‘Diminishing Musharakah’ is a form of partnership in which one partner promises to purchase the investment share of Musharakah from the other partner gradually until his share of asset is completely transferred to the other.
The asset is purchased under joint ownership between bank and customer and proportion of their capital investment is determined. Bank divides its share of asset in smaller units and customer promises to purchase them at a pre-agreed rate in future. Moreover, Bank/ Modaraba rent out his share of asset with a separate Ijarah agreement.
Bank normally uses this financing product for purchase of property due to its immovable nature and significant cost.