Syariah Advisory Council
At its seventh meeting on 1 December 1995, the Islamic Instrument Study Group (lISG) passed a resolution to accept musyarakah mutanaqisah as a concept that can be used to develop instruments for an Islamic capital market.
Another term for musyarakah mutanaqisah is musyarakah muntahiyah bi tamlik. It is a form of partnership contract whereby the financier allows his partner to buy assets in one payment or in installments based on terms agreed by both parties.
An illustration of musyarakah mutanaqisah in the capital market is: ABC company buys a building worth RM80 million and sells it to its customers for RM 100 million based on the principle of bai' bi thaman ajil (BBA) within 120 months. As ABC Company requires liquidity, it can get the project investors involved by issuing sukuk based on musyarakah mutanaqisah. For that purpose, ABC Company puts in its share (the smaller part, say 10%) in musyarakah mutanaqisah for the purchase of the building (which costs RM80 million). The investors hold the majority part (90%). ABC Company will then buy back all the shares from the Investors every month according to the amount and duration agreed upon i.e. 120 months. This will end at the point when ABC Company owns all the shares.
ARGUMENTS THAT SUPPORT THE PERMISSIBILITY OF MUSYARAKAH MUTANAQISAH
Musyarakah mutanaqisah is a new instrument for musyarakah products and was introduced in Egypt. The majority of the current Islamic jurists are unanimous in accepting it as one of the instruments in the capital market. This is because it has features that do not contradict the nas and general principles of the Syariah. These features are:
i. 'Inan company (form of partnership, in which each partner contributes both capital and work).
ii. Promise from the financial institution to sell its share of the company to its partners.
iii. The institution sells all of its shares to its partner fully or partially.