Islamic home purchase
Murabaha, Ijara and diminishing Musharaka — how each is structured, and the criticisms each attracts.
Murabaha
The financier buys the property and immediately resells it to the customer at a disclosed mark-up, payable in instalments. Ownership passes at the outset; the debt is fixed and does not grow with time.
The critique is that where the financier holds the asset for only moments and bears no meaningful risk, the mark-up tracks prevailing interest rates so closely that the substance is a loan in another form. Scholars who permit it argue the sale is genuine and the risk, however brief, is real.
Ijara and diminishing Musharaka
Under Ijara the financier owns the property and leases it, with ownership transferring at the end. Under diminishing Musharaka the two parties co-own it: the customer pays rent on the financier's share while buying that share down over time.
Diminishing Musharaka is generally regarded as the strongest of the three, because the financier holds real ownership and therefore real exposure. The recurring criticism is that where the rent is benchmarked to an interest rate, and where the customer bears all maintenance and insurance despite being a part-owner only, the partnership is thinner than it appears.