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DIMINISHING MUSHARAKHA

Two Days Specialized Training Workshop On Islamic Microfinance 16 th & 17 th September, 2012 Sana’a, Yemen. DIMINISHING MUSHARAKHA. Abdul Samad AlHuda CIBE. Diminishing Musharakah. Diminishing Musharakah

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DIMINISHING MUSHARAKHA

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  1. Two Days Specialized Training Workshop On Islamic Microfinance 16th & 17th September, 2012 Sana’a, Yemen DIMINISHING MUSHARAKHA Abdul Samad AlHuda CIBE

  2. Diminishing Musharakah Diminishing Musharakah (DMis a type of Shirkah where one partner purchases the other partner’s share gradually

  3. FEATURES OF DIMINISHING MUSHARAKAHIN SHIRKAT-UL-MILK (JOINT OWNERSHIP) Two partners purchase any asset (machinery/property) and their intention is that one or both partners will use this asset or they rent out their share and one Shareek undertakes to purchase the share of other gradually.

  4. Rules of Diminishing Musharakahin Shirkat-ul-Milk (Joint Ownership) • There will be an agreement of Shirkat ul Milk and it will be decided How much investment will be made by each partner? • Asset will be purchased and all partners will be owner of this asset as per ratio of his investment and all other rules of Shirkat-ul-Milk will be applicable.

  5. Rules of Diminishing Musharakahin Shirkat-ul-Milk (Joint Ownership) • One Shareek can rent out his share to other partner or to a third party and Ijarah Agreement will be signed. • Within period of Ijarah, Shariah Ahkaam relating to Ijarah will be applicable.

  6. Rules of Diminishing Musharakahin Shirkat-ul-Milk (Joint Ownership) • One of the partners can promise to purchase the share of another partner . • Unit can be purchased on the basis of Offer & Acceptance. • All the above-mentioned agreements and undertaking should be independent and not tide-up with each other.

  7. Uses of Diminishing of Musharakah in IMFI System Diminishing Musharakah usually being used in House Financing for these purposes: • Purchase of House • Construction of House • Renovation of House

  8. Features of Diminishing Musharakah for Purchase of House • The Client in the approved area of the IMFI makes the choice of house.

  9. Features of Diminishing Musharakah for Purchase of House 2. IMFI & client enter into Musharakah agreement. In this agreement it is decided to purchase the house jointly and ratio of investment by each one.

  10. Features of Diminishing Musharakah for Purchase of House • The property will be in the name of the client. • This is Shirkat-ul-Milk. • According to the ratio of ownership, each one is responsible for the loss.

  11. Features of Diminishing Musharakah for Purchase of House • After taking possession of house, IMFI rent out its share to the client by execution of Ijarah Agreement. • Rent may be fixed on prevailing market rate or with mutual consent. • IMFI’s monthly profit may also be decided, as monthly rent of the house and principal amount will be recovered in the unit price.

  12. Features of Diminishing Musharakah for Purchase of House • In Ijarah Agreement, a lump sum amount of rent is necessary to be fixed for a certain period. Rent for the rest of the period, may be linked with agreed Benchmark. • Each unit will be purchased on the basis of Offer & Acceptance.

  13. Features of Diminishing Musharakah for Purchase of House 7. IMFI divides its own part of asset into units, which is promised by the client to purchase on pre-agreed price.

  14. Features of Diminishing Musharakah for Construction of House • There are two scenarios: • Financing for Purchase of Plot & Construction. • Financing only for Construction.

  15. Financing for Purchase of Plot & Construction • Musharakah Agreement will be signed between IMFI and client in which investment of everyone will be agreed. It will also be agreed that client as working partner will be responsible for construction.

  16. Features for Diminishing Musharakah for Construction of House 2. Both partners will be co-owner of the property in same ratio as ratio of investment. • The property will be in the name of the client and mortgaged with the IMFI. • This is Shirkat-ul-Milk.

  17. Financing for Purchase of Plot & Construction • According to the ratio of ownership, each one is responsible for the loss. • IMFI will divide its own part of asset into units, which is promised by the client to purchase on pre-agreed price

  18. Financing for Purchase of Plot & Construction • After completion of house, Ijarah Agreement will be signed and IMFI will give its share of house on rent to the client. Before completion of construction, rent cannot be charged. • Rent may be fixed on prevailing market value or with mutual consent. • IMFI’s monthly profit may also be decided, as monthly rent of the house and principal amount will be recovered in the unit price.

