Musharakah Mutanaqisah Concept

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Issue of property maintenance

Customer has to bear the cost of maintenance and there is no clause in agreement between the bank and the customer which specifies the customer to bear the cost of maintenance. Furthermore, the bank asserts that since the legal title of the property is possessed by the customer, they are the ones that should be responsible for the maintenance.

Issue of risk sharing between bank and customer

By analyzing how this respective local Islamic bank implements the Equity Home/ Property Financing-i, it can be concluded that the bank do not bear any risk regarding the ownership of the home or property. The legal title of the home or property lies with the customer from the beginning of the contract and the bank just acts as a trustee. Thus, it can be inferred that the true concept of Musharakah does not exist here.

Combination of Musharakah and Ijarah in one document of agreement.

This combined transaction may be perceived as having two sales in one sale contract (bai`atain fi al-bai`ah) which is prohibited in Shariah.

Resolution

The Council in its 56th meeting held on 5th February 2006/7th Muharram 1427 resolved that the financing product structured based on musharakah mutanaqisah contract is permissible. This is because the musharakah mutanaqisah is a contract recognized in Islamic muamalat. In implementing musharakah mutanaqisah contract, it is permissible for the contracting parties to:

- Combine the two contracts of musharakah and ijarah in one document of agreement, as long as both contracts are concluded separately and clearly not mixed between each other.

- Impose a pledge on the shares owned by the customer because the right of beneficial ownership is recognized by Shariah.

- Determine rental price based on the market value instead of the interest rate.

- Bank and customer needs to bare the risk together based on their contributions.