Diminishing Musharakah in Islamic Finance

UAE Laws and Islamic Finance

Diminishing Musharakah is just as it sounds.  It is a financing partnership, which diminishes as the money borrowed by the borrower from the financier to finance an asset or project is paid back in installments or other possible arrangements.  As soon as all the installments on the debt are completed, the partnership diminishes and the asset becomes completely owned by the borrower in the partnership.  The partnership then dissolves as the goal of the Diminishing Musharakah  has been achieved.

According to Norton Rose, ‘the financier and the client co-own the asset in question.  The portions of ownership at the start of the financing reflect the financial contributions of each party.  Each payment a client makes leads to the acquisition of a portion of the financier’s share in the asset.  As the client’s share increases, the financier’s share decreases – hence the term “Diminishing Musharakah.”

‘This structure is attractive to investors…

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