Professional Documents
Culture Documents
Financing
PRODUCTS – Diminishing
Musharakah
Lahore 20 – 21 October, 2008
Al – Huda Training Programme
Muhammad Khaleequzzaman
Head Islamic banking Department
Int’l Islamic University Islamabad
Islamic Modes
Rules of Musharakah
• Fulfillment of prerequisites of a contract
• Rules of contribution of equity
• Rules of profit and loss sharing
• Management of Musharakah/Relationship of
parties
• Termination of musharakah
Uses of Musharakah:
– Agricultural enterprise financing
– Project financing
– Working capital financing, etc.
Islamic Modes
Musharakah
• An equity participation contract under which
IB and its client contribute jointly to finance an
enterprise.
• Equity is owned according to each party's
share in financing.
• Profit is shared in pre-agreed ratio and loss in
proportion to the capital contribution.
• It is an ideal alternative to the interest-based
financing with far reaching effects on both
production and distribution.
Diminishing
Musharakah (DM)
Islamic Modes
Diminishing Musharakah (DM):
A form of Musharakah where the
financier and the client participate in a joint
commercial enterprise or property. This enterprise
is converted into undivided ownership of both the
financier and the client. Over certain period the
equity of financier, divided into equal value units,
is purchased by the client. And ultimately the
client becomes the sole owner of the enterprise.
Uses of DM
– Agric. Machinery and implements financing
– Storage facility construction/sheds
– Transport vehicles, etc.
Islamic Modes
Share in Share in
capital capital
2
Partner Bank
3. Accruing Rentals
4
Pays price of Sell its
the units of share in
bank’s equity equity
Islamic Modes – Agricultural Financing
0 0 0 0 36 460000
1 125 x 36 10000 14500 35 450000
= 4500
2 125 x 35 10000 14375 34 440000
= 4375
3 125 x 34 10000 14250 33 430000
= 4250
35 125 x 2 = 10000 10250 1 10000
250
36 125 x 1 = 10000 10125 0 0
125
Total ?? 460000 ??
Islamic Modes – Agricultural Financing
THANKS