Diminishing Mushārakah and its Shariah Criteria
In the Name of Allāh,
the Entirely Merciful, the Especially Merciful
Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.
Resolution No. 136 (2/15) Diminishing Mushārakah and its Shariah Criteria
The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 15th session in Muscat, Sultanate of Oman, on 14–19 Muḥarram 1425h (6–11 March 2004),
Having examined the research papers submitted to the Academy concerning
Diminishing Mushārakah and its Shariah Criteria, Having listened to the discussions on the subject,
- Diminishing Mushārakah is a new form of relationship involving a part- nership between two parties in an income-producing project, and in which one party undertakes to, gradually, purchase the share of the other, whether out of the purchaser’s share in the project income or from any other
- Diminishing Mushārakah is based on the contract concluded between the two parties in which each of them subscribes to a specific share of the capital of the partnership, whether in cash or another type of cash-evalu- ated assets after they determine the share of profit distribution, providing that each party bears his share of the loss (if incurred) commensurate to his share in the capital.
- Diminishing Mushārakah is characterized by the presence of a binding undertaking from only one party to buy out the share of the other party, provided the latter has the option (to sell or not). The buyout is effected by concluding a series of sale contracts when buying each share; these sale contracts can be performed through exchange of offer and acceptance
- It is permissible for any of the two parties of the Mushārakah to rent the share of his other partner against a specific amount and a specific In this case, the two parties’ commitment towards the cost of essential maintenance remains as per their respective capital shares.
Diminishing Mushārakah is permissible as long as it adheres to the gener- al Shariah rulings on partnerships and to the following conditions:
- The pledge should not be for purchasing the shares of the other party at par value because the pledge, in that case, amounts to providing a guarantee of the The purchase price of the shares should be determined at market value, or a price mutually agreed upon, on the same day of concluding the sale transaction.
- There should be no condition burdening any of the two parties along with the costs of insurance, maintenance, and the other expenses, because such costs and expenses should be charged to the Mushārakah account, as per respective shares of the
- The respective profits of the Mushārakah parties should be stipulated in the contract as percentage shares in the It is not permissible to specify in the contract a lump sum or a percentage of the subscribed principal as a profit for any of the two parties.
- The contracts and commitments relating to the Mushārakah transaction should be kept independent from each other.
- There should be no stipulation in the contract that gives any of the two parties a right to get back his subscribed principal (finance).
Indeed, Allāh is All-Knowing.