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Diminishing Musharakah (DM)

Diminishing Musharakah mode of financing is aimed at financing movables & works as follows:

1. A financier (i.e. Modaraba in this case) and its client participate in the joint investment of an asset

2. The share of the financier is further divided into a number of units and the client purchases the units of the share of the financier in
     a pre-agreed manner. Over a period of time it will result in increasing customer’s own share till all the units of the financier are
     purchased by the customer thus transferring full ownership of the asset to the customer.

3. Hence till such time that the Customer purchases all the Musharakah Units of the financier, the parties share the rent in respect of the
    Musharakah Asset(s) in proportion to their respective interests in the Joint Ownership (Since here, the asset will be in the Customer’s
    possession and use; the Customer will pay rent to the financier for using the financier’s share of the Asset & that rent would be the
    financier’s profit in this transaction). In this regard, ‘Asset Usage & Payment Agreement’ or ‘DM Rental Agreement’ shall be executed
    between the Customer & the financier (i.e. Modaraba in this case).

4. Pending the purchase of all the Musharakah Units of the Modaraba by the Customer, the Rent (Monthly / Quarterly / Half-Yearly) of the
    Musharakah Asset(s) will be jointly determined by the parties from time to time and the Customer shall pay the share of Modaraba
    to the Modaraba every month/quarter/half year.

5. Please note that in this mode of financing the asset remains in the customer’s name and the financier’s beneficial ownership in the
    asset is established through the Diminishing Musharakah agreement.

 
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