musharaka-dm

THE STRUCTURE

In Diminishing Musharaka:

1. Bank and customer jointly purchase an asset (typically property or equipment).
2. Bank owns a large share (e.g., 80%); customer owns the rest (e.g., 20%).
3. Customer pays RENT on the bank's share.
4. Customer simultaneously PURCHASES units of the bank's share (equity buy-out).
5. As bank's share diminishes, the rental income payable on it DECLINES.
6. When customer has purchased all of the bank's share, the asset belongs to the customer.

TWO CONTRACTS RUN SIMULTANEOUSLY:

• A musharaka (partnership): for the joint ownership
• An ijarah (lease): for the customer's use of the bank's share

SHARIAH CRITICAL: These must be TWO SEPARATE contracts. If the rental and buy-out are combined into a single contract guaranteeing the bank's return, the structure may resemble a loan and fail the Shariah form test.