Analyzing the Practice of Mushāraka Mutanāqisa in the Islamic Banking Industry: The Kingdom of Bahrain as a Case Study

Abstract

One of the modes of Islamic financing includes a mushāraka (partnership) mode. Mushāraka mutanāqisa (diminishing partnership) is considered to be one of the forms of mushāraka. As the purpose and end result of this product seems to be considerably similar to that of other Islamic financial products, this research empirically analyzes whether, when, and why Islamic banks may opt for a mushāraka mutanāqisa. Although the Kingdom of Bahrain may arguably be considered as one of the global Islamic financial hubs, there seems to be limited empirical researches investigating the practice of mushāraka mutanāqisa by using the Kingdom of Bahrain as a case study. By using a qualitative methodology, this research empirically investigates the practice of mushāraka mutanāqisa by four Islamic banks (consisting of two for each Islamic retail and Islamic wholesale banks). The results suggest that perhaps due to various reasons and risks involved, the utilization of mushāraka mutanāqisa may relatively be noticeably lower than other Islamic financing products. Additionally, there seems to be no indications that the utilization of mushāraka mutanāqisa may increase in the near future. This research may have contributed to knowledge by adding to literature contemporary empirical data pertaining to the practice of mushāraka mutanāqisa in the Islamic banking industry in the Kingdom of Bahrain.