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Diminishing Musharkah

Diminishing Musharkah. HASSAN KAMRAN. Diminishing Musharkah. Based on Shirkat-ul-Milk Musha m eans undivided ownership of the asset. It is allowed lease Musha to other joint owner Three components Joint ownership of the bank & customer Customer as lessee uses share of the bank

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Diminishing Musharkah

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  1. Diminishing Musharkah HASSAN KAMRAN

  2. 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 • Joint ownership of the bank & customer • Customer as lessee uses share of the bank • Redemption of the shareof the bank by the customer

  3. 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

  4. 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.

  5. An Illustration • House Cost Price 1,000,000 • Customer Share 400,000 40% • Bank Share 600,000 60% • Unit Sale Price 10,000 • Profit Rate 8.50% • Tenure in Years 5 • Total Units 60

  6. Calculation based on Schedule

  7. 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 consumer’s use of our share throughout the life of the contract. The profit is predetermined based on market trends.

  8. 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 customer’s monthly income. For Salaried Individuals Islamic Bank will verify the Income with customer’s employer

  9. 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

  10. 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

  11. شُکرًا

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