Diminishing Musharakah: Concept and Practice by Islamic Financial Institutions of Malaysia and Bangladesh

  • Shafiqul Hassan


There are various financial mechanisms such as Musharakah being used by different financial institutions in Muslim countries including Malaysia and Bangladesh. Nonetheless, little attention is given to diminishing Musharakah as an effective financial tool that can be used in solving financial problems in the Muslim countries in general and Malaysia and Bangladesh in particular. The purpose of this paper therefore was to explore the concept and practice of diminishing Musharakah by financial institutions in both Malaysia and Bangladesh. The rationale for choosing the two countries are as a result of their involvement in the promotion of Islamic financial system in the Muslim countries. The methodology employed was qualitative content analysis as well as library-based research whereby the existing literatures on the concept and practice of diminishing Musharakah were painstakingly analyzed. The findings of the paper demonstrated that classical and modern literatures identified three categories for the implementation or practice of diminishing Musharakah which are: partnership (Musharakah) in house financing, leasing (Ijarah) in business service and Sale (Bay’) in trading. In addition, different rules of Musharakah contract such as investment capital, Musharakah management, profit distribution, profit ratio and loss sharing were meticulously elaborated. The practical implication of this paper lies on the fact that, different categories of diminishing Musharakah namely: partnership (Musharakah), leasing (Ijarah) and Sale (Bay’) can be explored and implemented in both Islamic and non-Islamic societies in order to reduce the abject poverty in the society. The findings of this paper also indicated the diminishing Musharakah is evolving even in non-Islamic countries lie United Kingdom. This is contrary to popular assumption by some Muslims that non-Islamic societies cannot use Islamic financial tools in addressing the socio-economic development of their societies. In conclusion, it has been demonstrated that diminishing Musharakah can be used partnership leasing and business transaction. It is therefore recommended that, the institutions in Malaysia and Bangladesh should judiciously utilize and expand the scope of diminishing Musharakah in order to address multifarious financial challenges in the Muslim countries in particular and non-Muslim societies in general.