What is Diminishing Musharakah? Types, Meaning And Types and Definition.

Diminishing Musharakah is a type of Islamic financing arrangement where two or more parties jointly contribute capital to acquire an asset, and over time, one party gradually buys out the share of the other.

What is diminishing musharakah? It is a partnership where each party holds a share in the asset, and the partner seeking to acquire full ownership progressively purchases the other party's share until the asset is fully owned. Diminishing musharakah is based on the principles of shared ownership and gradual transfer of ownership rights. An example of diminishing musharakah could be a home financing agreement, where the bank and the customer jointly purchase a property, and the customer gradually buys the bank's share until they own the property outright.

In Islamic banking, diminishing musharakah is commonly used for property and asset financing because it complies with Islamic principles by avoiding interest-based transactions.

The diminishing musharakah definition highlights this gradual buyout process, ensuring that both parties share in the asset's risks and rewards.

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