Diminishing partnership

Question:-

What is a diminishing partnership in terms of Shariah and how is it enacted?

Answer:-

The method of enacting a diminishing partnership is as follows:

Zaid wants to purchase a house and only has 50% of the funds required to purchase it. He therefore requests a friend Amr to purchase the house with him in a joint diminishing partnership, which Amr agrees to. Both parties contribute 50% of the capital towards the purchase of the house and buy the house.

Now, Zaid rents Amr’s 50% of the house at a stipulated rental (for example, R3000.00) that will be paid to him every month. However, Zaid also saves money to purchase Amr’s portion of the house, gradually in portions, as he accumulates funds. When Zaid accumulates (not necessarily every month) a sufficient amount of funds to purchase for example 10% of Amr’s property, then both parties agree upon a price for the 10%.  Zaid then purchases 10% of Amr’s portion thereby now attaining 60% ownership of the house, and Amr now owns 40% of the house. Amr may now adjust (reduce) the rental amount (to a rental which both parties agree upon) as Zaid is now occupying only 40% of the house.

This is the procedure to be followed in the remainder of the property until Zaid has attained 100% ownership of the property. This method is in order and permitted in Shariah.

ALLAH TA’ALA KNOWS BEST!

ANSWERED BY:

Mufti Mohammed Desai

Date: 02 Jumad-al-Ula 1443 / 07 December 2021