Decreasing partner

Decreasing partnership differs from the permanent partnership only in terms of continuity. In this mode, the Islamic bank has all the rights and obligation of the ordinary partner. From the very beginning, the bank does not intend to remain associated with the client indefinitely. Instead the Islamic bank gives its partner the right to repurchase its share in the capital of the partnership in accordance with the agreement .

In reality, there are many forms for the application of the decreasing partnership. In its most widely used form the bank gradually relinquishes its share to the partner, in exchange the partner pays the price to the bank periodically (from the return of the project or external sources) during a reasonable period to be agreed upon. After the discharge, the bank withdraws from the project and it becomes the property of the partner.

THE PRACTICAL STEPS OF THE DECREASING PARTNERSHIP FINANCING:

1. The participation in capital :

The bank: Tenders part of the capital required for the project in its capacity as a participant and agrees with the customer/partner on a specific method of selling its share in capital gradually.

The partner: Tenders part of the capital required for the project and becomes the trustee for bank's funds.

2. Results of the project:

The purpose of the work in the project is the growth of capital, the results of the project may be positive or negative.

3. Distribution of earnings from the projects:

In the event of loss each partner bears its share in the loss in a ratio proportionate to its share in capital.

In case of earning profits, they are distributed between the two partners (the bank and the customer) in accordance with the agreement.

4. The bank sells its share in capital:

The bank: Expresses its readiness in accordance with the agreement to sell a specific percentage of share in capital.

The partner: Pays the price if that percentage of capital to the bank and the ownership is transferred to the partner.

Note: This process continues till the end of the partnership of the bank in the project, that is, the gradual transfer of ownership of the project to the customer/ partner. In this way the bank has its principal returned plus the profit earned during the partnership.

AREAS OF APPLICATIONS

The decreasing partnership is suitable for the finance of industrial establishments, farms, hospitals and every project capable of producing regular income.

Nowadays it is considered to be an appropriate mode to finance collective investment.

• As regards the bank: it earns periodical profit all the year round.
• As regards the partner: it encourages the partner to participate in Halal Investment. It realizes the customer's ambition to individually own the project in the short run when the bank withdraws gradually.
• As regards the society: it corrects the course of the economy by developing the mode of positive partnership instead of the negative relationship of indebtedness, by doing so it achieves equity in distributing the results.

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