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Diminishing Musharkah

HASSAN KAMRAN
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Diminishing Musharkah

Based on Shirkat-ul-Milk

Musha means undivided ownership of the asset.

It is allowed lease Musha to other joint owner

Three components
1. Joint ownership of the bank & customer
2. Customer as lessee uses share of the bank
3. Redemption of the shareof the bank by the customer

Mode of fixed Asset Financing


Diminishing Musharakah is commonly used for
the purpose of financing of fixed assets by
various Islamic banks.
House financing
Car Financing
Plant and machinery financing
Factory/Building financing
Agriculture land financing
All other fixed Assets
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Basic Transaction Structure


The customer approaches the Bank with the request for
project/Machinery financing.
The Bank enters into a Musharakah ( Joint Ownership)
agreement with the customer and both of them pay their
respective shares to the seller of the asset.
Customer pays rent for the use of banks share in the
property.
Ownership of the asset is gradually transferred to the
customer upon payment of asset price.

An Illustration

House Cost Price


Customer Share
Bank Share
Unit Sale Price
Profit Rate
Tenure in Years
Total Units

1,000,000
400,000 40%
600,000 60%
10,000
8.50%
5
60
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Calculation based on Schedule


Months

Rent

Unit Price

Monthly Payment

Balance Unit Price

Balance Units

600000

60

4250

10000

14250

590000

59

4179

10000

14179

580000

58

4108

10000

14108

570000

57

4038

10000

14038

560000

56

3967

10000

13967

550000

55

56

354

10000

10354

40000

57

283

10000

10283

30000

58

213

10000

10213

20000

59

142

10000

10142

10000

60

71

10000

10071

129625

600000

729625

Key FAQ
What is the difference between the profit
Islamic Bank charges and the interest
charged in conventional mortgages?
In conventional mortgages the interest
charged is a mark-up on the money lent. The
profit charged by Islamic Bank is the
utilization payment for the consumers use of
our share throughout the life of the contract.
The profit is predetermined based on market
trends.
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Step by Step Guide

Step 1: Application Form


Submit the filled & signed application form & cheque for
Processing Fee & External Agency cost
Step 2: Required Documents
Attach the entire required document
Step 3: Address Verification
Islamic Bank will verify the Applicant Residential & Office
Addresses and Addresses of the References submitted
Step 4: Income Estimation
For Businessman / Self Employed Individuals
Islamic Bank's External Consultant will determine customers
monthly income.
For Salaried Individuals
Islamic Bank will verify the Income with customers employer

Step by Step Guide

Step 5: Legal opinion


A legal opinion will obtain on the property documents
Step 6: Property Valuation
Appointed Valuation Agency will evaluate the property to
determine its market value.
Step 7: Credit Approval & Sanction Letter
After customer have fulfilled all Credit requirements satisfactory,
IB will give a conditional Sanction letter
Step 8: Account Opening
Customer will be required to open an account in IB and submit a
filled account opening form

Step by Step Guide

Step 9: Signing of House Finance Agreement


Customer will come to Islamic Bank for signing of Islamic House
Finance Agreement and other legal documents.
Step 10: Transfer of Property & Disbursement
Islamic Bank's Sales officer & authorized lawyer will accompany
customer & Seller of the property to the Registrar office for
Property Transfer. Original Property documents will be handed
over to the Lawyer who, after verification of the document, will
handover the Pay Order to the Seller and will complete the legal
formalities on Islamic Bank's behalf

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