  19. Financing for Purchase of Plot & Construction 10. In Ijarah Agreement, a lump sum amount of rent is necessary to be fixed for a certain period. Rent for the rest of the period, may be linked with agreed Benchmark.

  20. Financing for Purchase of Plot & Construction • Each unit will be purchased on the basis of Offer & Acceptance. • Purchase of unit can be started after Musharakah Agreement.

  21. Financing Only for Construction Of House • Valuation of plot will be made. This value will be investment of client in Musharakah Agreement and IMFI’s financing for construction will be investment of IMFI. 2. Musharakah Agreement will be signed between IMFI and client in which investment of everyone will be agreed. It will also be agreed that client as working partner will be responsible for construction.

  22. Financing Only for Construction Of House • The both partners will be owner of the property in same ratio as ratio of investment. • The property will be in the name of the client. • This is Shirkat-ul-Milk. • According to the ratio of ownership, each one is responsible for the loss.

  23. Financing Only for Construction Of House • IMFI will divide its own part of asset into units, which is promised by the client to purchase on pre-agreed price.

  24. Financing Only for Construction Of House • After completion of house, Ijarah Agreement will be signed and IMFI will give his share of house on rent. Before completion of construction, rent cannot be charged. • Rent may be fixed on prevailing market value or with mutual consent.

  25. Financing Only for Construction Of House • IMFI’s monthly profit may also be decided, as monthly rent of the house and principal amount will be recovered in the unit price. • In Ijarah Agreement, a lump sum amount of rent is necessary to be fixed for a certain period. Rent for the rest of the period, may be linked with agreed Benchmark.

  26. Financing Only for Construction Of House • Before one year, client cannot purchase IMFI’s units. • Each unit will be purchased on the basis of Offer & Acceptance.

  27. Features for Diminishing Musharakahfor Renovation of House • Valuation of house will be made and this value will be treated as investment of client in Musharakah Agreement and renovation amount will be considered as IMFI’s investment.

  28. Features for Diminishing Musharakahfor Renovation of House • Musharakha Agreement will be signed between IMFI and client in which investment of everyone will be agreed. It will also be agreed that client as working will be responsible for renovation. • The both partners will be owner of the house in same ratio as ratio of investment.

  29. Features for Diminishing Musharakahfor Renovation of House • The property will be in the name of the client. • This is Shirkat-ul-Milk. • According to the ratio of ownership, each one is responsible for the loss. • IMFI will divide its own part of asset into units, which is promised by the client to purchase on pre-agreed price.

  30. Features for Diminishing Musharakahfor Renovation of House • IMFI will divide its own part of asset into units, which is promised by the client to purchase on pre-agreed price. • After completion of renovation, Ijarah Agreement will be signed and IMFI will give his share of house on rent. Before completion of renovation, rent cannot be charged.

  31. Features for Diminishing Musharakahfor Renovation of House • Rent may be fixed on prevailing market value or with mutual consent. • IMFI’s monthly profit may also be decided, as monthly rent of the house and principal amount will be recovered in the unit price.

  32. Features for Diminishing Musharakahfor Renovation of House • In Ijarah Agreement, a lump sum amount of rent is necessary to be fixed for a certain period. Rent for the rest of the period, may be linked with agreed Benchmark. • Before one year, client cannot purchase IMFI’s units. • Each unit will be purchased on the basis of Offer & Acceptance.

  33. Procedure of DM D M Agreement (IMFI +Client)  Undertaking to Ijarah (from the client)  Sale Agreement (Client + owner of the house)  Payment of Purchase Price (to the client)  Lease Agreement (IMFI + client)

  34. Procedure of Sale and Lease Back D M Agreement (IMFI +Client)  Undertaking to Ijarah (from the client)  Sale Agreement (IMFI + client)  Payment of Purchase Price (to the client)  Lease Agreement (IMFI + client)

  35. Value of Units at Face Value

  36. Covering Risks Under Takaful

  37. Proportionate Takaful

  38. Repair & Maintenance

  39. 192 Ahmad Block, New Garden Town, Lahore - Pakistan. Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com www.alhudacibe.com

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