Financing your home using Islamic banking

Private Property South Africa

Diminishing Musharaka is an alternative way for a business or individual to buy property, and it is open to anyone to make use of.

“Property finance, in the traditional sense, is essentially the granting of a loan to a client for the purchase of a property. This loan needs to be paid back with interest over the term of the loan arrangement. The difference with Islamic property finance is that it is based on a concept called Diminishing Musharaka,” says Amman Muhammad, CEO of FNB Islamic Banking.

Diminishing Musharaka means that the bank and the client enter into a co-ownership agreement with respect to an identified property. Each party’s proportionate share in the property is based on their respective financial contribution to the co-ownership arrangement. The client then commits to buy the bank’s share at an agreed-upon mark-up in tranches, normally on an annual basis, resulting in the bank’s share being diminished completely over the term of the finance arrangement. At the end of the term, the client becomes the sole owner of the property.

Muhammad takes us through the four core reasons that are of benefit when comparing to a conventional property loan facility: Certainty – while the instalment in a conventional property loan fluctuates based on the movement of the prime lending rate, the instalment in an Islamic property finance arrangement is fixed for a period of twelve months at a time. The instalment is only subject to review on an annual basis.


The client may, on an annual basis, choose to purchase an increased share in the property by paying in a lump-sum amount, in addition to the proportion that he wishes to purchase via instalments in the next year. The client may also choose to purchase the property in its entirety at any point during the agreement. Furthermore, the client may select from flexible financing terms of five to ten years, as his circumstances might require.


Clients seeking some cash-flow relief or additional working capital can utilise the Islamic commercial property finance product to unlock some cash or liquidity from freehold or paid-up property. This would mean that the bank and the client enter into a co-ownership agreement with respect to the identified commercial property, whereby the bank would acquire a share in the client’s property for an agreed-upon price.

Shari’ah compliance

Most importantly, this is a credible Shari’ah compliant alternative to conventional commercial property finance. “This is an innovative product that provides clients with an alternative property financing option that is both flexible and Shari’ah compliant. Its unique features make it a viable option for any client, Muslim or otherwise, wishing to expand his property portfolio, or even revamp an existing property,” concludes Muhammad.

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