FNB’s diminishing partnership

Question:-

What is your view in regards to FNB’s diminishing partnership? I intend purchasing a house and therefore require clarity on the matter.

Answer:-

We do not approve of the diminishing Musharaka agreement from Islamic financing. Various clauses and terms used in the documents indicate towards the agreement being a loan from FNB but the contract is being referred to as a ‘diminishing partnership.’

Also, FNB is required to purchase the property directly from the seller since they are the buyers (financing the project), yet they state in the documents that the property must be in the client’s name first, as Shariah law prohibits the sale of property by someone who does not own it. In actual fact, the bank owns the property and they then start selling portions of the property to you, and their portions of the partnership gradually diminish based on the amount purchased by you, yet they are treating you as the buyer and you in turn are required to sell a portion of the property to them.

It seems that the concept of diminishing partnership hasn’t been correctly understood in the light of Shariah hence, we advise abstention. It will be better for you to get some family member or some wealthy, trustworthy businessman to purchase the house directly from the seller, and sell it to you in fixed terms over a fixed period of time (which will include a profit), or on a diminishing partnership basis that is fully Shariah compliant. We at the Darul Ifta can assist in drawing up a basic and straightforward Shariah compliant contract if you require assistance.

ALLAH TA’ALA KNOWS BEST!

ANSWERED BY:

Mufti Mohammed Desai

Date: 27 Jumadal Ukhra 1443 / 30 January 2022