Diminishing Musharakah – Simplified

Answered according to Hanafi Fiqh by Askimam.org

Assalamualaikum

Mufti saab

 

I have two questions. Please answer 

 

I wish to buy a flat. I dont have enough money.

My friend Basheer is ready to help me but wants to make some money out of it.

 

We were told there is something called musharakah in house.

 

I searched your website, as a layman i couldn’t understand properly

Maaf for trouble.

 

Can you please guide how to proceed.

How should we buy the house.

Can you give me an example, model and procedure (break it down). 

We dont want to go against shariah.

 

2.

My income comes from the following business:

A businessman gives me capital and i invest according to my discretion.

Profits are shared.

I invest the money in hardware.

One Alim said its fine but he said there are few conditions to do it properly. He was not aware of the conditions. I only remember he said its called muzerabe

Can you plz provide me with the details.

Jzk

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Brother in Islam.                                                                                                                    You state that you wish to purchase a property and you don’t have sufficient funds. You also state that your friend is ready to assist you on condition that he makes a profit. Diminishing Musharakah is a concept that will allow you to eventually own the flat and will be profitable for your friend as well. Below is a detailed explanation of diminishing Musharakah by Justice Mufti Muhammad Taqi Usmani مد ظله

Diminishing Musharakah

A client wants to purchase a house for which he does not have adequate funds. He approaches the financier who agrees to participate with him in purchasing the required house. 20% of the price is paid by the client and 80% of the price by the financier. Thus, the financier owns 80% of the house while the client owns 20%. After purchasing the property jointly, the client uses the house for his residential requirement and pays rent to the financier for using his share in the property.

At the same time the share of financier is further divided in eight equal units, each unit representing 10% ownership of the house. The client promises the financier that he will purchase one unit after three months. Accordingly, after the first term of three months he purchases one unit of the share of the financier by paying 1/10th of the price of the house. It reduces the share of the financier from 80% to 70%. Hence, the rent payable to the financier is also reduced to that extent. At the end of the second term, he purchases another unit increasing his share in the property to 40% and reducing the share of the financier to 60% and consequentially reducing the rent to that proportion. This process goes on in the same fashion until after the end of two years, the client purchases the whole share of the financier reducing the share of the financier to ‘zero’ and increasing his own share to 100%.

 

This arrangement allows the financier to claim rent according to his proportion of ownership in the property and at the same time allows him periodical return of a part of his principal through purchases of the units of his share.

However, it is very important that the following steps are strictly adhered to as mentioned in order:

1. To create joint ownership in the property (Shirkat-al-Milk).

2. Giving the share of the financier to the client on rent.

3. Promise from the client to purchase the units of share of the financier.

4. Actual purchase of the units at different stages.

5. Adjustment of the rental according to the remaining share of the financier in the property.

 

Question 2.

The agreement between you and the businessman is an agreement of Mudaarabah. Mudaarabah is a partnership wherein one partner called the Rabbul Maal invests his capital and the work is done by the other partner known as the mudhaarib. All capital comes from the Rabbul Maal and all management and work is done by the Mudhaarib. If the Rabbul Maal specifies a certain type of business that he wants his money invested in, then the Mudhaarib does not have the authority to invest the money in any other kind of business. This is called Mudhaarabah Muqayyadah or restricted Mudhaarabah. If the Rabbul Maal does not specify a certain type of business, then the Mudhaarib may invest the capital in any business he deems fit. This is called Mudhaarabah Mutlaqah or unrestricted Mudhaarabah.

A necessary condition of the abovementioned partnership is that both parties agree at the beginning on the share of the actual profit to which each partner is entitled. The profit cannot be based on the capital. If there is a profit after expenses, the Rabbul Maal and Mudaarib will share the profit according to what was initially agreed. If there is a loss, the Rabbul Maal (financier) will bear the loss. The Mudaaribs loss will be the loss of the work and labor. All expenses of the Mudaarabah business will be for the Rabbul Maal’s account.

 

And Allah Ta’āla Knows Best

Muhammad Yusuf bin Moulana Abdur Rahim Khan

Student Darul Iftaa
Chatsworth, Durban, KZN, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 

 

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