Diminishing musharakah
A partnership in which one partner buys the other's share in stages until it owns the whole asset; common in home finance.
Diminishing musharakah is a partnership in which one partner promises to buy the other's equity share over time until ownership is completely transferred. The IFSB definition requires the purchases to be independent of the partnership contract and not stipulated in it, since the buying partner may only promise to buy. In home finance the bank and the customer co-own the property, and the customer rents the bank's share while buying it unit by unit.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
MusharakahA partnership in which each partner contributes capital; profit is shared as agreed and loss in proportion to capital.Shirkat al-milk (co-ownership)Co-ownership of an asset by two or more parties, whether by choice, as in a joint purchase, or by circumstance, as in inheritance.IjarahA lease: the lessor owns the asset and sells its use for an agreed rent over an agreed period.Wa'd (promise)A unilateral promise to do something in the future; it can be made binding and is used in hedging, sukuk and lease-to-own deals.