Diminishing Musharakah (Home Finance)
ICFAL has developed a unique model which takes into account the real market value of rental and growth (instead of converting financial market interest (or Riba) into so called rental/profit). Diminishing Mushrakah is considered to be the most desired modes of Islamic financing. It is used mostly when one party who wants to own an asset cannot afford to pay the full price and takes the assistance of financing from another party which ends up with the complete ownership of the asset by the first party who purchase the share of the other party over a period of time whilst at the same time complying with Islamic guidelines.
When used in home financing however, Diminishing Musharakah can be viewed as a form of shared ownership with a leasing sale-back arrangement, which makes it different from an interest-based mortgage. Diminishing Musharakah arrangements allow equity participation and sharing of profits on a pro-rata basis, they also provide a method through which the bank keeps on reducing its equity in an asset against periodical payments, ultimately transferring ownership of the asset to the client. This product was approved by Pakistan’s Meezan Bank Limited in 2017.
Murabaha (Car Finance)
Murabaha financing may be utilized for the purchase of small products wherein the member pays in pre-agreed instalments. In this structure, an intermediary buys a property with free and clear title. Murabaha is not an interest-bearing loan, which is considered riba (or excess), and is an acceptable form of credit sale under Islamic guidelines.