsoallowed by all Islamic schools. (However, all
these 1-3 should not be combined
into one contract).
