Abstract :
Islamic Financial institutions, in Pakistan, have developed the product
of Diminishing Musharakah (DM) for home financing Diminishing
Musharakah (DM) involves the contracts of Partnership, Sale and Lease
at the same time. In order to be shariah compliant these contracts must
be independent so that one transaction does not become a condition of
the other. IFIs are bound to carry out the financing by adhering to all
the necessary principles of the respective transactions as provided by
Islamic law of contract and business transactions. The study, through
qualitative content analysis, examines the practice of DM product as
practiced by both the fully-fledged Islamic bank, and the conventional
bank through its Islamic branch in Pakistan. The research finds that in
practices of the DM product by IFIs involved certain Shariah issues,
such as the essential principles of the contract of Musharakah are not
adhered to properly and in the joint purchase of the house all the fee
charges and expenses are solely borne by one partner (the customer).
Moreover, the conventional bank, through its Islamic branch, increases
the price of its shares in case a customer wants to go for the early
settlement and the three different transactions involved are not free from
the risk of being dependent on one another. The study suggest that IFIs
need to make some changes in the applicable model of DM, in order to
achieve their main objective that is offering Shariah compliant products.
Keyword :
Home financing, Diminishing Musharakah Shariah, Riba Islamic Financial Institution