In Arabic it is called Shirkat-ul-Mutanaqisa. Diminishing Musharaka is just a Musharaka with an additional feature of decreasing ownership of one party. This differs from normal Musharaka, Where ownership ratio does not change. The closest term in conventional finance is redeemable capital.

Basic Steps

•  Creation of partnership
  
•  Implementing the relevant rules Musharaka
  
•  Redemption of one partner shares by another
  

Basic Conditions

• It can be either Shirkat-ul-Aqd or Shirkat-ul-Milk but there should be a real partnership.
  
• Every partner should enjoy the benefits and bear the responsibilities.
  
• The promise to sell/buy should be obtained through separate documents.
  
• Preferably, redemption of share should be done on market place, or on N.A.V basis not on any pre-agreed price
  
• Proper preparation and execution of transaction documentation.
  

The arrangement is composed of the following key activities

1. To create joint ownership in property.

2. Giving share of the FHM to client on rent.

3. Promise of client to purchase units/share of the FHM.

4. Purchase of the FHM's units.

5. Adjustment of rental according to share of the FHM in property.