The Musharakah Mutanaqisah Partnership (MMP) Concept
The Musharakah Mutanaqisah Partnership (MMP) contract, on the other hand, is based on a diminishing partnership concept. Here, there are two portions to the contract. First, the customer enters into a partnership (musharakah) under the concept of ‘Shirkat-al-Milik’ (joint ownership) agreement with the bank. Customer pays, for example, 10% as the initial share to co-own the house whilst the bank provides for the balance of 90%. The customer will then gradually redeem the financier’s 90% share at an agreed portion periodically until the house is fully owned by the customer. Second, the bank leases its share (90%) in the house ownership to the customer under the concept of ijarah, i.e. by charging rent; and the customer agrees to pay the rental to the bank for using its share of the property. The periodic rental amounts will be jointly shared between the customer and the bank according to the percentage share holding at the particular times which keeps changing as the customer redeems the financier’s share. The customer’s share ratio would increase after each rental payment due to the periodic redemption until eventually fully owned by the customer.
Bendjilali and Khan (1995) and Muhammad Taqi Usmani basically agreed on the implementation process of Musharakah Mutanaqisah Partnership. They agreed that the product could help the people to less rely on other financing facilities such as the BBA, Murabahah etc. The scholars agreed that it is best to implement Musharakah Mutanaqisah Partnership for house financing or machinery financing whereby both assets can be leased out according to agreed rental. Joint ownership of a house or machinery is accepted by all schools of Islamic jurisprudence since the financier sells its shares to the customer (See Taqi Usmani 2002). The concept of diminishing musharakah is not confined to home ownership only. It can also be applied to other forms of acquiring assets such as buying a car or a taxi for earning income by using it as a hired vehicle. Creating joint ownership in the form of Shirkah al-Milk is allowed in the Shar’iah16.
Consider an example, where the customer wants to purchase a taxi to transport passengers, but can only afford 20% of the purchase price. The financier participates by providing the balance 80% of the share. The profit derived from the business is shared between them based on the capital contribution.
The financier’s share is divided into eight units. At the end of three months (one quarter), for example, the customer purchases one unit from the financier. Hence, the financier’s share gets reduced to 70% while the customer’s share increased to 30%. Due to the now higher proportion of share ownership, the customer will be entitled to a higher profit ratio. This process will go on until after the expiry of two years (eight quarters), whereby the whole taxi will be owned by the customer.
Example of a Musharakah Mutanaqisah Partnership (MMP) Financing
Consider the same example as for the BBA concept where a customer wishes to buy a house priced at RM200,000. Let’s assume again that the customer pays 10 percent of the price, i.e. RM20,000, the financier puts the remaining 80 percent, i.e. RM180,000 and that the average rental for similar homes in the locality is agreed upon between the two parties to be RM1,000 per month. And the customer wishes to add another RM289.58 monthly17 in order to redeem the financier’s share in 20 years. This gives, the total monthly payment as RM1,289.58.