Islamic Finance

TYPES OF ISLAMIC
FINANCE

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ISLAMIC FINANCE

Diminishing Musharaka (Partnership)

Musharaka is partnership of two or more parties that contribute capital to a
house and divide the net pro t and loss proportionately. 
They are also entitled to participate in management, this type of contract is
essentially a diminishing partnership which is acquired by the user of the
property over time.

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ISLAMIC FINANCE

In a diminishing Musharaka the nancier and the customer/purchaser start
with a joint ownership of the asset, the customer share being their down
payment. 
Since the purchaser is living in the house, the nancier will rent their share of
the property for an agreed amount. 

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ISLAMIC FINANCE

Also, the customer would pay extra to the bank to secure the nancier share
of the home over a xed period of time. 
With each monthly rental payment, the customer will acquire greater share
ownership in the property.  The customers will have full ownership of the
property once they paid the nancier their share. This type of contract can
work in Australia with certain approaches.

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ISLAMIC FINANCE

Murabaha (Pro t Arrangement)

Murabaha is a contract for a sale where the buyer and the seller agree on
mark-up (pro t) price on the buyer’s choice of property. 
The buyer repays the nancier in instalments. When purchasing a home
through a Murabaha transaction, the nancier will purchase the house on
behalf of the customer, and sell the house to the customer under a
Murabaha sale contract with a pro t margin, over an agreed period of time,
and with an agreed number of instalments. 

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ISLAMIC FINANCE

The customer can pay o the nancier early but the nancier is not required
to give you a pro t rebate under the agreed contract.
The nance is problematic under Australian laws because Stamp Duty would
be paid twice, the rst Stamp Duty by the bank when it purchases the
property, then the transfer between the bank and the customer.
Also, the bank would be required to pay Capital Gain Tax. This contract is
expensive to provide and challenging within the Australian context.

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ISLAMIC FINANCE

Musawamah contracts is very similar to Murabaha except the bank is not
obliged to disclose the price they paid for the property. Musawamah would
be di cult to implement under Australian law.

Ijarah Muntahia Bittamleek (Lease to Own )

Ijarah Muntahia Bittamleek (lease to own) is a lease agreement with the
option to own the leased asset at the end of the lease period. 

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ISLAMIC FINANCE

In the lease agreement, the rights of both parties are protected via an agreed
contract that each party signs.
In an Ijarah agreement (or lease agreement), the nancier purchases a
property on behalf of a client and then leases it back to the client. 
In return, the client makes agreed rental payments with the view of taking
legal ownership of the property once the payment terms have been met. 

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ISLAMIC FINANCE

During the leasing period, the client enjoys full rights and access to the
property during the “ijarah” or “rental” period.

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ISLAMIC FINANCE

This type of nance arrangement works best in Australia since leasing, as a
form of nancing, has existed for more than 50 years within Australian

nancial institutions.
For more information, apply online and one of our Ijarah Finance consultants
will be in touch with you. Alternatively, give us a call on 1300 452 724.

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CONTACT US

Address: Suite 5, Level 6 402-410 Chapel Road
Bankstown NSW 2200
Phone:1300 452 724

Website: www.ijarahfinance.com.au

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